The over-50s life insurance sector has divided industry opinion over the years. Stephanie Spicer reports on a new report which calls on insurers to stop the rot
When Royal London recently produced research on the over-50s insurance market calling for its ‘market failings’ to be addressed and on other insurers to ‘join its quest to shake up’ the market, there was no apparent a rush from its peers to heed the call.
Insurers are generally coy on the subject unless they offer the sort of flexibility Royal London suggests should be in place (and which it has just added not, surprisingly). Intermediaries and underwriters however, look to the unavoidable issue that individuals pay for simplicity and that it may not be the product design itself that is at fault.
What concerned Royal London was the fall-out from this type of insurance: that 28% of UK adults who purchase the insurance cancel their policy and £173m of life insurance was lost last year (based on 52,000 people cancelling their policy) representing £86m of wasted premiums.
The insurer says cancellations are often driven by financial difficulties which leave customers poorer and unprotected and that the products are confusing. Consequently it lists key points that individuals should check before taking out this form of insurance. It suggests individuals ask whether their prospective provider: offers flexible payment terms, for example: can the policyholder reduce your premiums? whether the policy offer any cover (cash sum) if the policyholder stops paying premiums mid-way through; how quickly the cover is cancelled if they miss a payment; how soon after death it would pay out, and how long they have to pay into the policy for.
LIFE OFFICE PERSPECTIVES
HI Daily asked a number of over-50s insurance providers and it is perhaps significant that few wanted to make comment. So hats off to LV = and Aviva for doing so.
LV= allows customers to reduce the payment (the sum assured reduces in line with this) but adds: “The payment can’t be reduced lower than the minimum premium. Though we have this option very few people take it up. When they call to cancel it would seem their mind is made up and they aren’t interested in a premium adjustment.”
As for whether there is any cash return on cancellation LV= says: “As with any insurance policy the cover is only in place as long as premiums are being paid. However after the 12 month moratorium, customers can make a claim at any time and get the full sum assured. If a claim is made before the 12 month moratorium then we would return the premiums paid.”
LV= gives 60 days from the due date for a customer to pay a premium. “If the customer fails to pay any premium within this 60-day period, we will cancel the plan and let the customer know. The customer can ask us to start the plan again within three months. They will need to pay all of the premiums that haven’t been paid.”
In the event of the policyholder’s death it would be 12 months after the policy began before it would pay out and the individual has to pay to age 90.
Meanwhile, Paul Dalgliesh, head of protection propositions for Aviva, acknowledges his organisation does not currently allow flexible payment terms, ie to increase or decrease premiums.
“However, if a customer is experiencing financial difficulties and feels that they cannot continue to pay their premiums, we would explain all options available – for example, allowing a third party to pay their premiums,” he says.
Neither does Aviva offer any cover (cash sum) if the policyholder stops paying premiums mid- way through.
Dalgliesh explains: “Our experience shows lapse rates to be very low on this product after the first year, and by year five of the policy less than 1% of policyholders lapse.”
Then as to whether a payment is missed, Dalgliesh says: “Our over-50s life insurance cover has 30 days grace from any premium due date. Letters are sent to advise customers of missed payments and if a policy lapses, customers are given another 30 days to reinstate the policy.”
Aviva will for an accidental death pay out the sum assured in the first year and double the sum assured after the first year. When death is by natural causes it will pay out an amount equal to the premiums paid in the first year and the sum assured in the second. The policyholder has to pay premiums for 30 years or until age 90 which soonest.
“We regularly review all of our protection products to ensure that they meet customer needs. In line with this, we frequently speak to customers who have bought Aviva Over-50s Life Cover,” says Dalgleish. “This consistently reveals that both customer satisfaction rates and customers’ understanding of the product are very high.”
Dalgleish adds that its own research shows that the main customer requirement for over-50s cover is for a simple product with no underwriting which pays a fair amount on death – which he argues Aviva’s product does. He also points out that over-50s products are heavily governed by the Financial Conduct Authority rules and Association of British Insurers guidance.
“All of our messaging around product features and risks are extremely transparent,” he says.
This limited delve into the way insurers run these products highlight rather some level of complexity rather than simplicity in the small print but also that insurers are playing largely by the rules.
The nub of the problem is that it seems easy to purchase – no pesky questions from insurers – and that because there are no pesky questions from insurers that add a level of risk that the insurer has to charge for. So, on the basis of cost alone the insurance is not the best deal.
Dale Tranter, assistant group underwriting manager at Personal Group, says over-50s plans are notoriously bad value for policyholders – and pretty profitable for insurers.
“Their premiums reflect both ignorance on the part of the purchaser and a desire to avoid answering what they [often mistakenly] assume will be intrusive medical questions [so insurers just assume those that don’t want to be underwritten do so for medical reasons and rate accordingly].”
There is also perhaps an emotional issue at work. Michael Ward, managing director of PayingTooMuch.com, says that his view on over-50s insurance has completely changed in the last three years.
“I used to think that over-50s plans were all bad, mainly because they are poor value,” he says. “I now realise that customers over-50 and particularly over 60 don’t like the traditional underwriting process, they find it intrusive and it makes them anxious. People buy for emotional reasons not logical ones hence the popularity of no question life insurance.”
Ward has something of a solution: “As the majority of early claims are from cancer, one question for those taking out over-50s plan that could offer 20% more cover would be: ‘Do you have or have you ever had cancer?’”
He adds that this could develop further into a three-question policy which includes cancer, heart attack and stroke.
Still, Tranter adds that: “The vast majority of people would be better advised going to an IFA office and getting underwritten. Even if they get loaded it would still present a better deal than these policies in 99% of cases.”
And cancellations are a common event with insurance for aging clients. Tranter believes a lot of people cancel regular premium financial products once they get past retirement.
He says: “With risk premium annual premium products like private medical insurance they are only paying what the risk premium is at the time of cancellation so lose out less than with a fixed premium [say] age 50-80 contract where they pay the same premium throughout and lose out more by cancelling at [say] 65 as they have paid vastly through the nose in the early years and don’t ever get to ‘enjoy’ the later years when the premium is relatively not [quite] such bad value. From an underwriter’s perspective, because they are always going to be setting rates based on information, they are always going to err on the side of caution/make these products expensive. Any client really should avoid them though, unless they have been declined via the advised route.”
Emma Shaw, private client manager at advisers ADVO Group says the product is mis-understood.
Shaw says: “Life insurance is designed specifically to provide benefits to someone other than the person paying the premiums: it creates a cash gift for someone else.
It follows that policies for the over-50s should be carefully targeted and a clear case made for their purchase, documented to avoid potential accusations of miss-selling. Prospects with cash-flow problems, or likely imminently to face retirement in which cash-flow problems are a possibility, should be out of the frame.
“The survey by Royal London does not seem to address how appropriate it is for an over-50 to pay a premium for a cash gift for someone else. It refers instead to products, to ‘customer’s needs’, ‘safety nets’ and ‘customers’ being ‘caught out’.
“This seems to miss the point, but it does make one wonder whether any of the survey participants were ‘caught out’ by being led to believe their purchase would somehow benefit them personally.”
Quite simply, she says any potential purchaser of life insurance should be made aware that any premium, no matter how small or flexible, will reduce his/her cash flow and that they will derive no benefit from the policy whatsoever.
Les Schroeter, head of individual protection at Premier Choice Group, another intermediary, says another problem is that the policies are often bought direct.
“These products are bought predominantly in response from television or newspaper adverts, with the promise of ease and simplicity,” Schroeter says. “The market is crowded but do buyers take the time or have the wide awareness of other competing products? For a little more, effort individuals may be pounds better off considering a traditional whole of life product.
“A combination of specialist independent advice coupled with clarity of product features explained in simple and understandable language by many clients would be a great step forward. However clients need to be in a position to make rational and well considered decisions rather than an emotional one conveyed by a slick advert,” says Schroeter.
In addition, according to Shaw there needs to be tighter compliance.
“A rationale should be documented and copies held by both customer and provider, without which miss-selling or miss-representation could be adduced,” she says. “Anyone with the slightest problems paying the premium should not have the policy at all. I do not believe, as the survey seems to suggest, that the problem has much to do with the products themselves.”
Whatever tweaks are made to the product is terms of ability to reduce premium or understand when and what payment one might get are largely irrelevant: it is the targeting of the customer where the problem lies.
Shaw says: “Over-50s life insurance is only suitable for the comfortably-off with money to spare. For many the policy will be not only inappropriate but a complete waste of much-needed cash. Targeting of prospects should be responsible, the purpose of the policy explained more thoroughly and insurers should be prepared to decline acceptance of applications which have no supporting rationale for the purchase.”
We will see whether insurers head that call either.