Two new short-term income protection (IP) products have been launched by friendly societies Foresters and Pioneer. However, it is unclear if they would be included in a proposed kitemark scheme designed to distinguish “genuine” IP products from payment protection insurance (PPI) (see white box below).
While both providers said they did not want their products to be “tarred with the same brush” as PPI, the controversial product which has been the subject of a Competition Commission ban, the launches are clear evidence that financial services providers are eyeing opportunities left in the post-PPI vacuum.
In January, the Competition Commission banned the sale of PPI alongside credit cards and personal loans, following a two-year investigation which concluded that the product was being sold in an uncompetitive market where consumers are often overcharged. Both Foresters and Pioneer, however, were adamant that the products should not be considered PPI substitutes and would be distributed through a diligent and ethical sales and advice process.
Pioneer said its product – called Bills and Things – has been designed to cover all essential payments such as an individual’s mortgage, their utilities bills, council tax “or even food”. Cover is available for either one or two years and limits can rise in increments of £100 from £500 to £1,000 per month. There is no financial underwriting and customers “cannot be overinsured”, Pioneer said.
Andy Chapman, chief executive of Pioneer, said that he believed a friendly society’s ethos could help to address some of the failings of PPI. Short-term IP with no financial underwriting could offer consumers affordable and simple access to protection, he said.
“PPI succeeded because it was a relatively cheap product and a simple sale,” he said. “However, it frequently failed to deliver when it mattered most – at claim.”
Meanwhile, another new product, launched by Foresters Friendly Society, also offers short-term income replacement cover for either one or two years.
The Foresters Friendly Society Sickness Policy, which pays out on provision of a certified doctor’s note to prove that sickness or injury is preventing the member from going to work, offers four levels of weekly benefit – £100, £200, £300 or £400 – and payments commence at the end of the deferred period, which are either one or four weeks. There is no financial or medical underwriting.
Foresters Friendly Society marketing director Neil Armitage, himself the former marketing director of Pioneer sister company Exeter Friendly Society, said that consumers who take out the Foresters Sickness Policy are also given automatic access to the extra social and protection benefits of Foresters Membership. Benefits include access to a discounted will writing service, a telephone advice line, convalescent home respite and discretionary grants, in addition to a number of others.
Peter Le Beau, co-chairman of the Income Protection Task Force and a Health Insurance columnist, said that there is a place for the right type of short-term IP, provided it is sold responsibly and ethically. Le Beau, who is a non-executive director of Pioneer, explained that although Bills and Things is a departure from Pioneer’s “usual practice”, it is a “very pragmatic” approach to IP in that it will provide full cover albeit for a limited period of time.
“This may be, for many people, the only form of IP they can afford,” he said, adding that although he could not comment on how it would fare in an IP kitemarking scheme due to his position as a Pioneer non-executive, he personally felt it would stand up well to scrutiny.
Paul Hudson, chief executive of Cirencester friendly, another “traditional” IP provider, said that his organisation had “no immediate plans” to launch a short-term product.
He said: “Under our rules we are authorised to sell Class 4 Permanent Health Insurance. As a true PHI (IP) contract must be for a period of not less than five years we do not currently sell short term IP products.”
However, he accepted that there is a place for short-term IP, provided the consumer is made “fully aware of what they are buying, what benefit they will receive when claiming, how long it will last and what the risks are”.
THE NEW WHITE PAPER FROM THE TASK FORCE OUTLINES PLANS TO:
■ Establish a new kitemark for “genuine” income protection (IP) products, so that the consumer can have confidence in the product they are buying
■ Train hundreds of advisers on how to sell “genuine” IP in an ethical, profitable and compliant way, at roadshows across the UK
■ Campaign for all employees to receive an annual statement of sick pay entitlement, so they know exactly how much they will receive if they are sick
■ Seek to work with the Association of British Insurers to publish claims statistics to demonstrate that long-term income protection is an area where the industry really does treat customers fairly when they need it – at the claim stage
■ Connect with government and identify how the similar interests of the consumer, the industry and government can best be served
The KITEMARKING SCHEME is one of a number of measures drawn up by an industry body to promote IP to a wider consumer audience.
The measures are outlined in a second White Paper published by the Income Protection Task Force (IPTF), which is made up of reinsurers, insurers, financial advisers and consultants.
Sales of individual IP reached a low-water mark of around 110,000 in 2007 and although they increased to just above 130,000 in 2008, the IPTF has concerns that the product is undersold and if improvements to product, process and distribution are not made, it will never become mainstream.
The 75-page White Paper reports on progress made following the launch of the first blueprint two and a half years ago. A well-attended launch at the London offices of Pacific Life Re last month saw the architects of the plan outline the main issues they believed faces the market and set out some steps (see yellow box opposite).
One of the key proposals in the latest White Paper is for a kitemark to be established which would highlight certain products as “genuine” IP, as opposed to short-term offerings. “Traditional” IP can pay out until retirement but the associated costs with such extensive cover has led some insurers to launch shorter term plans, a trend that appears to be continuing. Plans for a kitemark, therefore, could prove controversial.
Equally controversial is the subject of claims statistics, but in the White Paper the IPTF states that it is committed to working with the Association of British Insurers (ABI) to find a workable way of publishing them in order to boost consumer confidence (see page opposite).
The issue of distribution is also addressed in the White Paper. In a presentation at the launch, Clive Waller, co-chairman of the IPTF, said that in addition to the advice channel, the banking and online channels would have to be utilised if the product was to become mainstream. That, Waller said, would require “simpler” products.
The second White Paper also places more emphasis than the first on the role that group IP has to play in ensuring more people’s incomes are covered in the event of illness or disability.
The White Paper is available to download free at www.protectingmyincome.co.uk