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Roger Edwards: Be brave and end protection madness

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Is the individual protection market a little nuts? Well, they say the definition of madness is to continue to do the same things and expect different results. The levers we repeatedly pull are to reduce the prices advisers see on portals, add to the complexity of products by including more features and, more recently, publishing claims statistics to prove to ourselves we actually pay.

Arguably none of these tactics grows business. Lower prices do not stimulate demand as they do in regular markets. More features increase the need for advice but do not resonate with consumers. Claims statistics in the high 90 per cents look good on the pages of trade magazines but out in the real world people think we only pay half that.

However, the conversations going on in marketing meetings at protection providers all involve price, features and claims statistics. More of the same will not yield different results and we are back to the definition of madness.

And what about the unintended consequences of pulling these levers? The headline rate might be cheap but more people face health loadings after going through the endless underwriting process. Compliance requires a thorough evaluation of product features and creates masses of work for advisers.

As a result cottage industries spring up to solve the problems the levers create. New applications like UnderwriteMe try and get answers to the questions before the quote so clients get a more accurate figure. Comparison portals become ever more complex to deal with menu products, longer illness lists and added value features. Super detailed product comparison systems like CIExpert become essential to satisfy the compliance process.

This might seem an overly critical assessment of the market but having been part of the process myself for so long I know how difficult it is to break out of these constraints. If doing the same things does not grow the market then logically doing something different might.

I am sure that if we consulted consumers they would ask for simpler propositions, much shorter applications and a guaranteed payout if needed. But such a product would be more expensive because of the reduced underwriting. It would fail the price test. Fewer illnesses and added features might be easier to understand but would fail the advice and compliance test.

Even those companies that have tried products with reduced question sets in the direct to consumer or consolidator space have failed because they are attempting to push product on price comparison engines. A proposition that is up to 40 per cent more expensive is not going to cut it.

So how do we solve this conundrum? An annually costed premium might offset that 40 per cent premium price for a quick application product. No one has tried that yet so presumably lapse risk is a worry.

Perhaps someone needs to be brave enough to offer the two-question product for the same price as the fully underwritten one. While actuaries, scared by selection risk, might condemn such a suggestion as madness we have already agreed that continuing to do the same things as we always do is equally nuts.

Roger Edwards works through Roger Edwards Marketing as a Marketing Strategist and Speaker, and through Make Sense Partners when developing new propositions

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Comments

There are 10 comments at the moment, we would love to hear your opinion too.

  1. A voice of reason calls out in the wilderness.

    Sadly the industry missed it’s chance to get a lot of this solved through what became the ill-fated Simple Products Review. So now it’s harder to do what Roger suggests…but still possible. With possibly bigger rewards for those who dare (Rodney).

    Shifting overhead costs and distribution costs into the claims costs part of the equation should make it a risk worth taking.

  2. Good Stuff. Synergy used to have an annually costed life product (underwritten by Pru I think). I have asked a few insurers about this type of product for Key Man Insurance where no one really knows how long they might need cover. Annual commissions rather than up-front might also help. I am now submitting 100% of my business on non-indemnity terms and once you get used to the initial drop in income, its great to see an increased and steady income stream with no claw-backs. It also ensures my business has a value rather than a potential debt down the line. Regarding simplified products – be careful what you wish for, as otherwise commoditisation rather than advice driven sales might be the norm – but maybe I am biased:-)). If you want simple products take a look at ESMI and the good work Andrew Tripp is doing in this area.

  3. Yep annually costed might have a place. Common in Australia. But lapse rates is a problem. I’ve noticed one D2C offering in the UK is annually costed too…but arguably not transparent enough to customers as to how cover could easily become unaffordable later. (And that one still doesn’t bother to make sure claim pay-out is prompt…that’s what punters call simple)

  4. Sun Alliance (later R & SA) did it about 18 years ago, called progressive protection. never sold that well though (or others would have copied it)

  5. In the 80s many companies tried short app forms. Despite restricting to mortgage-related only and age/sum assured restrictions this business was not profitable. You would have to be brave to try it again.

  6. We’ve come a long way since the 1980s. We have more data than we can handle, digital technology, testing etc. Surely, 30 years on, it must be worth having another look?

  7. All good points Roger, you are thinking ahead of what is currently possible. I reckon a two-question application form will become a reality, maybe within the next few years? Is this what customers really want?

  8. Two questions are possible in a controlled distribution channel Roger (and I mean controlled!) but not in the WOM/IFA sector. Short app forms are possible in the IFA sector but it requires investment by insurers, and most aren’t willing to make it where they might have to give up margin or push rates up to do so and lose market share.

    The issue is that the product in stuck in a downwards price spiral whereby it is perceived that rigorous (for which read over zealous) underwriting is necessary to achieve cheap(est) rates and every applicant is underwritten as if for CI even if it is life cover only. IFA’s love talking about simple products but they dont sell them even if they are only marginally more expensive…

    But the problems for protection really are:
    – there is not enough in protection for most parties (intermediaries, insurers and reinsurers) in terms of return on investment/capital
    – product processes are overly complex because over zealous underwriting and regulation
    – non WoM controlled distribution channels which sold protection around mortgages have all but been eliminated and the space has not been filled by other intermediaries
    – and most importantly consumers dont perceive the need for the product. D2C propositions will never fill the void left by the banks in terms sales to the lower end of the market unless their is a considerable increase in consumer awareness and demand.

    Data should eventually help the processes but without wider distribution and an increase in consumer awareness/demand then we are just papering over the cracks

  9. […] You can find the original version of this article in Money Marketing Magazine. […]

  10. Totally agree with Jerry: this is possible now in a controlled distribution channel.

    Here is an interesting example of a recent product in SA: http://www.iol.co.za/business/personal-finance/banking/life-policy-based-on-big-data-a-first-1.1865327

    Three questions backed up with predictive modelling, strictly limited to their bank customers. No premium loadings, additional costs or exclusions. I’m sure we’d lose our shirts if we tried this with IFAs.

    By the way what’s with the ‘Jeremy’? Are you rebranding yourself 🙂

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