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The simple truth about IP

There is agreement among both providers and advisers that real consumer needs revolve around protecting themselves and their dependants from the consequences of death, involuntary unemployment or long-term inability to earn an income.

1: Critical illness

The five leading causes of occupational disability lasting six months or more are shown in the table below, together with a crude assessment of whether they would trigger a claim under a typical CI policy.

At first glance, it seems that few of the major causes of occupational disability are covered. However, some of the time, the TPD condition will be triggered but only after the disability is confirmed as total and permanent. This is rarely a speedy process as permanence has to be established and the delay may cause the claimant’s financial position to become irrevocably damaged. The majority of CI claims are for events that do not cause long-term occupational disability so CI provides windfall benefits or luxury cover in many cases. This may be acceptable if the sale is correctly prioritised.2: Accident, sickness and unemploymentWhile noting the undoubted benefits of unemployment cover, I will limit my comments here to just accident and sickness benefits to aid comparisons. ASU policies typically start paying benefits after one or two months’ occupational disability but pay benefits for a maximum of 12 (occasion- ally 24) months. The chances of a claimant who is occupationally disabled after six months still being disabled after one year are over 80 per cent and well over 50 per cent after five years so while ASU will often do the job against a need to protect against short- term occupational disability, it falls badly short against the long-term need.3: Income protectionIs IP the panacea? If the only criterion were whether it covered all causes of long-term disability, then the answer would be an unequivocal yes but in the real world, things are rarely this simple and there can be reasons why CI or even ASU is a better solution in particular circumstances.

There is little wrong with current IP products in terms of meeting consumer needs so changes must focus on overcoming advisers’ reluctance to use the product. The regulatory “stick” will go some way to achieving this but other “carrot” changes are needed. To become a sales success, IP must become a simple sale that can tag on to a mortgage sale.

The recent report by Peter Le Beau and Clive Waller, sponsored by Munich Re, clearly identifies that the hurdles in the IP sales process are around quotations and underwriting. As Le Beau said in the report: “IP has failed to live up to its potential. Now we know what actions need to be taken and we must take them.”

What are these actions? In my view, for advisers they are: l Understand the limitations of ASU and CI products in meeting real consumer needs and ensure these limitations are made clear to consumers.

l Consider IP and rigorously document the logic leading to a recommendation of another product where IP is rejected. Not following this process will leave advisers open to the pro-spect of regulatory censure and possible FOS judgements against them. It is worth rem-embering that today’s sales will be judged by tomorrow’s regulatory standards.

l Push providers to improve and simplify IP propositions.

For providers:

l Ensure that meaningful comparisons are made avail-able on quote portals. To be compliant, these should move from product comparisons to needs comparisons.

l Simplify, and where appro-priate standardise, the prod-uct to make inter-company comparisons easier.

l Improve on-risk processes.

Will Adler is head of marketing at Munich Re

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