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Time to wind up the cosy club

Everyone has seen the ABI-led consultation on critical illness TPD definitions as important. And rightly so, because it is vital that products pay meaningful benefits in appropriate situations, and that consumers can understand what they are buying and when they can claim.

But this process is just another example of unhealthy collaboration within the industry that has produced a profusion of ‘model definitions’ and ‘best practice’ guidelines.

The insurance industry must be unique. Can you imagine the ‘Association of British Supermarkets’ getting together Tesco, Sainsbury and the like to agree ways of laying out stores, describing the provenance of products and how to treat customers? No, I thought not. The supermarkets, and firms in virtually every other industry, live and die by their successes and their mistakes. They go out and compete, hard, with their rivals.

But in the world of life and disability insurance, things are a lot different. When there’s sign of a problem, firms get together at the ABI for some collective hand-wringing and to work out a joint solution. The result is effectively an ABI edict that firms dare not fail to comply with – even if they had a better approach. That would be ‘stepping out of line’ with the market, and being seen by distributors that rely on spoon-feeding as having an ‘inferior’ product.

But isn’t all this in consumers’ best interests? Well one would hope so. But let’s not forget that the ABI’s primary purpose is to look after the interests of its members, not those of consumers. If it really had consumers at heart it would let poorly performing companies stew in their own juices, and even blackball the few that bring the many into disrepute. But no, it presents problems as belonging to the industry, tainting the good performers along with the bad.

Why shouldn’t insurers stand or fall by their own actions? It’s what competition is all about. Very few in our industry seem truly to understand how to compete. What competition there is, revolves round price, which is senseless for the majority of players. Yet there are other bases of sustained competitive advantage.

Our industry is a cosy club, and it is time to wind it up. The model definitions and the best practice guidelines largely benefit intermediaries, with whom insurers are still overly preoccupied. Consumers’ interests are being poorly served. All this collaboration stifles innovation and competition, and makes companies lazy. Products are being designed by committee – to see how effective that is, consider the painful progress, and the dismal outcome, of the TPD consultation.

So, ABI, act as a facilitator and encourage innovation. Truly look out for consumers – tell your members to compete. Life companies, go and beat hell out of your rivals. It’s called healthy competition.

This tired old industry needs less protectionism and more natural selection.

 

Peter Maynard is director of SelectX Ltd.

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Comments

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

  1. There’s nothing to stop companies developing better products than the ABI standard – is there?

  2. I am all for developing products that consumers need and have even been pilloried by some for my galvanising attitude.

    Nonetheless, it seems logical that firms and advisers would use the ABI resource as well as their inclination to devise methods of simplifying the sales, underwriting and claims processes.

    The phrase, ‘cosy club’, has negative connotations yet the attendees of the ‘club’ all appear to have the interests of consumers at heart. As a committed cynic this means much to me.

    We certainly do not want commoditisation as this will lead to price-driven product design with a natural lowering of quality and subsequenty consumer detriment.

  3. There is a real concern about making products more complex. Commoditisation doesn’t lead to consumer detriment. The plain fact is that some consumers do want advice, but the reality is that there are not enough advisers to deliver protection solutions which actually can be delivered online or through other non-advised routes. Access to protection products is the current detriment, not quality.

  4. Sorry Phil, I disagree.

    Vanilla term plans can be purchased with the minimum of risk but even then there is the potential for making the wrong choice based on GIO’s or menus.

    CI & IP are purchased direct with the risk that a totally inappropriate plan is purchased – more so with IP than CI, admittedly.

    These are serious decisions based on what product, what type, what term, gtd or reviewable, etc.

    If we work on the basis that any plan is better than none then the theory works but it’s not a view I accede to to.

  5. This is what happens when TCF meets free market competition. With Free market competition the danger is that some members of the public might end up losers. TCF inexorably pushes towards a position where we have no losers. If we have no losers can we have winners ?

    I can see how a free market solution works and I can see how a TCF solution would work – basically protection is so serious that we would remove it from the market and provide a Nationalised NI solution. What I can’t see is how we can have a workable combination of both extremes. Seems like we are destined to swing back and forth between the 2 views in much the same way that fashions and hem lines go up and down.

    Personally I would give up on the free enterprise market solution and simply provide protection for all through NI.

  6. I believe that in the context of CI cover the ABI only has a remit from its members to set mimimum standards and this should apply to its work on TPD.

    It is surely important to all of us that consumers understand what they are buying and when it pays out.

    Changing the name of TPD to something like “Never Work Again” and making it clear that payouts will not be made until all routes back to work have been explored and that this usually takes quite some time is not anti-competitive.

    If the ABI starts trying to standardize products at the minimum level, that is anti-competitive and we must act as an industry to ensure this does not happen.

  7. Alan, I’m a product developer of 20 years plus. I don’t disagree with your views overall. The main points are that we shouldn’t be trying to achieve a “one box fits all” approach which it seems we are heading. Any plan better than none? Not ideal, but has to be right in context.

  8. If I remember rightly the OFT looked at CI products in 1999 and said “these are a jumbled mess – get those definitions standardised otherwise we will standardise them for you”.

    So the ABI standardised them.

  9. Too many people in influential positions are of the opinion that “anything is better than nothing”. This is so patently untrue to those of us who spent every waking hour ensuring that the best bang per buck was supplied to our clients.

    The insurers were told to ‘standardize’ definitions, but I’ll still have some of what this man is smoking, drinking.. or whatever.

    At one time (1991) I could understand the limited number of definitions and exclusions but now it is a quagmire, what chance does the ‘consumer’ have? And what does he/she do if it unravels? Yes, got it in one, complains with impunity. The sums involved are enormous, when will the PI insurers catch up?

    Why be a seller of financial things? Not for me I’m afraid unless some common sense returns to the market.

  10. I agree that standardisation was and still is essential to ensure that consumers/advisers can compare across products with some degree of understanding.

    However:
    – CI is too complex for most people to understand the actual scope and value of the bells & whistles elements of the cover offered
    – IP suffers from a poor reputation amongst advisers in terms of processing delays, numbers of rated cases and claims complexity.

    As a result IP sells at lower levels than it should and advisers are wary of recommending CI products that do not meet the DIN standard offerings currently available.

    Product innovation is stifled because IP sells in insufficient volume for most insurers to bother about it, and advisers wont sell non standard CI products. It all a bit catch 22 really.

    We need to get back to “Ronseal” products i.e. it does what it says on the tin.

    What the industry needs is simpler products with simpler processes along with the ability to upgrade the level of cover if the customer wants it.

    That sort of model exists in car and household insurance where the basic cover is well understood by consumers but many choose to buy enhanced coverage because they value those add ons e.g. roadside assistance, legal fees protection etc.

    In the protection sector, most attempts at product innovation just complicate basic coverage, and add little real value for most consumers.

    Lets get the basic product right and then compete around added value.

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