Most companies use celebrities, sex and glamour to sell their products, but life insurer Allied Dunbar is taking a more unusual approach. Rather than promoting the feel good factor, it is playing the “feel bad” card, and hoping that death, disease and disability may do the trick and boost sales.
As part this campaign, Allied Dunbar is trying to raise the profile of critical illness policies, with promotion backed by hard facts, hammering home just how common cancer, stroke and heart attacks are today.
Keith Baldwin, managing director at Allied Dunbar, says: “People in the UK still spend more on cigarettes and alcohol than they do on protecting themselves and their loved ones against potential financial disaster. We want to help change this.”
The facts speak for themselves. People are far more likely to suffer a critical illness (CI) during their working lives than they are to die – yet while most have some life insurance, few have any form of CI cover.
And Allied Dunbar hopes that its scare tactics will persuade more people to talk to a financial adviser – as well as their own tied agents.
Peter Kelly, life marketing director at Allied Dunbar, says: “All we are trying to do is put the facts in front of people so they can plan their own future. We hope that many of them will talk over these matters with a financial adviser and ensure that they, and their families, have adequate protection.”
But, behind the company’s aims lies the fact that the majority of people do not currently buy these policies from financial advisers. Over half of all CI policies sold are bought as an add-on to a mortgage – so cutting many financial advisers out of the equation.
In this type of situation, a CI policy acts as an insurance policy against the loan. If the homeowner suffers a stroke or heart attack and is unable to work, then the policy will pay any outstanding debt on the mortgage – an arrangement which clearly makes sense for both the mortgage lender and homeowner. Particularly because a mortgage is the biggest financial commitment most people will make, and, when they are taking on this huge debt, they may be more willing to consider some form of loan protection or insurance. A couple of years later they may be less willing to pay for additional premiums.
This means that intermediaries who recommend mortgage products are clearly in a good position to generate CI sales. Rather than offer just one product, like a lender, they will be able to provide valuable independent advice on a range of products.
But IFAs and brokers who are not in the mortgage market may find themselves at a disadvantage in selling CI. So what can they do to increase sales?
One strategy is to stress the benefits of independent advice. Not least because many IFAs claim that the CI products sold by mortgage lenders are over-priced and often offer limited cover.
IFA John Joseph, of John Joseph Financial Services, says: “Consumers are unlikely to pay any more for a CI policy from a financial adviser, but they should get more comprehensive cover.”
Beliefs like this stem from the fact that many of the products offered by banks and building societies only cover a limited number of conditions. Generally the major conditions – stroke, cancer and heart attacks are covered – but certain life threatening illnesses from Alzheimer’s to Hodgkinson’s disease may not be included.
And few banks and building societies, or the direct writers in this market, sign up to agreed core definitions.
Kim North, a director with financial advisers Pretty Financial, says: “Most banks have a minimal level of cover. Because they do not work within the same core definitions as IFAs there are often worrying gaps.”
On top of this, North claims that banks are generally far more expensive. Because they have so much of the market sewn up, they do not have to compete on price in the same way as providers who are selling through IFAs.
But all these policies offer a “catch all” phrase within the policy, which states that if the policyholder is unable work at all through total permanent disability then the policy will pay out.
Joseph describes these few words as “a most dangerous phrase” which could mislead policyholders.
The problem, according to Joseph, is that there is no clear definition of what constitutes total disability, and it is not job specific.
While many people would not be able to continue in their own job if they went blind – they would obviously still be able to work, so their CI policy may not pay out.
Joseph says: “Financial advisers will be able to arrange cover that is occupation specific, so if you are no longer able to do your job because of a critical illness, the insurance policy will pay out.”
He adds: “We would always advise customers to take a whole of life policy.
This can then be cancelled when the policyholder wants to cancel it – not when the mortgage is paid off – which is clearly in the policyholder’s interest rather than the mortgage lender’s.”
These facts all mean that financial advisers have several strong points to sell on. They can offer more comprehensive cover, at a cheaper price, and can also ensure that policies are tailored to offer maximum protection for customers.
But many still insist that CI remains a hard sell.
IFA Margaret Borwick, of Durkadale Professional Financial Planning, says CI is still a “tricky sale”.
She explains: “There is a perception that this is an expensive policy that customers will not want to buy.
“Intermediaries may be conscious of looking like pushy salesmen, and after talking through pension, life insurance and investment options, may not want to mention critical illness as well – particularly with younger clients.
“It is thought too risky. So unless customers bring up the subject themselves, it is possible that CI might not be discussed properly.”
But this is unlikely to happen to Borwick’s customers. She admits to being a CI “enthusiast” and says that she sells more policies to younger customers than older ones.
One of the major problems with CI is that once customers get around to wanting this cover – it maybe too expensive to buy.
For the under 30s premiums remain relatively cheap but it is generally older customers who start to worry about their health, and about the financial implications of serious illness.
Borwick claims that financial advisers have a duty to sell the concept of CI to younger customers, so when they get older they will already have this much needed cover in place.
She adds: “Sales can be hard work. If it is an easy sell, the chances are that they have had some previous medical history or that one of their family has suffered a life threatening condition.”
“Although the sale might be easier in this case – it then takes longer to find them cover at a reasonable price,” she explains.
Borwick recommends Skandia policies for younger low risk customers, and adds that Guardian Financial Services can often provide cover for higher risk clients.
At Pretty Financial, North adds that she also recommends Legal & General, Scottish Provident and Allied Dunbar. North explains: “With well established companies like this the claims service is always good. These insurers will ensure that they treat claimants compassionately. Obviously this is a stressful time, and relatives of the policyholders do not want to be hassled in hospital for three written proofs that their husband or wife has suffered a heart attack.
“Although insurers obviously need written confirmation, they will talk to doctors themselves to get this, not hassle relatives.” This is important, because, unlike a motor insurance policy, if customers are not happy with the claims service on a CI policy, it is too late to switch.
And the choice continues to grow in this market. Russ Brady, a spokesman for Guardian says that the company is looking to develop its CI portfolio further – with the introduction of guaranteed premiums that will not rise with age.
This should be welcomed by advisers, as they should be able to target younger customers more effectively.
But other developments in the CI market have not been greeted with the same enthusiasm.
There are a number of tailored CI products such as AIG’s WellWoman policy which provides cover for female specific cancers. But Fiona Price, of financial advisers Fiona Price and Partners, says women are often better off buying more inclusive cover.
She adds: “Generally these policies try and wrap critical illness cover up in a pink bow to appeal to women. But women are often better off seeking a more comprehensive policy.”
However, because these policies do not cover all ailments, premiums are far lower, and so may appeal to women who cannot afford full CI cover.
But as awareness grows of CI, sales should become easier for IFAs, particularly as premiums are falling.
North says: “Claims experience has not been as bad as many underwriters originally anticipated, so premiums have fallen considerably.”
She adds that there is more potential in the market than IFAs have so far realised and suggests that they should also target customers who already have CI cover with a bank or building society.
“Initially they may say they have this cover and are not interested in further information. But most could probably save money and get more comprehensive cover by switching to a new plan through an IFA,” she says.