Market leaders can’t have it all their own way forever, as flexible protection provider Scottish Provident has recently learned. Its ground-breaking Self Assurance menu-based protection plan won a slew of awards and became a firm favourite among intermediaries, but it no longer has the field wholly to itself.
Friends Provident, Permanent, Skandia Life and Scottish Equitable have all unleashed their menus in the last 12 months, while Norwich Union, Scottish Life and others are waiting to pounce. So how can the busy intermediary make an intelligent choice?
Friends Provident product manager Mike Turner agrees the market has been muddied for intermediaries. “One year ago there was only Scottish Provident. Since then half a dozen providers have launched menu-based products, including us,” he says.
Most commentators believe the woes affecting mortgage-linked endowment plans have spurred the influx. Insurers who wrote a lot of endowment business have been looking for new markets.
Meanwhile, the mortgage market has been growing, people still need to protect themselves against illness and death, and they have taken notice.
Every insurer offers something to make its plan stand out from the crowd. With Friends Provident’s Select Protection Plan, it is the waiver of premium on stakeholder or personal pension contributions.
“Stakeholder rules don’t allow waiver of premium within the plan, but we have included this option on income protection (IP) cover within our menu. We believe this is unique,” says Turner.
Clients must have a stakeholder or personal pension from the insurer, but can also cover contributions to other providers’ plans and a spouse’s pension.
Another selling-point is the inclusion of Friends Provident’s guaranteed-premium IP, which has proved consistently popular with intermediaries.
Skandia Life’s Protect range, launched in January, also claims to offer a unique feature – rolling-term critical illness (CI) cover.
Senior marketing manager Lynda Cox says this provides cover for rolling ten-year periods, with an option to renew without supplying any further medical information. It also allows clients to renew cover, even after a full claim, without underwriting, and covers two new illnesses “not covered by any other insurer” – cardiomyopathy and supranuclear palsy.
Skandia Life also added long-term care (LTC) cover in May. Policyholders can convert unwanted life cover to LTC, at two per cent each month. This means somebody with £100,000 cover who fails three “activities of daily living” or is mentally impaired could convert this into 50 monthly instalments of £2,000.
Any remaining life cover stays in place, ready to be paid out when you ultimately die.
“If a client is uninterested in LTC, you could use this as a trump card,” says Cox. “It may not interest a 30-year-old but this is something you can keep up your sleeve for later.”
Scottish Equitable Protect was also launched in January, and it too makes a claim to “uniqueness”, offering direct access to the insurer’s underwriters.
Head of marketing Heather Armstrong says: “If you want to check whether covering a client with a particular condition will be a problem, you can speak direct to an underwriter. This is a service many intermediaries appreciate.”
The plan includes life cover, CI, mortgage payment protection insurance (MPPI), business protection and business loan protection, with IP added recently.
“The plan is designed for maximum flexibility,” says Armstrong. “You can add benefits, take them away, increase the sum assured, switch to decreasing or increasing term, whatever.”
But Scottish Equitable Protect does not offer standalone protection benefits.
“You could just purchase CI but we expect the bulk of our clients to go for multiple benefits, to give them peace of mind and help them cope with their changing lifestyle,” says Armstrong.
Liverpool Victoria subsidiary Permanent has targeted its menu product, launched in June, specifically at homeowners.
The Mimi plan is directed towards “paying off a mortgage on death or critical illness with a lump sum, and in the case of sickness, accident or involuntary unemployment, meeting monthly mortgage payments”.
Liverpool Victoria head of IFA marketing Rod McDonald quotes figures from Swiss Re showing that half of life and CI policies are mortgage- related, as are four out of ten IP plans. The decline in endowment-linked home loans will only increase the emphasis, he believes.
“Many menu plans simply take existing products such as life, CI and IP, and package them together without necessarily doing anything different. We wanted to move the market on from that,” he says.
Mimi aims to remove the existing overlap between CI and IP payouts. It claims to cut IP premiums by 25 per cent by terminating cover if, say, the CI lump sum clears the mortgage. It looks to prevent overlap with MPPI, by offering unemployment cover only, with the accident and sickness element stripped out.
Finally, it claims to break the traditional link between income levels and the amount of cover available by offering up to £1,500 monthly cover regardless of income, in a step targeted at the self-employed.
“If you asked people to explain the difference between CI, IP, accident sickness and unemployment cover, most would have no idea. There’s a need to move further towards integrated policies, certainly with health-related products. If you can strip out the overlap between the different policies, you can also offer more cost-effective products,” says McDonald.
While most insurance companies have contented themselves with raiding Scottish Provident for ideas, Scottish Life went a step further and poached six members of its Self Assurance management team.
Staff reviewing their futures following the Abbey National takeover discovered those futures lay elsewhere, says Roger Edwards, the head of products at Scottish Life New Protection Business.
“Now we want to set up a completely new brand and culture, bringing innovation back to the protection market,” he says. “The menu concept is very strong and will remain strong, but now it needs to be taken to the next stage. We’re at an early phase of our research, and nothing will be launched until later next year.”
So where does this leave Scottish Provident, aside from adrift in a sea of me-toos? Head of product development Nick Kirwan believes his company still holds the edge in the key area of “post-sale flexibility”.
“It’s one thing for an insurer to boast that it sells a choice of different products – as many of our competitors now can – but they don’t always offer the flexibility to adjust cover thereafter or buy additional protection within the same plan,” he says.
Self Assurance remains the benchmark for menu-based protection. “It is still the product intermediaries think of first,” says Kirwan. “We’re pleased IFAs perceive it as the best product on the market, and sales have held up well.”
Many advisers agree Scottish Provident is still pick of the bunch. “It launched first, remains market leader and has enhanced the policy with a healthcare cash option and unemployment cover,” says Dale Tranter, a senior researcher with Misys IFA.
Steve Buttercase, a financial adviser with LM Financial, says Scottish Provident also remains his first choice. He hails it as a low-cost product with maximum flexibility and choice of features.
He says: “I like menu products, they allow advisers to tailor cover to the client rather than simply handing them a one-size-fits-all product. It saves the client money, which is important, as protection is very cost sensitive. Most people still want basic cover for the lowest possible premium. In the rare cases where Scottish Provident can’t do that, I’ll look for another insurer that can.”
The plan continues to evolve, introducing four and 52-week deferred periods for disability income benefit and increasing maximum annual benefit from £60,000 to £75,000. It has improved terms for certain occupations.
Kirwan says many rival plans fail to match Scottish Provident’s choice and flexibility of cover. “If you have a protection plan with a limited menu, you’re struggling to match that policy to the customer’s needs. If the plan can do everything, you don’t have to talk about the policy at all, you just talk about the customer’s needs, as you know the policy can meet them,” he says.
The rush of new flexible plans should ensure innovation remains strong in the protection market. Ironically, the scale and diversity of new entrants may actually help Scottish Provident, at least in the short-term, as, dazzled by choice, many intermediaries opt to stand by an old favourite.