Following the move by a major network to ask mortgage brokers to discuss income protection with every client, Tessa Norman looks at whether this is the best way to tackle customer inertia about protection
Mortgage advisers are being urged to place a greater emphasis on protection after Pink network asked its advisers to discuss income protection (IP) with every client.
While some industry commentators say the move is a welcome boost for IP and should be replicated by other networks, others argue it risks putting sales before clients’ needs and suggests a “tick box” compliance approach.
Earlier this year, mortgage and insurance network Pink announced that all of its members must discuss IP with every client from their first mortgage meeting.
Pink advisers will now ask every mortgage applicant to bring in their work contract detailing their employer’s sickness and absence policy, or bring in details of any existing IP policy.
Advisers will be expected to document the conversation and the client will need to sign an insurance declaration if they have decided not to take any advice given.
Pink director Mark Graves says: “This isn’t about making more sales. This is about a moral obligation to make sure that every client can make an informed choice about taking on the largest financial commitment of their lives and understand the full implications of what will happen if they are off sick from work.”
And since its initial announcement, Pink has further said it will now be asking anyone wishing to join the network to provide either proof of their own IP policy or their reasons for not having any. It says that although it is not insisting that all of its advisers personally have IP, it is asking them ‘what is your contingency plan?’ Furthermore, it will be having an ‘open debate’ at its upcoming quarterly roadshows to ask: ‘How can you offer this type of policy if you don’t have it yourself? If you don’t understand there is a genuine risk to your livelihood, can you really understand the fundamental need for your clients to have this protection?’
Graves says: “At the moment mortgage brokers are not very good at giving clients that reality check and it is completely down to chance whether clients use a broker who puts them in an informed position.”
Justin Harper, head of adviser marketing at LV=, says: “This is a really positive move for IP. Advisers are creatures of habit, and if you look at IP sales figures compared to life cover and critical illness (CI), they suggest IP is not being talked about as much as it should be.”
The latest available statistics from Swiss Re show IP sales declined by 24% in 2013, falling below 100,000 policies for the first time in 10 years.
The market snapshot report shows there were 90,794 IP policies sold in 2013, compared to 120,094 the previous year.
There were almost five times as many CI policies sold in 2013, at 445,679 policies, down 21% year-on-year. Term assurance sales stood at 1.2 million, down 17% compared to 2012.
“Anything that promotes protection, particularly IP, can only be positive,” says Andy Doran, claims philosophy manager at Aviva. “You are far more likely to be off work through illness than to die, so the importance of discussing IP is huge.”
But other networks say they have no plans to follow Pink’s announcement.
Mortgage and protection network TenetLime managing director Gemma Harle says documenting protection conversations is “worthless” if a meaningful discussion has not taken place.
She says: “We wholeheartedly agree with the principle of promoting protection more effectively, even if it is just getting started with a small IP plan, and stressing the need for protection has always been high on our agenda.
“However, closing the skills gap and establishing the need for the right sort of cover are much more important than a piece of paper with a client signature. There is a more urgent need to understand what the root cause is and why certain brokers are not selling protection.”
Personal Touch sales and marketing director David Carrington says the network uses a universal fact find which includes life cover, CI and IP, and “encourages holistic advice”.
He says: “We don’t think compulsion helps the client and see indiscriminate use of such a tool as an adviser sales aid rather than for the benefit of the client. This tick box compliance approach would seem to be more a reflection of the quality of a firm’s advisers or an inability to manage the advice process.
“We believe that the adviser should adapt their process to suit client needs rather than slavishly follow a process that allows them to tick a compliance box.”
But Graves says those who argue the move is about compliance are “missing the point”.
He says: “This has nothing to do with compliance, it is about ensuring every client, regardless of which broker they go to, is put in an informed position about being able to afford their mortgage in future.”
Legal & General Mortgage Club says it “strongly encourages” its advisers to discuss protection with every client, while Openwork says it has recently made changes to its processes to ensure protection is always discussed.
Openwork proposition and marketing director Philip Martin says: “We recognise that some mortgage brokers just want to advise on mortgages, so we give our members three choices: they can advise on protection themselves, refer it to another adviser or refer it to Openwork’s protection service. This is a central protection advice division within the network which we launched nine months ago.
“We track the advice given to ensure it always goes through one of those routes. If a client already has protection, that’s fine, and if they say they cannot afford it at the moment we would expect the adviser to revisit that at a later date.
“How can you assess the affordability of a mortgage without evaluating whether the customer can meet their commitments if their circumstances change?”
Other mortgage brokers say they have followed a similar approach to Pink for some time.
Since 2007, London & Country has insisted advisers put every client in an “educated position” about protection before producing a mortgage recommendation letter.
Sales director Michael Aldridge says: “That involves giving a definition of the available protection products and their cost, and explaining why the client has a need for cover based on their personal circumstances. This opens up the discussion and gives clients the information they need to make a decision about protecting their biggest financial commitment.
“I don’t think there is a downside to ensuring this conversation is always covered off; it’s the least we can do when advising on creating a debt.”
Bill Warren Compliance managing director Bill Warren describes Pink’s approach as “best practice” from a compliance point of view.
“This is a sensible approach and any adviser not doing this could leave themselves vulnerable to complaints,” he says. “While there is no specific regulatory requirement for advisers to discuss protection, there is an overarching obligation to ensure the client gets the best possible advice.”
OAC Consulting senior manager Geoff Spencer adds: “Pink is absolutely doing the right thing in asking the customer to show from their employment contracts how much cover their employer will provide. This prevents the customer taking out too much cover and a potential missale.
“If no record is made of the protection products that were discussed, then an adviser is open to claims from the customer if an event occurs at a later date which could have been insured against.”
Others argue that wider changes are needed to ensure more customers get the protection they need when taking out a mortgage.
Exeter Family Friendly brand and marketing manager Nick Jones says the industry should aim to change the behaviour of advisers who do not engage with protection, rather than encouraging other networks to mandate protection conversations.
He says: “I’m disappointed that it needed a network to take this step, and that the protection industry couldn’t engage advisers to a degree where they don’t need to be told to discuss protection – they just do.”
Direct Life sales and marketing director Neil McCarthy says IP is a “difficult sale” for mortgage advisers.
“Clients want a mortgage, and they don’t consider their own mortality or the reasons that could lead them to lose their property,” he explains.
“Introducing the concept of IP is one of the hardest sales in the market – partly because clients are not aware of it, don’t think it will happen to them, assume they have cover from the state or their employer, or that they will just muddle through.
“It’s also an expensive contract when compared to mortgage term assurance, and a good starting point for an adviser is being comfortable in explaining why it’s expensive – because it covers an event that is more likely to happen.”
Others argue that the Financial Conduct Authority (FCA) should have been more prescriptive on protection in the Mortgage Market Review, which introduced more stringent affordability requirements for mortgage lending in April 2014.
Aldridge says: “I feel the FCA missed an opportunity and could have been much more prescriptive on the need for all mortgage advisers to cover off affordability of the mortgage in the event of death or illness.”
In the absence of such an express requirement from the regulator, networks clearly have an important role in guiding their members towards the best approach.
And if Pink’s move leads to more clients getting the protection they need, that is to be welcomed.
But to ensure more clients are protected in the long term, asking advisers to discuss it at every meeting is unlikely to be sufficient in itself. Networks and national firms must also do more to ensure their advisers are trained, knowledgeable and passionate about protection.