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Protection industry determined to hit the right note

Intermediaries urged to demonstrate true value of advice
29th March 2011

When a reinsurer turns to a mid-90s pop band to articulate the financial landscape, you know that it has been an unusual year in the City. Yet despite Pacific Re’s montage of grimacing bankers and plummeting stock prices and D.Ream’s observation that “Things can only get better”, the audience at this year’s Protection Review conference heard that protection sales had proved reasonably resilient in 2008. The presentations that followed continued to lurch between bullish exhortations to “seize the day” and take advantage of consumer anxiety and relatively gloomy predictions pointing to the lack of funding in the sector and the fragility of current distribution channels.

WALKING BACK TO HAPPINESS

“Protection is bearing up not so badly,” said David Heeney, chief marketing officer at Pacific Life Re. “This year has shown we are becoming less reliant on mortgage sales.” The figures seem to bear this out. Estimates suggest that both individual long-term premium income and sales fell by just over 2% between 2007 and 2008, despite the fact that gross mortgage lending fell by almost 30%.

Nevertheless, when asked to give a positive spin on the industry at the end of the conference, some speakers were quick to highlight progress made in the treatment of consumers rather than sales figures. “We are in a very different place today than three or four years ago when we were talking about the reputation of our products,” said Nick Kirwan, assistant director of health and protection at the Association of British Insurers. “We can now put this behind us: our products are now fit for purpose and that creates the platform for us to move from the back foot to the front foot.”

It was left to Tom Baigrie, managing director of specialist intermediary firm LifeSearch, to find the silver lining in the recession statistics. “The good times have been difficult,” he pointed out. “We need consumers who are more realistic, who have a more realistic fear. They understand that they stand on their own and they need to sort themselves out. This is the right time in the consumer mindset.” He added: “The core mid market still in work is richer; with low mortgage payments they have the money to pay the premiums.”

Freshly returned from an international fact-finding tour, Andy Milburn, head of marketing at reinsurer Munich Re, told the audience the UK was well placed in terms of underwriting expertise, before suggesting that it consider translating developments from across the pond, including a “critical illness plus” proposition under discussion in Canada.

MONEY’S TOO TIGHT TO MENTION

There was no getting away from the fact that the industry is facing a tricky period. “Sales are going to go down, we have to be realistic about that,” said Heeney. “Lapses are going to increase; people are cancelling their policies at the worst possible time.”

And it is not just consumers feeling the pinch. Heeney’s warning that “it’s going to be much more difficult to find resources and money to move things forward” did not bode well for Baigrie’s clarion call to invest in a consumer engagement campaign, which Baigrie himself said had a “60% chance” of going ahead.

Many presentations underlined familiar frustrations within the sector. “When you look at the probability of claims and what we are selling, we can see there is a big mismatch,” said Martin Werth, managing director of insurer Fortis Life. “Selling term assurance today will kill our industry.” His warnings were solemn: customers over-estimate the risk of dying and underestimate the risk of being unable to work; protection is a “buy and forget” product so changing needs are not addressed, while consumers shop on price and do not value protection advice so distributors are fragile. He suggested distribution would have to move from transactions to relationships whereby protection needs are regularly revisited and addressed with customised packages.

A CHANGE IS GONNA COME

The common thread running through the conference was the recognition that the distribution model will have to change. According to statistics shared by Tom Baigrie, 60% of protection sales currently go via intermediaries. This includes 20,000 “one man band” IFAs, 80% of which have no qualifications and a large proportion of whom are over 55. “We need to build and enable new distribution models and not be too protective of what we have got,” he said.

“I worry about the fragility of our distributors,” admitted Martin Werth. “Commission clawback is uncertain and continues for up to four years.” After identifying a polarisation between direct sales where price is key and the complex needs of high net worth clients receiving face-to-face advice he described advice as an “under-valued differentiator”.

“Adviser firms must become more effective businesses and stop doing things that are value-destroying and start doing things that are value-enhancing, because they are fragile and may not survive,” he warned.

Alan Lakey, partner at IFA firm Highclere Financial Services, who attended the conference, said: “I think that there are two types of advisory firms within the protection world. The first one, which will survive, is the value firm which assesses policy details and provides a proper analysis of the clients circumstances and advice that is tailored. The second firm is the one which sells on price and fails to differentiate between plans or fully consider client needs.

“If you sell on price you will not only be vulnerable to all competitors but also to the quality adviser who sells on value. Additionally, it is difficult to sustain a relationship with a client if all you do is act as a conduit for the cheapest provider.”

WHAT ACTIONS WOULD MOST HELP INCREASE LEVELS OF PROTECTION?
PRODUCT (RANKED 1 OR 2 OUT OF 6) 2008 2009

Source: Protection Review/Fineos survey of 985 members of Personal Finance Society, April 2009

LOWER PREMIUMS

50%

63%

FASTER UNDERWRITING

46%

N/A

FEWER UNDERWRITING DECISIONS

36%

55%

SIMPLER PRODUCTS

31%

49%

BETTER OR WIDER COVER

32%

49%

ONLINE SUPPLEMENTARY QUESTIONS

20%

48%

RAISING CONSUMER AWARENESS

N/A

72%

MONEY GUIDANCE

N/A

34%

 

 



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