How can the protection gap be tackled? Richard Verdin explains that better training can improve adviser service and boost sales - however, it must be targeted and comprehensive.
The protection gap as measured by Swiss Re is enormous, and while the extrapolated numbers may seem unrealistic to some, the scale of opportunity for providers and distributors is significant. Yet, there is little evidence of providers or other support groups for intermediaries putting significant effort or resources into growing the market. Instead, the effort seems to be directed at maintaining or growing shares of whatever market is prevailing.
So what are the barriers to growing protection sales in the UK?
Significant product development is not the key to unlocking that potential, but there are opportunities in improving income protection, critical illness and product development for the over-50s. However, the real means to grow this market can be found in getting to grips with the consumer issues of trust and understanding, and tackling the problems advisers face in distributing products confidently and effectively.
Consumer trust issues revolve around their doubts that claims will be paid, but equally, they need to be able to trust that they will not be sold something they do not want or need. As for distribution, there are simply not enough competent advisers providing guidance to customers on how to understand and address their needs.
Step up a gear
One look at the market statistics confirms that most intermediaries that offer protection advice are doing little more than slipping a little term insurance into their customers pockets as they pass through another transaction - probably mortgage-related. So the first change that needs to be brought about as an industry is for these advisers to be taught how to step up a gear, and offer a more rounded protection planning service to their clients.
Secondly, the industry needs to engage with intermediaries that do not currently offer protection advice, and have been content providing exclusively investment or retirement planning advice, or stand-alone mortgage advice. One way for the market to experience a real change would be to work with advisers to get them to at least include protection advice as part of their service.
So how can these necessary changes be brought about? If advisers are planning to advise on protection for the first time, or more seriously than they do now, then they need training - and it is this training that represents one of the real keys to fulfilling some, if not all, of the true potential available.
If we get it right then there is every opportunity of improving the current environment from one where a high number of intermediaries lack knowledge and skill - which contributes to a lack of consumer trust - into one where high levels of skill and knowledge are translated into enhanced consumer trust that will improve quality and lead to more sales.
Most prospective customers are willing to talk to, and listen to, advisers. However, advisers need to understand that there are essentially two types of people who buy financial products - either 'planners' or 'collectors'.
Planners only buy products that contribute towards their grand plan. They buy things in full knowledge and with good understanding, which ensures that what they buy 'fits'. As such, they review their holdings periodically and, generally speaking, the sales advisers make such people stick. The planners' good level of understanding empowers them to actively engage with advisers and use them to full benefit; they consider themselves as clients of their adviser.
Collectors on the other hand wander through life picking up the odd product here and there from advisers they bump into. There is no grand plan, and consequently the sum of the financial parts that they buy rarely makes too much sense when looked at together. They may understand a bit about what it is they have bought, or at least they understood it when they bought it.
If sales stick then it tends to have more to do with them being more interested in applying their efforts to doing other things and not reviewing what they have. Collectors' lack of understanding leads them to be slightly cynical and distrusting of advisers generally; they consider themselves to be customers or even targets of advisers.
benefits of education
As long as the adviser is competent, then planners will value them, buy their products and stick with them. Successful advisers are able to turn most customers or targets they come into professional contact with into planners, or clients. They do this not by selling to people, but by educating their clients into understanding the uses of the various financial products available to them, encouraging them to play an active part in creating their own plan and then refining it over time.
Without a doubt, the key to a sustainable protection renaissance is to take existing and new advisers and train them into the type of advisers who can turn the majority of collectors into planners.
findings revealed
It is with this in mind that Direct Life/LifeQuote investigated some of the protection training that is currently available to intermediaries. It found that courses tend to fall into three broad categories:
n Very salesy - the emphasis is very much on 'disturbance' techniques, or how to get customers to recognise they have a need. These often rely on tired and outdated methods to achieve this. These techniques sound great on a course but tend to fail as soon as they are put to use in real life.
n Very technical - as the term suggests, these focus on the minutiae of the products and providers. On the whole they are very good, but they need more training on advice technique, and they tend to look only at products and not the technical aspects of protection beyond these.
n Neither one nor the other - combinations of the above that really missed both marks.
There are excellent courses available from the Financial Services Skills Council, in addition to other courses that focus on protection and do not fall into the categories above. However, they are not immediately obvious or available, and therefore they may not be apparent to advisers either.
There were both good and bad courses run by insurers, but these courses always tend to promote their products. Providers cannot be blamed for not training staff on subjects they are not fully up to speed with - but again it means that, for many, the courses available do not quite hit the mark.
The training model that LifeQuote is looking to implement would focus on:
n Products and providers - detailing the types of providers, the salient points of each product set, the uses for each product and how the main providers deal with some of the benefits offered.
n Insurance, the law and trusts - covering general legal principles, insurance law (at a fairly high level), the use of wills and what applies in the event of intestacy, trusts, their uses and the key roles involved.
n Provider and policy taxation - looking at the basis of taxation, how different types of taxation are applied to insurers (at a fairly high level), general policyholder taxation and inheritance tax.
n Commission - getting to grips with indemnity, non-indemnity, renewals and LAUTRO calculations.
n Underwriting - covering the basic principles, types of decisions, limits and how they are applied, together with the additional types of evidence that can be collected, disclosure and the possible effects of non-disclosure.
n Reinsurance - how and why insurers use reinsurance.
n Advising, buying and selling - intelligent ways to get customers thinking about what is important, and how to create a plan that makes sense.
Of course, because this is 2008, the majority of learning will take place online. Users' understanding would be tested as they go along, and they would be required to attend an in-depth training day - or days - in addition to passing an exam.
Direct Life believes that informed, confident, competent protection advisers are what customers need and when they encounter them they will arrange more cover, because it makes sense to do so. Collectors can be turned into planners; the industry just needs to help some advisers understand how they can help to bring about this change.
In summing up, the protection industry should be teaching and training more than ever before, because the alternatives to a well-informed distribution and knowledgeable consumers are no good for anyone in the market. Change requires action, and with all the other woes projected for the coming year, action needs to be taken if protection is to thrive in 2008 and beyond. n
Richard Verdin is sales and marketing director at Direct Life & Pension Services
