Concerns over expensive system changes and losing market dominance are holding back major providers from signing up to quote comparison software provider UnderwriteMe.
The software aims to simplify the protection sales process by providing fully underwritten prices at the point of sale.
UnderwriteMe will go live in August with pilot distributors LifeSearch and direct-to-consumer broker Cavendish Online.
The technology is being used by six providers, but major insurers Legal & General and Aviva say they continue to have reservations about the service.
And advisers say the effectiveness of the technology will be reduced unless most providers sign up.
In the current application process, advisers obtain initial price quotes, which do not take account of health conditions.
For customers with medical problems, advisers have to telephone a number of providers’ underwriting departments to get a feel for accurate prices.
They then start the application process with one provider, during which the price could change.
UnderwriteMe requires participating insurers to use its software in their underwriting systems.
Advisers can then offer customers a price comparison on an underwritten basis, after asking customers a series of health questions at the start of the process.
LifeSearch chief executive Tom Baigrie describes the current process as “a profit-destroying mess”.
He says: “It has been a long-standing source of frustration to all parties that you cannot get an underwritten quote there and then.
“We expect UnderwriteMe to deliver large savings by removing calls to underwriters from the process.
“Fewer customers will drop out, and more will add income protection and critical illness to life cover.”
Royal London head of protection Debbie Kennedy adds: “This is a game-changer and puts us on a par with other sectors such as general insurance by allowing customers to obtain quotes quicker and more transparently.”
Where providers stand
Scottish Friendly, Exeter Family Friendly, Canada Life, LV=, Royal London and Old Mutual Wealth have all committed to use the system.
But others say they maintain a “watching brief”, while some have voiced concerns.
Last year Aviva said using a standard set of questions may not result in the most “appropriate” underwriting decisions for customers.
An Aviva spokeswoman says its position remains unchanged. She says: “There are no plans to use the system as things stand.”
L&G has previously said UnderwriteMe would result in a longer process for customers without health conditions.
But UnderwriteMe says this is not the case as the system allows advisers to obtain quick quotes as they do currently for those without medical conditions.
An L&G spokeswoman says: “Our concerns remain the same as before. We are always vigilant about developments in the market, including UnderwriteMe which we give a watching brief, but we are concentrating on our own customer journey.”
AIG says whether it joins UnderwriteMe will be driven by its distributors, while Zurich says the challenge of changing its underwriting system has prevented it from signing up.
Head of retail propositions Peter Hamilton says: “It makes sense to find ways to present underwritten quotes upfront collectively.
“But the challenge for us is we already have a highly developed underwriting engine. To join UnderwriteMe we would have to be able to justify the cost and time involved in changing the system.”
Highclere Financial Services partner Alan Lakey says: “A lot of companies may be unwilling or unable to accommodate the systems changes required, particularly in a short timeframe. Let’s not forget that Aviva is already in the process of integrating Friends Life.”
Others say Aviva and L&G are seeking to protect their dominant market share.
Swiss Re’s latest state-of-the-market report shows L&G was the top term assurance provider in 2014, with 455,204 policies, equating to a 36 per cent market share.
Aviva was the second-biggest provider followed by Friends Life. The two providers together sold 337,910 policies, a market share of 26 per cent.
Baigrie says: “Thanks to the short-sightedness of the major insurers, who should have been queuing up to reduce their underwriting costs but instead focused on protecting their market share, it has taken far too long to get to the stage where we are ready to trial the system.”
Many argue insurers fear moving to a common underwriting system will take away their competitive edge.
MFP Wealth Management managing director Justin King says: “Aviva does not use comparison sites in the motor insurance market because it feels it is so big it doesn’t need to play in that space.
“Large providers have a vast depth of underwriting knowledge which comes from asking the right questions, so it is understandable they do not want to conform to a standard set of questions.
“Aviva and L&G are huge in the protection market, so if advisers still have to phone them for every application it makes UnderwriteMe far less effective.”
Cazalet Consulting chief executive Ned Cazalet says: “This is about power play. It is the reinsurers that carry most of the risk, so if insurers don’t carry the risk and they don’t have their individual underwriting system, do they risk becoming redundant?”
UnderwriteMe head of sales and marketing Phil Jeynes says: “Many insurers have out of date underwriting rules engines, and there is some expense and effort required to upgrade it.
“Some providers are happy with the status quo, while some have already invested heavily in their own systems and are finding it hard to make a business case for investing again.
“But consumers and advisers like UnderwriteMe, and we feel insurers will ultimately come to the decision they need to be on board as this is for the good of the industry.
“We are also talking to banks and retailers who are not currently selling protection, so this provides a real opportunity to grow the market rather than just taking market share.”
Number of daily calls LifeSearch’s 127 advisers make to underwriters
Number of insurers signed up to UnderwriteMe so far
Legal & General’s share of life insurance market last year