W ill life providers with electronic application systems such as Legal & General and Friends Provident take the lion's share of the term market and what will this mean for the rest of the market?
Carr: L&G already writes more term protection business than anyone else and, along with Norwich Union, Friends Provident are not too far behind. However, this is not purely related to their e-commerce systems. Product, price, service and claims' history are more important and influence the placing of protection business more than whether or not a provider has an online submission system. That said, if all else is considered equal, then it is no doubt easier and quicker to cover a client electronically as e-systems allow the intermediary far greater control of the application which reduces the number of errors and delays made by insurance companies and, with some providers, also pays more commission as the IFA is taking a share of the workload away from the provider.
Many other providers inc-luding Liverpool Victoria, Scottish Provident and Scottish Widows, already have online systems and those who do not are rapidly developing their own rather than creating a duopoly. If anything, L&G and Friends Provident face competition to remain the market leaders in this area.
Fidoe: The actual system for obtaining the quote is but one issue for any adviser. It is timeeffective when conducting research but it does not necessarily mean that recommendations will follow as their product may not be suitable. Even with term policies, there are always a number of factors to consider.
Edwards: This is possible but it depends upon the type of business. The path of least resistance would suggest that companies with online systems are likely to get the lion's share of straightforward cases that do not require underwriting. Once the case requires further underwriting, perhaps with medical evidence, then the speed and quality of the traditional service becomes more important again.
However, I am slightly concerned that the ability to apply online becomes the main factor in the advice decision. I think we would all agree, providers and advisers alike, that financial policies should always be appropriate for each particular client and decisions reached after a thorough factfind. Some products are more appropriate for different client's needs and the adviser also needs to take price, product features and flexibility into consideration. If an application for a client takes a couple of days longer to process but has more appropriate benefits, does that really mean that policy is not the correct one for the client? Of course not.
So long as providers can demonstrate that they are able to process applications quickly and efficiently, then cases should go to those prov-iders that offer the most appropriate cover for the client, regardless of whether they have an online system.
“Sorry. I did not offer you the most appropriate policy bec-ause it might have taken a couple more days to process” really is not a very good excuse.
How will the new exam requirement for long-term care affect advisers already in the market? Will it put more off even starting?
Carr: Advisers already in the LTC market will welcome exams as this will raise their profile and experts in the market will not have difficulty passing an exam. If they do, then this only confirms the need for the exam itself. Will it put more advisers off starting? I doubt it. The IFA world is becoming more professional and qualified expert advice is where new advisers will want to add value.
Fidoe: Those advisers who want to specialise in the retired market – and an increasing number are doing so – will recognise that they need to demonstrate their expertise to a sceptical public and professional connections. An appropriate exam is a clear dem-onstration of that expertise but must be linked to continuing CPD to ensure that knowledge is current in an ever-changing market.
Edwards: Existing IFAs who are already highly competent in advising on LTC will have to take the appropriate exam within two years if they want to continue to sell it. IFAs new to LTC will have to take the exam before they can advise on LTC. I do not believe that the exam is necessarily a deterrent to advisers wanting to develop their LTC business but the size of the market and the products that are available might be.
More providers have withdrawn from the market and regulation alone will not create growth. So the thing that will put off more “new” advisers in this area is that they may decide that the investment of their time in passing the exam cannot be justified by the potential there is in the current marketplace.
The new LTC guidelines from the FSA seemed to clear the way for income protection and critical-illness products with conversion options to long-term care as the adviser selling the original product did not need to be LTC qualified. But is the move positive and where are there still concerns?
Carr: This is similar to the situation with convertible term insurance although you are talking about an investmentrelated product where you can covert life cover, most likely, into a whole of life policy. But a convertible term product is a fully regulated product even though the client may never exercise the option to convert from term to whole of life.
The non-regulated part of Lifesearch would not sell whole of life but the regulated part would. But this LTC situation is the opposite. The income protection is not regulated – the product to convert to is but we are saying you do not have to be a long-term care qualified adviser to sell the income protection part which I would agree with. It makes perfect sense and is good for the long-term care market. There is the concern about where you go for advice when you want to take up the longterm care option – do you go back to the original adviser or to a new adviser? If the new adviser does not agree with the original recommendation which was 20 years ago, who will take over the liability of that?
But while this is fair comment, I do not think it is a huge concern. The important thing is that we apply as few barriers as possible to increase the number of income protection and long-term care sales.
The option to have it is the main thing. Less than 2,000 long-term care policies a year are sold at the moment. Of course, advice is essential but if there is nothing to advise on – it is a chicken and egg situation really – that is worse than having the product there in the first place.
Fidoe: The move is positive and we would certainly encourage the inclusion of the LTC option on income protection and critical-illness policies. However, there is a danger that those selling the option will not realise the full implications for the client but compliance rules at outset should reduce the risks of any misselling. It will be necessary for the adv-iser to comply with the new LTC regulatory regime when advising the client regarding the option to convert.
Edwards: The problem with LTC is that by the time people see the need for it, the product has become too expensive. I believe that the best way of getting people to provide for potential future longterm care needs is by giving them a product appropriate to their needs when they are younger, that is, income protection, which can then change to meet their longterm care needs later.
The original proposals that such convertible products would be subject to the full rules would have stifled innovation and would have killed the LTC market. The new proposals are better and may well stimulate more development of this sort of convertible product. My remaining concern is that the uncertainty for the adviser selling the income protection plan about how the advice might be delivered at the conversion point in 20 years time might deter them from recommending products with these options and they may just stick with standard income protection. There are also a number of ambiguities in the new rules which, when cross-referenced with the definition of LTC, means I am not totally clear what would be defined as a convertible policy.
Bupa is to close to new pre-funded long-term-care insurance business. Where does this leave clients wanting this cover – are the opt-ions in the market now too restricted?
Carr: They are not the only provider to leave this market as such products are very difficult and expensive to cost and the current market is not exactly buoyant.
Fidoe: The withdrawal of a number of companies from selling prefunded LTC products has clearly reduced the options available to advisers. They need to consider alternative solutions which are not always straightforward and will probably involve looking at longer-term investments to help fund initial nursing costs with the prospect of immediate care plans when the house is sold. It highlights the need for an organisation such as IFACare which will be addressing these issues in its regular workshops.
Edwards: There is very little choice because there has been so much uncertainty in the LTC market. It has been almost impossible for product pro-viders to build convincing business cases to develop new products given the uncertainty over the direction of regulation. But I have always said that getting robust regulation alone would not be enough to make the LTC market work.
There is still too many differences between the regimes in England, Scotland and Wales. People are not aware of the problem and the Government has not been up front enough about the reality of the situation. This issue needs to be addressed otherwise no new products will emerge and consumers will have no choice.
According to Age Concern, there is a serious failure in the market to provide good advice to the post-retirement sector. Do you agree and how should IFAs be ensuring their clients' protection needs in retirement?
Carr: There are many IFAs out there specialising in financial advice for the elderly. How-ever, it is about planning in advance rather than waiting until its too late to act. Many clients in this sector do not have the sufficient funds as they did not seek financial advice earlier in life. The industry and in particular the Government should encourage more people to take financial advice earlier in life.
Fidoe: Frankly, we are not sure how you can evaluate the quality of advice in any specialist area because of the lack of data. At IFACare, we have recognised that there is a need for an organisation that special-ises in this market and have broadened our approach to help all advisers in the postretirement sector. By holding members' workshops, IFACare offers an opportunity to dev-elop best practice in this specialised market. Experienced advisers who join such organisations to develop their exp-ertise are then well placed to ensure clients' protection needs in retirement.
Edwards: This is probably true. Advice for people postretirement has traditionally centred around investment advice as this age group have disposable capital from pensions lump sums and mortgage repayment surpluses. How-ever, when it comes to protection, the need for LTC or the need to provide for inheritance tax protection have become specialist, technical niche markets and as a result only the minority are getting the advice they need.
Kevin Carr,head of strategic relations, LifeSearch
Graham Fidoe, chairman, IFA Care
Roger Edwards, product director, Bright Grey