The extension of FSA regulation to the general (including health) insurance and mortgage sectors is set to change the shape of the financial services market which means it is a good time to look at the opportunities this presents and assess how IFAs and insurers can work together for a brighter future. The current upheaval in the financial services market resulting from the extension of FSA regulation presents huge opportunities for IFAs.
While other intermediaries focus on their preparations for regulation, those already accustomed to the demands of the FSA can capitalise by strengthening their business propositions for the new environment.
One way to achieve this is by building a business proposition that provides your clients with a complete cash and care service that takes into account their welfare and well-being as well as their wealth creation and management.
It is an approach that definitely makes business sense. Not only will it potentially increase revenue and improve retention through cross-selling and up-selling, it will also help you to safeguard your client base. By ensuring that you can provide your clients with all the financial advice they require, there will be little impetus for them to seek help from others, who may be intent on building their own client base at your expense.
It is also relatively straightforward to develop this type of business proposition. On the regulatory side, the FSA is offering IFAs who want to vary their permission to include general insurance and mortgage products in a streamlined application process.
This contrasts with the more demanding application process for newcomers to the FSA's jurisdiction which includes, for example, a requirement to prepare supporting evidence such as audited accounts and business plans.
Insurers are also keen to help. The changing environment offers them opportunities, too, and many are looking to take advantage of the new dynamics emerging in the market by courting the emerging distribution channels.
But to enable the IFA and medical insurer sectors to maximise the opportunities on offer, both parties need to adapt and make some changes. For IFAs, this will mean exploring the new product areas to provide their clients with more considered – and comprehensive – solutions to their financial planning requirements.
Similarly, for insurers, it will mean gaining a better understanding of IFA requirements and designing products that better fit their needs. Through this convergence, new and exciting possibilities should be created. From the IFA perspective, barriers may have impeded this in the past. As well as insurance falling outside FSA regulation (a difference that disappears on January 14, 2005), in terms of product design, medical insurance and financial services products can appear to be poles apart.
For instance, unlike most protection products, where the price is generally set from the outset of the contract or, at most, reviewed every five or 10 years, medical insurance is subject to an annual price review. Likewise, there are stark differences in respect of claims incidence.
Not only does medical ins-urance have a propensity for multiple claims (it is not so much a question of if but when) but, whereas protection products such as critical-illness cover and life insurance cease once a claim has been made, healthcare cover remains in force until the policyholder decides to cancel it.
Already, medical insurers have taken some steps to bridge this divide. New risk-based underwriting (which takes into consideration applicants' health and lifestyle)parallels the underwriting offered on protection products such as life insurance, income protection and critical-illness cover.
High excess products and co-insurance – both of which enable policyholders to benefit from lower premiums in exchange for agreeing to make some contribution towards the cost of their healthcare – limit the amount that a client would have to pay if faced with an expensive hospital bill, thus making medical insurance more of a money management product that fits well within the IFA's remit.
Moreover, it is unlikely that product development will stop here. As changes in financial services distribution channels become clearer, we can expect insurers to shape their products further to accommodate the needs of key distributors and their clients.
Undoubtedly, this will mean new medical insurance products that provide IFAs and their clients with protection solutions which complement the products already within their portfolios.
Additionally, given the new distribution channels, it is likely that insurers will also look at bringing other parts of the medical insurance proposition in line with IFA expectation.
This will result in different approaches towards pricing (perhaps creating more stable, longer-term arrangements) and towards distributor remuneration.
Insurers will be doing their part to enable IFAs to make the most of the changing market through training, promotional material and sales support.
For enterprising IFAs, the health insurance market does offer substantial opportunities. Not only will it bring a new, dependable revenue stream, it will also help to provide a more comprehensive financial planning service to clients.