Do you support Money Marketing’s No Advice, No Protection campaign?
Robinson: Definitely. Bright Grey is 100 per cent behind this campaign. Protection is not as simple as it might appear at first glance. It is a critical purchase for people, much more important than say, travel insurance, which tends to be regarded as a commodity product, that is, bought on price alone. Good advice is imperative if consumers are to get the cover they really need. Mistakes through misbuying can be extremely costly.
Lakey: Unquestionably. This year’s buzz from the FSA has been about treating clients fairly and non-advised consumers need to be made aware that they do not have the same level of protection afforded when dealing with a bucket shop as opposed to an advice-driven independent adviser. The second part of this process should be “no advice equals inferior purchase”. It is a matter of educating the consumer and prompting those apathetic souls who cannot be bothered to investigate or, worse, believe that all products are the similar in terms of quality, cost and value.
Verdin: I am certain that the initial disclosure document does enough to inform customers on what type of business they are dealing with. I also think it is obvious to anyone that if you do not take advice then you cannot complain about the quality or accuracy of the advice you did not take. I find it hard to understand the campaign or what real benefits it hopes to deliver to advisers or customers.
Do you feel that the current price war within the protection market is leading to harsher underwriting?
Robinson: Yes, we have already seen some providers tightening up their underwriting criteria and we could well see further adjustments as the price war unfolds. For IFAs, harsher underwriting can mean more delay for themselves and their clients as additional medical or financial information is requested.
Lakey: This has shown through over the past 18 months. Our experience shows a tightening of underwriting, a significant fall in administration standards and a lengthening of acceptable timescales.
An increasing number of clients are being rated, deferred or having exclusions applied. This is particularly noticeable within the critical-illness market where insurers and reinsurers seem almost paranoid about limiting their exposure.
Income protection is also suffering from more severe underwriting attitudes and this often detracts from the client’s perceived need for the product. In short, they feel cheated when no-standard terms are issued.
Verdin: Yes. We have conducted research recently among a number of well known insurance providers on this very subject and the conclusions support the notion that reinsurers are leading insurers down a path of greater segmentation in search of lower premiums for the majority.
During our research, one provider confirmed an increase during the past two years of 42 per cent in the number of IFA applications to which they apply a rating. Unfortunately, customers do not like being rated and we also had a report pointing to a 19 per cent increase, over the same period, in the number of IFA applications not making it through to “on risk”.
Should intermediaries stop using a provider if the service levels drop below an acceptable level?
Robinson: If a provider’s service level is consistently poor, then we would certainly expect IFAs to vote with their feet. I certainly do when I receive poor service that is not just a one-off. We know that good service is paramount. We aim to build up long-term relationships with IFAs and to do so by providing a great product and a first-rate service. Occasionally, we might get things wrong, everybody does, but we would then work with the IFA to bring things back on track.
Lakey: I have stopped using two major providers – not Norwich Union – which have proven themselves completely inadequate when administering new business – application forms lost, questionnaires mislaid, terms issued but not sent out, etc. The move to using Third World call centres also presents problems in terms of successful communication.
Providers need to realise that it is not about premiums or even superior products. If the administrative infrastructure is fragile, then serious players will boycott them. Low premiums usually mean application overload, as with Prudential in 2002, and this cannot co-exist with pathetic support systems.
Verdin: There is little point in placing a customer’s application with a provider that is incapable of dealing with it.
Do you believe that service levels from providers have deteriorated since depolarisation?
Robinson: We have not seen any evidence to support this and do not really think there is any connection.
Lakey: The slide from mediocrity started some time before depolarisation but it has certainly hastened since then. Life office resources have been further stretched by numerous regulatory changes and initiatives as well as other issues such as the administrative grief of “misselling” investigations.
The romp towards total reliance on computers has also proved a double-edged sword as system failures and inexorable reliance on cheaper foreign call centres has fermented to cause delays. Perhaps the move towards computer based phone systems is the worst example of this. These cause massive obstructions to everyday commerce and are responsible for an increasing waste of working hours
Verdin: I do not think that depolarisation has affected service levels. I know the service managers in all the big companies want to delight us and our customers with their service but the level of competition in the market dictates thin margins, which, when added to fluctuating new business volumes and ever more detailed underwriting, add up to a recipe for service failure.
Are turn-round times for underwriting increasing and, if so, why is this?
Robinson: Yes and no. The majority of product providers now appreciate the importance of good service and many, but not all, are getting slicker at turning round applications. But the bad news is that delays in obtaining medical evidence are still a problem, with GP reports proving to be a continuing bottleneck. Finding a more efficient alternative would help greatly, which is why some providers are experimenting with tele-interviewing and underwriting.
Lakey: Again, this is symptomatic of the reliance on computers and subsequent reduction in knowledgeable staff. Many systems are piecemeal hotch-potches of existing systems bandaged and glued together. With harder-line underwriting attitudes come the inevitable delays. The process is also hindered by medical practitioners who seem to consider PMA enquiries to be at the bottom of their list of concerns. The reinsurers are also clamping down and request-ing further information from providers, which feeds through to delays.
Verdin: We measure the turn-round times for all insurers from proposal received to acceptance issued. We can see improvements in some companies and we definitely see worsening turn-round times for others. The issue is simply one of resourcing appropriately for the increasingly complex and in-depth underwriting agreed between insurers and reinsurers.
As most advisers appear to be in favour of teleunderwriting, why do you feel that more providers are not utilising this method?
Robinson: We are not aware of tele-underwriting being favoured by IFAs. Perhaps you mean tele-interviewing, which involves the application form being completed over the phone by the client instead of by the IFA, either on paper or via an extranet. These initiatives are still at the experimental stage and do not entirely eliminate the need for GP reports, so we still get stuck in the age-old system with its inherent delays. However, change needs to happen and it will be interesting to see how these and other initiatives develop.
Lakey: System reliance and the lack of skilled staff conspire to inhibit the ability of many companies to enter this market. Even Axa, which was at the forefront of this move, has encountered problems with ongoing tele-underwriting.
With many providers currently incapable of basic administrative capability, it is manifest that any short-term attempt to expand into tele-underwriting will meet with abject failure. The most successful provider in terms of system capability has been Scottish Provident and it took years in developing a robust infrastructure. Other providers need to take notice.
Verdin: Most providers could not offer an efficient, reliable tele-underwriting service on a sustainable basis because of fluctuating new business volumes. In addition, most providers are not comfortable with accepting the additional business risk of taking responsibility for dealing with disclosure guidance and advice to customers on a case-by-case basis. The only sustainable model is one of an intermediary business providing a tele-underwriting service to advisers across all the major life insurers.
What is going to be the biggest impact of pension term assurance and who will benefit the most?
Robinson: Many consumers stand to benefit from the introduction of pension term as they will have greater choice and, thanks to PTA tax breaks, access to a cheaper product if appropriate. PTA should also create a real opportunity for IFAs to grow their business. Its introduction will, no doubt, be supported by substantial marketing and media interest, which, in turn, will raise consumer awareness.
This will give IFAs not just the opportunity to discuss PTA with a client but also the chance to discuss their entire protection needs and advise on the right way forward – which may or may not be PTA. Pension term will be the right answer for some clients but not right for others. It does not, for example, include critical-illness cover. This brings us back full circle to the need for advice.
Lakey: This relatively vibrant market was decimated at a stroke by the eligibility rule changes some years back. Depending on premium levels, it appears the majority of clients will be able to get a cost reduction on new and possibly on existing insurance policies. Higher-rate taxpayers will certainly find cost advantages.
The ability to rebroke existing policies may prove the biggest market. Much will depend on how many providers decide to enter this market, as this will influence premiums. Hopefully, the influx will allow family income plans to also be readily available.
Verdin: The biggest impact of PTA will be the cost to the Inland Revenue. The biggest winners will be higher-rate taxpayers with big sums insured, assuming, of course, that any claim avoids busting the cap. PTA will not help us grow this market, it will make the advice and sales process more complicated