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Tom Baigrie: We must stop the protection rot

My late father’s favourite quote when I was young was: “All that is needed for evil to triumph is that good men do nothing”. I grew up in apartheid South Africa, so the evil he was talking about was vast and hideous but Edmund Burke’s words also apply to relatively trivial evils, like those that pervade financial services distribution. Though they lack blood and infamy, they nonetheless hurt hugely the consumers who buy the wrong products, or the right products wrongly.

The RDR is tackling much of this but perhaps as a result (one which the FSA feared from outset in truth) the Icobs market is seeing a surge in dodgy distribution, particularly in the bit of the market I may know more about than most – that of advising clients and arranging protection policies over the phone.

Long-term readers of this column will recall that for many years I railed against the abusive practices of some phone-based non-advisers. But since the largest and worst behaving of those went out of business last year due to chronic lapse rates, leaving the insurers more than £10m out of pocket collectively and with a non-disclosure problem they have yet to fathom, we have seen several others shut, scale back or convert to giving regulated advice. Having been so badly stung, the insurers have been a lot slower to pay indemnity commission to those starting up lead-buying non-advised selling models. They are rightly telling them to give
You would think that is a great result for the consumer but the providers’ new vigilance has simply caused the dodgy distributors to change their game. They have realised that in protection it takes years for lies to be found out, so it is as easy to profit from being regulated advisers, but still telling the same old lies, as it was to be non-advisers.

For example, our conversations with consumers reveal there is a trade in the details of those who have bought policies from failed distributors. These poor souls then have their policies churned, perhaps by being told that terminal-illness benefit is the same as critical-illness benefit, but cheaper, or that an existing policy does not include terminal-illness benefit, when of course it does. Given that the unscrupulous adviser has all the data on the original sale, they apparently sound very credible. Another seemingly routine malpractice is to simply fail to submit properly disclosed medical conditions to achieve sales where other-wise they would be lost in underwriting.

Unless this foul trend is checked, we can look forward only to tougher regulation, loss of consumer trust and a consequent reduction in the protection consumers badly need. Happily, unlike many problems of this ilk, the practitioners who can stop the rot are easy to identify. The “good men” we need to do something are the business development directors of our insurers and reinsurers. All they need to do is properly scrutinise and audit the sales methods of those they allow indemnity commission. In addition, their underwriting colleagues need to dramatically improve their non-disclosure auditing fast. That will end abuse and let the regulator leave protection lightly regulated.

All aspects of the protection market are undermined by the wash of dodgy pop-up distributors coming in and then disappearing after three years when their clawback gets out of control. In a consolidated market will the insurers and their reinsurers click the inevitability of future loss faster than they did last time? We will see.

Tom Baigrie is chief executive at Lifesearch


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There are 6 comments at the moment, we would love to hear your opinion too.

  1. Daphnie Jenkins-Smyth 15th November 2011 at 3:43 pm

    This rot is a major problem, its a dry subject but people need to get themselves intersted in this and let it wet your appetite. dry or wet the rot is a problem

  2. I think Aegon have got it right with regards to the Confirmation Form and Application being sent to the client in order for them to check, sign and return to ‘confirm’ that everything is accurate, yet not holding up the completion/comssion paying process. That certainly takes care of the non disclosure/inaccurate recording of the medicial details- also with the option of tele underwriting (which I would dread to see be the only submission route unless the providers get on the ball with this as it is not where it could or should be in terms of acceptable service levels) Churning is the one that is difficult to eradicate but more so is the cancelation of a policy due to some other company offering less cover in order to beat the existing premium. Unfortunately the client may only see the monthly savings in these ‘every penny is a prisoner’ times and potentially go for a basic policy to cover the basic need (ie a mortgage) and sacrifice all other covers because some ‘advisor’ points out they can reduce the cost by taking out the bare minimum cover after all the good ADVICE you provided is undone for a quick buck.

  3. So let me get this right…..

    ……telephone sales models are bad, full of non disclosure, lying to the customer and churning.

    That is of course unless you are Lifesearch – who incidentally have that exact same sales process. Yet Lifesearch somehow manage to be brilliant!

    Well done Tom Baigrie – a finely written and deeply researched piece. However, maybe next time you could write an article that isn’t solely for the purpose of self promotion and defamation of your competitors!

  4. It’s a pity the third poster chooses to hide behind anonymity. Tom is standing by his own words. I have had no dealing with Lifesearch and have never met Ton Baigrie, but from what I have read in the past, the anon posting is quite unjustified.

    Now to the subject to hand. If the FSA were seriouys about consumer detriement and the prevention of fraud, the solution is VERY easy.

    Stockbrokers have to record the conversation of their deals and hold them for a period of time and general insuers are encouraged to do the same. There is even an FSA discussion from last year about recodding of stockbrokers mobile phones if used for placing deals.

    IF these were made for the completion of medical questionnaires/applications with clients, the problem of non discolsure would be laid at the foot of the guilty party.

    As to costs. If you use Skype, Pamela vocie recorded is FREE for calls under 15 minutes and I don’;t think it is very expensuive if you want longer calls. If you dom’t want to do as interent/skype calls a sparky USB voice recorder costs about £200 and can connect to your PC and saves calls as wav.doc or MP3 files.

    Then all that neesd to happen is routine checks against a new business register. Anyone caught loses their authorisation and never works again in any business which required “uberimae fidae”

  5. Ah the cowardly Anonymous belches forth!

    It’s true that cleaning the dross out of a market improves its reputation and thus the prospects of the more tightly managed businesses in it; and who but a seriously opinionated, self-promoter would write a trade-press column for so many years? So I’m guilty as charged!

    But LifeSearch is not. We give advice over the ‘phone, but that’s all we have in common with those others I’m being rude about. Because we only tell the truth and record and audit all calls to routinely check and prove that.

    That’ll be why our NTU and Lapse and non- disclosure rates earn us serious praise from all the insurers as being by far the best in our sector.

    And it may also explain why independent research by Lucian Camp Consulting found that 94.72% of our clients would recommend us to friends and family.

  6. Is Phil not aware that all phone advisers/non advisers have to record their calls and therefore have a record of the application?

    Whether they do or not I guess is another matter! Has for the comments in regards to Lifesearch, when I have come across them all they do is discount their rates to a point the deal becomes worthless. I’m sure Mr Baigrie will claim that his superior lautro rates allow him to do this……

    At no point has it become about the fantastic advice lifesearch can offer, but more about the fact they even the will to pay the clients premiums, to gain the business. Surely if you’re so confident that your clients would quite literally be purchasing fraudulent policies if they choose not to use the mighty lifesearch, you wouldn’t need to resort to such drastic measures.

    I’m sure you have a statistic from somewhere to prove this wrong!

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