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Total premium signals total disaster

The ABI met with the FSA last week to thrash out the best way of disclosing the total premium for pure protection policies amid fears the regulator may be gold plating European regulations or even simply misintrepreting them.

The clause in question is part of the European Distance Marketing Directive, which governs everything from online sales to direct mail but it has been included in the ICOB rules too.

The fear is that the FSA is requiring UK companies to do more than even the Brussels rulemakers intended by disclosing the total premium for the life of the plan.

With little information available from either party about how the meeting went, protection providers are more than happy to share their views on the issues surrounding the implementation of this ICOBs and DMD requirement.

The story so far, as the industry relates it, reads like this. The FSA has taken a simple directive and turned it into five pages of guidance. Within the guidance the regulator has interpreted the phrase Œtotal premium’ to mean the total cost over the lifetime of any pure protection policy, including term assurance, whole of life, long-term care, critical illness and income protection.

However, to date, all other European member states have interpreted it as the monthly premium, showing any hidden charges. Irrespective of what Europe is doing, the FSA granted providers a 12-month transitional period, ending on January 15 this year, and sent them on there way to live happy ever after.

Meanwhile, Aegon Individual Protection proposition development manager Stephen Crosbie, who has already spent a “considerable” amount of man hours discussing this change, says there are a number of reasons “why this is just absolutely daft”.

He says: “There is a big protection gap out there, and is this in the customers’ best interest to try and put a barrier in their way to buying something that will provide them with protection? One thing safe to assume is that it is not going to be selling attribute.” He adds: “The figures that are shown will actually be inaccurate because if you’ve got indexation, what do you assume? That also includes things like reviewable rates. There are a lot of things that will actually make the total premium itself inaccurate and therefore confusing.” Crosbie believes that, for once, the industry is united – “we all see the madness of this”.

Bright Grey head of product proposition Ian Smart says calculating such a figure is a complicated process. He says: “It’s more the capabilities of the underlying systems. Most company systems are not set up to calculate this sort of thing, particularly with protection policies because you don’t have to do complicated projections like you do on investment policies. So, it is getting that complicated calculation routine built into the core systems that is going to be biggest issue for most companies, including ourselves.

We are yet to work out exactly how we do that.” With technology looking like the area most affected, Finance & Technology Research Centre director Ian McKenna says this is an “overreaction to the FSA’s clear regulatory failure in the PPI market”.

He says: “Consumers need change over their lifetime and ideally what we should be looking for is products that can be flexible and adaptable. Having a requirement where you quote lifetime premiums makes it very difficult to do that. The really worrying thing would be that it’s probably going to constrain innovation and reduce customer choice.

“A more prudent appropriate response would have been a cost benefit study.

What benefit is the consumer getting imposing this requirement?” But with the FSA and the ABI remaining tight lipped, advisers will have to wait a while longer until they know the outcome.


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