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With price comes war

Money Marketing research, in conjunction with Aegon, has revealed that 82 per cent of advisers are still putting price before anything else when recommending an individual protection provider.

But is the industry surprised? It would appear not.

Price has long been a hot potato in the protection sphere. Last year Bright Grey product director Roger Edwards was reported in Money Marketing as saying the industry is overly obsessed with price, while Friends Provident head of protection Mark Jones warned that if it becomes the most prominent factor in the marketplace, then “something will have to give”.

But while price is a crucial factor when selling protection plans, the quality of the product should be considered first, says Master Adviser IFA Roy Mcloughin.

Unleash Advice Partnership IFA Adrian Kidd says claims history is also worth considering.

Kidd says: “I would agree and say price is a major factor but also I look at claims history also. I try to make clients aware that price should not be the deciding factor although I would say 60 per cent of mine still lean that way.”

Highclere Financial Services partner Alan Lakey says price is important but is secondary to the overall quality of the plan.

He says: “Any sensible adviser will start from the premise of ‘will this provide the desired outcome for my client?”
However, providers are at odds over the importance of price.

Aviva director of protection Richard Verdin says: “These results support the long held view that, for pure protection contracts, where there is an absence of any significant service or product feature, then price is the determinate for advice – which instinctively feels appropriate to me.”

But Fortis managing director Martin Werth says while price is always important, it can be too simple a measure. He points out that often the difference between first and third place in best buy tables is under 50p per month, therefore advisers should look more carefully at differences in benefits, underwriting philosophies and service.

Similarly, Royal Liver IFA marketing manager Aidan Dewhurst, the head of online protection arm Progress, says it’s easy to see why price is at the top of this list, but it doesn’t necessarily tell the whole story.

He says: “It is often the secondary considerations like underwriting, service and features and benefits that end up making the difference to a client.”

Of those surveyed, 53 per cent regarded underwriting capabilities as the second most important factor, while 39 per cent said product terms and conditions were third most important. A further 38 per cent said a firms financial strength is fourth most vital, with 31 per cent placing service in fifth.

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There are 7 comments at the moment, we would love to hear your opinion too.

  1. Like for like?
    If the cover is exactly the same I can understand why price is number one, the FSA also believes this is the most important factor. However, in these uncertain times clients need to know the provider will be able, and willing, to pay up when a claim is made. many moons ago I had a client or two vanish at sea, boat never seen a gain, some providers were superb, others were quite horrendous and never paid up. On another occasion a wife died less than 12 months after risk was assumed, fortunately I arranged two policies with different companies, once again one wriggled while the other coughed up pronto. Yes price is important but as the old saying goes, “buy cheap buy twice”, unfortunately you can’t buy a policy from an insurer who WILL pay out when needed after the event. Insurers who harp on about cost need to ask some IFAs why they do what they do rather than moan about it all the time. As far as the regulators are concerned, get some experience or qualifications before you tell advisers what is best for their clients! I won’t mention who actually underwrites the insurance because that is another matter altogether…

  2. Comparisons – how does an IFA view these
    I would be interested to understand how an IFA is able to compare the service & underwriting philosophies of the various providers – we find it very difficult especially if they are changing thier reinsurer every 2 minutes & having new underwiting guides, rules & bmi tables – what happened to long term relationships?

  3. With Price comes War
    It is true that some advisers purely pick protection contracts on price. However you have to take into account the accurancy of the quote on comparison programs and that where wop has been included that not all providers will correctly quote for the disclosed occupation.
    Therefore it is essential that more detailed research is carried out to recommend that most appropriate company which invariably is never what appears to be the “cheapest” on comparison programs.

  4. Product Differentiation
    There is a ‘conventional received wisdom’ that price is the determinant in protection recommendations – especially for term assurance. (‘Death is death ‘ so all products are the same’) However, this is simplistic. Health protection products vary widely – occupational classifications, range of medical conditions covered by CI policies, definitions of particular medical conditions, basis for income protection claims, etc. Even term assurance policies vary – particularly in relation to death by terrorist activity (a real risk facing many clients working in potential target locations or industries) and suicide. Whilst such eventualities may not be at the forefront of the client’s thinking – and advisers should certainly not be thought to encourage ‘profitable suicide’ – these are real possibilities and the purpose of protection is to foresee and provide against the unthinkable. Apart from these issues, there is clear evidence that underwriting and claims practice are far from uniform across the industry. In short, price is an important factor – but overall suitability should be the underlying reason for the recommendation.

  5. Richard Wilson 27th May 2009 at 10:41 am

    With price comes war
    Price is always an initial factor in protection and always should be. Death is Death. There are no degrees of death, but other protection products require research and whilst price is a consideration, cheapest is not always best. It is the features of a product and the benefits to the client that should be considered in conjunction with affordability. You cannot rely on a companies performance in relation to claims now to be the same as in maybe 10, 20 or 25 years. The company maybe operated in a completely different manner and indeed by a completely different company.

  6. Simon Thomas (Capita Financial Software) 27th May 2009 at 2:41 pm

    Value rather than cost is the ultimate consideration
    The inter-relationship between a contract’s features and its cost (premium) is dynamic – cost is a key factor in determining the suitability of a contract, as this is governed by affordability. The nature and simplicity/complexity of the contract will determine the importance of its underlying features relative to the premium but delivering professional advice implies an appropriate degree of consideration before selection/recommendation and an IFA must determine what represents best value. This is why Synaptic is an indispensible tool to an information-heavy, time-constrained profession as it enables the detail to be sliced and diced to arrive at this essential conclusion.

  7. With price comes War
    Martin Werth’s point about the minimal difference in price between leading providers is very apposite. In considering what product to recommend, surely value for money must be the overriding principle? Value includes all the ‘soft’ issues like customer service etc. The sooner insurance intermediaries of all kinds, not just Protection, start focussing on VFM rather than price, and educate the customer to disregard the ‘advice’ of independent bodies to ‘shop around for the best price’, the better.

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