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The real deal

The clock is ticking for real-time pricing of protection products but will it increase commoditisation of the industry?

Legal & General protection marketing director Alan Ferguson recently highlighted the fact that providers adjusted their prices more times in July than in the second half of 2006.

Ferguson says official reprices and subtle price adjustments are becoming more frequent and he feels daily pricing is imminent.

However, Association of British Insurers head of protection Nick Kirwan predicts that providers will by-pass daily pricing in favour of real-time pricing.

He says the technology already exists for providers to use real-time pricing as a tool to manage risk and volumes and ultimately boost efficiencies.

Kirwan says: “Providers could use real-time interactive pricing to balance the policies going on their books throughout the day. If they are not selling enough, they could manage volumes by adjusting the price and if they have sold lots of policies to smokers, for example, they could also adjust the price to manage their risk.”

Bright Grey product manager Roger Edwards says providers have the ability to react almost instantaneously if the increasingly fierce price competition knocks them out of their desired position in the best-buy tables.

He says: “Petrol stations review their prices on an almost hourly basis and the protection industry is getting to a point where it has the sophistication and ability to respond almost instantaneously. Competition is so fierce that providers have to review prices on a very regular basis.”

Life insurers currently honour protection quotes for around 30 days and many advisers feel that real-time pricing could work as long as this process continues.

The Mortgage Practitioner sole practitioner Danny Lovey says: “As long as providers do not mess around with the market too much, if they are making sensible price changes and continue to honour the quote for around a month, real-time pricing is fair enough.”

CBK principal Peter Chadborn says: “I would not mind if prices changed daily or hourly provided life companies honour their quotes for 30 days. It would cause a real problem if they did not do this.”

Lifesearch head of protection strategy Kevin Carr says honouring a quote for 30 days is fine for straightforward cases but many cases take longer to underwrite and may require a doctor’s report, which slows down the process.

He also believes real-time pricing would make it much harder for advisers to treat customers fairly. He says explaining that the price has changed poses a problem, particularly when it has risen.

Carr says: “From a treating customers fairly point of view, an adviser could check one hour and the same product could be cheaper the next hour. How often are we expected to check prices? We have to tell customers if the price has changed so real-time pricing, which produces more volatility, would mean more work for the inter-mediary and the life office. It is almost getting to stocks and shares.”

But Standard Life protection marketing manager Mick James believes consumers will accept constant changes in protection pricing in the same way as they expect the price of flights booked over the internet to change and will not complain when an adviser gives them the best price possible at the time.

He says: “In any other dynamic retail market, prices change all the time. Consumers are expecting it and if the advisers give them the best price on the day, I think they would be pretty understanding if it changes down the line.”

But Highclere Financial Services partner Alan Lakey believes real-time pricing will make consumers more price-driven, even if the product features are inferior.

He says: “Real-time pricing would further commoditise something that should not be commoditised. I am not overly fussed about rates being guaranteed. My concern is if the industry commoditises protection, price becomes everything and product features take the back seat. Consumers will start to think protection is like car or household insurance and cheapest is best.”

Lakey also points out that real-time pricing could increase the number of customers rebroking their policies, with implications for commission clawback. He says: “Some people care about saving £3 a month and if you swap them to a policy with £600 commission and the £700 commission from the existing policy is clawed back, you end up £100 worse off.”

James says some consumers will always be driven by price but it is the adviser’s job to add value by recommending a product which suits the individual. He says: “If all you can play is the price game, you are going to get killed by the internet.”

Kirwan believes real-time pricing will encourage advisers to research the market more thoroughly to find the best value for money. He says: “Such dynamic pricing will mean advisers will no longer be able to assume one company is always the cheapest.”

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