The term assurance sector has been slow and steady recently, but as Owain Thomas writes, it could do with a boost from the housing market
When examining the previous year in the term assurance (TA) market, one could feel as though they were Marcel Proust, taking a mouthful of madeleine cake dipped in tea, causing memories to flood back of a better, happier time.
That is not to say the last 12 months have been a nightmare for the industry, it just has not been an overly positive period either.
Dean Mason, principal of Masons Financial Planning, typifies the feeling throughout the sector with his cautious optimism.
And while TA is predominantly governed by the performance of the mortgage market as buyers take on policies to cover their loan, this appears to be going a step further during the current slow sector.
"At the moment it is taking so long for lenders to approve mortgages that a lot of clients are saying ‘we don't want to sort this out until we get our mortgage offer," he explained.
"Then once they get the offer they complete right away because the whole chain has been waiting, so then they think ‘now we'd better get our insurance sorted.'
Usually, while you were processing the mortgage you'd be sorting their protection, now a lot of people don't want to discuss it until they can get a mortgage offer.
"So it seems to be happening at a different part of the process," he added.
This is not the only way however, that mortgage lenders are influencing the term assurance market.
It seems they are even capable of pushing clients towards one type of plan rather than another.
"There's a movement driven by the lenders towards capital and interest mortgages," Mason continued, "so we're moving towards decreasing term assurance (DTA) than level term (LTA).
"I still try and advise customers, particularly if they've got children, that two LTAs in trust is a better value contract for them, but some will say cost is an issue so they stick with DTA."
Another feature Mason has identified, although not one those in the market are likely to try and exploit, has involved divorce settlements.
In these cases, against his advice, clients who still have dependant children have cashed in their endowment and the accompanied lost life cover.
"I'm not sure what the figures are but perhaps divorce rates are higher when people have money problems and perhaps that's causing more people to make the wrong financial decisions in cashing in endowments on order of legal teams and courts and so they find themselves going back into the market for protection," he adds.
This is not a trend commonly found among advisers, but many have noted the ongoing price war between providers, and given the current economic climate, the demand for lower premiums and hesitation surrounding more expensive products.
As Rob Waller, partner at Future Life, explained: "There's been a lack of critical illness (CI) cover being taken as most people go down the life only line. Rather than life and CI, we're seeing people tightening their belts and I usually find the ones I do write CI on are young people with first mortgages where the premiums are realistic."
One thing that does characterise the term assurance market is intense competition from all providers. Although there are smaller niche players in the sector, it is by-and-large dominated by those larger scale companies.
And in times where the mortgage market is slow and related sales of protection products are correspondingly sluggish, it can result in significant price competition or expansion into new areas to retain market share.
Richard Verdin, director of protection at Aviva, has recognised both of these occurring in the TA market.
"There's been a flip-flop from mortgage to family protection," he said.
"It's partly the changing habits of advisers, but there's also been a lot of effort by providers to focus on the business protection market and while there's evidence of that being successful in pockets, it hasn't shifted significantly. However, there's no doubt about it that changing your price a little bit can have a significant impact on your volume," he added.
Paying death claims quicker has been much talked about throughout the industry in recent months and Verdin, who chairs the ABI's protection taskforce, agreed this is an important step to get right.
However, like many others, including some advisers, he suspects it will have a negligible impact on sales as customers do not consider the claims stage when choosing a product.
Finally, Verdin addressed the sector's future and noted that, while traditionally life insurance mirrored the housing market, that link had been broken by regulation in both sectors.
This resulted in a slight decrease in protection activity the first subsequent time mortgage rates improved as it appears neither the broker or customer had time to complete a holistic planning exercise when dealing with increased red tape.
"So what happens if mortgage transactions lift in the future?" Verdin asked.
"A lot of people are saying the market will improve as housing transactions do. I'm definitely of the view that they will if it's a small increase, but if we see a return to the previous levels, that could actually damage the protection market. And of course we've got RDR and lots of other things that will impact our market," he added.
While no one in the industry is predicting a return to the same peak of housing transaction during the last boom, it is to be hoped that those brokers who have picked up the habit of advising their clients to protect themselves continue to do so.
