Britain is in a period of transition from the welfare state to a stakeholder society, according to a report which criticises Government policy as being flawed by its failure to recognise the forces exerted by consumer expectations. The result will be an ever widening growth in what the report calls “the welfare delivery gap”.
The report, Welfare and the Consumer Society: New Opportunities for the Third Way, looks at the huge shift that will be required as individuals take more responsibility for their own welfare. The Government wants to create a society where there is opportunity for all and where education gives people the knowledge and skills to take advantage of these opportunities. The report discusses new opportunities for private sector involvement but raises questions about whether commercially driven companies and their shareholders have the ability or desire to address these issues.
Professor Nigel Waite, author of the report, suggests that mutual organisations are the best providers of an alternative solution to the Government’s challenges.
Waite, who runs a marketing consultancy at the Canford Centre for Consumer Development, says that healthcare provision enables a person to sustain the mental and physical wellbeing to secure life opportunities, while social security provides a framework to help provide income during periods when earning ability is affected.
The friendly choice
The Association of Friendly Societies represents friendly societies and lobbies Government and regulators on the collective interests of its members. General secretary Marion Poole explains that friendly societies have an increasingly important role to play.
She says: “We all know that there are huge changes coming with regards to the provision of healthcare and that work is already in progress. Major hospitals are going to be allowed a pot of money to look after themselves, subject to inspection. People are more prepared to pay for their own healthcare because it provides certainty. What we have right now is uncertainty, and there is more uncertainty to come.
“The changes to the National Health Service (NHS) mean that there is more scope for non Governmental bodies to be involved in the running of the NHS. Friendly societies have run local hospitals in the past and we are ready should we be called upon to do it again.
“What’s happening in the NHS ought to encourage families to make their own provision. The big market for friendly societies is Holloway Plans and these suit self employed people, especially if they are off sick. When they are not working there is no money coming in.”
There are areas, explains Poole, where the NHS can provide only partially and friendly societies are looking at ways to bridge that gap. “With efficient, cost effective insurance, we can get rid of the assumption that the NHS cannot do everything for everybody whenever they want it,” she says, and highlights the example of the much publicised “postcode lottery” where drugs are available to some people depending on where they live.
She says: “The NHS is run by civil servants who know nothing about healthcare. People are beginning to realise that the NHS is a monolithic one-size-fits-all system and that the advantages we have taken for granted may not be as we expect them to be in the future.
“People want to be sure that the latest treatment is available to them and that they can have more choices. As more people make their own provision, products will begin to emerge that fit their needs. And we [friendly societies] will start seeing what can be done to make the pieces of the health system hang together better and will be able to help.”
Extolling the virtues
Jonathan Bennett, marketing co-ordinator at Holloway Friendly Society, extols the virtues of Holloway schemes which were the brainchild of George Holloway, MP for Stroud in 1880. Holloway plans combine income protection insurance (IP) with tax efficient savings. At retirement age, when the plan expires, the member would receive a tax-free lump sum. The deferred periods are shorter than those on conventional IP plans and most offer day one cover (which means that policyholders can make a claim from the first day they are off sick) rather than the usual 26 weeks.
Bennett says that it remains a mystery as to why independent financial advisers (IFAs) overlook friendly societies when planning their clients’ financial futures.
“I’m sure some IFAs think that we go on church marches and join amateur dramatic groups. I don’t think they have ever taken us seriously. They should do some research into our products and they will find that our policies are for the benefit of the individual members and the society is run for the members. You cannot compare friendly societies to any other financial provider. We are out there on our own.”
A reason for the lack of enthusiasm for friendly societies and their products, suggests Professor Waite, is consumer behaviour.
“They [consumers] are quite apathetic and many policies tend to be sold rather than bought. Consumers are more likely to go for a well known household name which is proxy for trust and reliability. They also buy from the first adviser they talk to rather than shop around.
“Friendly societies are smaller than insurers and do not have the promotional budgets to create the level of awareness to get that kind of business. A member is the only stakeholder, whereas customers in a PLC are a means to an end and drive the growth in shareholder value.”
He says that consumers find the concept of a friendly society very appealing once they discover them but friendly societies are complacent with regards to getting their message across.
Phil Calvert, director of Training Strategies, trains IFAs how to sell more protection products and has a lot of time for friendly societies. He says that more IFAs should give close consideration to them. “They can often assist with difficult or non standard cases and can enable some ‘awkward’ clients to purchase cover that they might not be able to obtain with more traditional income protection offices.
“This niche also gives IFAs an opportunity to conduct marketing campaigns to specific groups of clients. I understand that they [friendly societies] tend to be very hot on service too.”
The assistant general secretary at the British Benefits Friendly Society, Jan Rymarz, agrees that friendly societies make less noise than insurance companies. “We don’t spend time and effort in getting more business because we tend to rely on word of mouth. Of greater importance is the provision of service. We don’t care about profitability and making returns,” he explains. “The reason for our existence is to look after people and we actually care about ensuring that Joe Bloggs, who is very ill, is getting his money.”
Rymarz is aware that the friendly society movement is not well publicised and that consumers think societies are an insurance company under another name. But, he says, the differences are clearly evident after a policyholder has been with a friendly society for a few years. He adds: “Boy, are they glad they are with us. They can really see that we did the very best for them.”
He says that if the NHS improves there would be no need for the movement’s existence. “Friendly societies help those people who cannot afford expensive insurance. We are really driven by the need to help people and I don’t see this role changing.
“We are still small and only a matter of five years ago societies in England accounted for 1% of all the insurance in the UK. The overall principle would never change even if it increased to 9%.
“I wish there was a more manageable way to get the message across. We have tried roadshows and had network meetings with lots of IFAs and have seen the level of interest grow but this is pretty expensive. Besides, IFAs are bombarded by everyone claiming that they are selling the best products and they are under a lot of pressure,” he says.
Foresters is a mutual company, which is a similar concept to a friendly society. However, it is registered as a fraternal benefits society and operates in three countries – the UK, north America and Canada.
Steve Dilworth, UK director of membership at Foresters, explains that while the society is concerned with helping families and also communities with charity work it is not “the be all and end all” of its work. He suggests that advisers should be looking primarily at the best products for their clients. He says: “If the provider happens to be a mutual then that is a good thing.”