Targeting consumer needs

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Last month the Income Protection (IP) Task Force published White Paper II outlining the Task Force's thoughts on the current state of the IP market, Peter Carvill examines what consumers need and how the Task Force will respond to them in light of this.

In the middle of last month, the Income Protection (IP) Task Force, headed by Peter Le Beau of Le Beau Visage and Clive Waller of CWC Research, published White Paper II, outlining the current thoughts of the Task Force on the current state of the IP market, the measures needed to improve the take-up of the product among consumers and the actions to be undertaken by the Task Force in respect to this.

Last year’s White Paper I set out nine objectives that the IP Task Force wished to implement in order to revive the product, and it is from this end-note that White Paper II begins, declaring of last year: “Any plan of this sort [referring to the nine points] can look dated upon return two years later but, it is heartening that real progress has been made as a result of some of the ideas suggested, although others still remain a problem.”

Partial and whole success

White Paper II reports success, partial and whole, in a number of areas such as the re-engineering of application and underwriting, and the product itself. However, in other areas, such as regulation and a move to essential expenses, the paper appears to report little or no serious progress. In the area of regulation – “We asked two years ago that ASU/MPPI distributors should make clients aware that long-term income protection also exists and for all providers to identify their product as either short-term or long-term. We re-iterated these comments in our recent letter to the Competition Commission and believe they are taking this suggestion seriously.” – and the move to essential expenses – “Our original suggestion was to have ‘a default of essential expenses’. We urge the industry to consider this approach for any product that they hope to appeal to the mass-market.”

Gratification

However, WPII said it was encouraged that tele-underwriting had become nearly standard for the industry: “It is very gratifying to note that the use of tele-underwriting (both big T and little T) is much more commonplace in the industry and rules based systems have been adapted to provide a much more flexible platform for underwriting. It is fair to say that companies are now pushing out the boundaries of what can be done with re-design of forms, reflexive rule-based questioning and re-evaluation of what matters in the underwriting process for income protection.”

The development and launch of new products also came in for praise: “While it is invidious to place too much emphasis on a particular product, the arrival of Real Life Cover (originally from Fortis and subsequently from Royal Liver) was a great example of product innovation driven by distributor experience and provider flexibility. The LV= product, seeking to access the old market that valued MPPI highly, produced a better product for that market than existed before. They removed the ‘toxicity’ from the product that alarms consumerists and journalists so. […] There is nothing sacred about the IP product but there is a great deal to admire about the financial solutions it provides.”

In conclusion, the report said of last year’s aims: “Virtually all of these areas have been worked on but there is still a long way to go before the nine-point plan is complete.”

Overall, the authors of the report made a number of conclusions: there is a need to implement a drive to increase awareness of the product among the general public, advisers and the media; the adoption of the Essential Protection Index as an industry standard; legislation that will force employers to give statements of entitlements to their workers once a year; a standardisation of the non-competitive aspects of products; a method of transparency and comparability in order for customers to compare IP products; a reclamation of the ‘income protection’ name from payment protection insurance and accident, sickness and unemployment providers, and a simplification of the process for buying IP along the lines of the PPI processes.

The paper finishes with a new five-point plan for the coming year:

  • “The Task Force is to look to ‘connect with Government and identify how the similar interests of the consumer, the industry and government can best be served.”
  • The Task Force will look to increase its activities in ensuring customers and advisers are aware of the issues around long-term illness, disability and the financial consequences of both.
  • The Task Force is to work on the ‘vacuum’ left by the Competition Commission’s investigations into PPI, and the effect of those investigations.
  • “The Task Force will attempt to harness the potential synergy between Government policy on workforce health and the way group income protection arrangements function.”

And, finally:

  • “The Task Force will endeavour to encourage insurers and distributors to make it easier for consumers to obtain clear, accurate and transparent illustrations of costs and benefits that are easily comparable.” In doing so, the IP Task Force said it will lobby the regulator, the Association of British Insurers, the Association of Independent Financial Advisers, the Personal Finance Society and the Institute of Financial Planning to join them in this.

With the collapse of the PPI market, the changing focuses of the FSA and the recession, it looks like next year may be the year that the IP market carries on the trend of embracing change and begins to truly embrace change.

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