The health insurance and protection markets saw significant changes in the last year. Here, seven key industry figures reveal their thoughts, hopes and fears for 2006
Fay Goddard, AIFA
A massive (£2.3 trillion) protection gap presents advisers with an enormous market crying out to be filled.
Nothing compares to face-to-face advice and the need for its provision at a family and corporate level is a message that needs to be pushed. Corporate business, in particular, is a market in which IFAs have traditionally excelled, with companies seeking advice on group risk business, key person protection and overdraft protection. This market continues to offer huge opportunities, with a reported 60% of businesses having no protection in place.
Following the introduction of regulation in any market, there follows a reduction in the number of firms in a particular sector.
Regulation brings challenges as well as opportunities. Compliance must be tightened and standards of competency raised. Advisers need to be extra vigilant now the ombudsman is looking over their shoulders. Care needs to be taken to plug all the information gaps so advisers avoid leaving themselves open to misunderstandings which could result in complaints. Using the AIFA non-disclosure check-list will help with the process.
The existence of regulation is a good PR message for consumers. They know they can receive advice safe in the knowledge that if things go wrong there is a formal complaints structure to handle their grievance. Unadvised sales do not offer this valuable protection.
But for advisers who are up to speed, the market for health and protection business is there for the taking and there is no reason 2006 should not be a bumper year.
Dr Thom Van Every, PatientChoice
While there will always be demand for traditional, comprehensive PMl, this type of product will eventually become a niche offering to large corporate customers or the upper ranks of smaller company management.
Elsewhere, and particularly in the individual market, the drive to make health insurance affordable will lead to continued growth in innovative products and the markets they serve.
Growth in this 'innovative' market will be further boosted by changes in the provision of UK healthcare as the fragmentation of NHS providers makes the need for comprehensive PMI less relevant.
Technological advances also make the traditional 'in' and 'outpatient' boundaries of PMI less relevant. As examples, consider the rapid rise of radiology-based interventions such as angioplasties, which have all but wiped out the private market for cardiac bypass operations, or the growing shift to healthcare at home, where the healthcare provider visits the patient.
Modern oncology therapies have also strained the traditional PMI model. From the broker's perspective all these changes mean hard work since they entail learning about new types of products.
However, their efforts are being rewarded because the innovative products appeal to those struggling to afford traditional PMI as well as those who have the financial resources to pay full premiums.
But some other advisers feel disinclined to offer or even consider the newer products and prefer instead to continue with traditional PMI. These brokers, who think it is business as usual, must presumably feel confident they can defend and even expand their services within the shrinking traditional PMI market, because if they fail they will be consigned to history.
Rick Wilkinson, Watson Wyatt
As we look ahead into 2006, there are a number of challenges and opportunities in the group risk market.
A-Day is now in sight and the market is bracing itself for a period of high activity.
It is well documented that the legislation changes will have an impact on the provision of death-in-service benefits. With clear tax advantages available from changing the way these benefits are delivered, this will lead many employers and employees to question their current benefit design and, in some cases, look for bespoke solutions that sit comfortably in a post A-Day environment.
There will be some employers who decide not to make changes in April, but they will still need to consider the implications of A-Day.
For currently insured death-in-service benefits, the challenge will be to find cover at the right price and on the right terms. Sure, simplification brings the opportunity to optimise tax efficiency - but at what cost and at what inconvenience? Any changes in benefit design should be cost-neutral and not result in an increase in medical underwriting for high earners.
The insurance market has yet to fully react to A-Day issues. It is therefore imperative that discussions with insurers begin sooner rather than later.
Although 2006 activity will predominantly be around the implications of A-Day, we can also look ahead to other topics later in the year such as the potential consequences of age discrimination.
The draft age discrimination legislation is due to be issued over the coming months with a planned implementation date of 1 October 2006. It is still unclear whether group risk will gain an exemption from the legislation. If it does not it may lead to uncertainty regarding maximum qualification ages.
Andrew Honey, FSAWhen we took on responsibility for regulating the sale of general insurance 12 months ago, we were aware of the significant challenges we faced. Not only because of the importance of the sector, but because of the significant increase - of around 10,000 - in the number of firms we would regulate.
In implementing the new requirements for these firms we recognised the risks posed by general insurance products, compared with investment products and the important role competition plays in this market. The need for proportionality in regulation was a key driver in the new regime design.
First we sought to protect the reputation of the general insurance market by identifying firms operating outside regulation. We were pleased our recent review - of over 1,700 firms - identified only a handful of intermediaries wilfully acting illegally. These have either been brought into regulation or ceased to carry out regulated activities.
Our primary objectives for the retail sector concerned the fair treatment of consumers and the quality of information and advice available to them. We identified a number of areas where it appeared some early supervisory work would be necessary, and we have concentrated on these during the past year.
Our supervision has been marked by a graduated and risk-based approach, aiming initially to focus on raising standards across the market. Where we found problems, we have engaged with the industry to tackle the issues. However, if during follow-up reviews next year, we find our messages and guidance have not been acted on, we will take enforcement action.
We plan to continue in the same vein in 2006 - checking whether standards have improved in areas we have looked at. We will also be publishing our findings in further areas including compliance with client money rules in the retail market and handling of policyholder claims by firms.
Ian Jefferies, Friends Provident
Pension term assurance will be a major change in 2006 and experts seem divided on whether it will produce 'real' new business, a damp squib or a limited rebroking opportunity.
Moreover, another round of ABI working party definition changes are due later in 2006.
This will improve clarity and understanding but any reversal of current trends needs the mortgage market to recover.
The predicted mark two CI product seems far away unless a provider or two has the courage to dip a toe in the water with something different.
Overall, with a number of new entrants in the last 18 months, one certainty is that the market will become more competitive with repricing activity and work on improving service quality.
There are plenty of challenges ahead but none more so than education.
The real need is to educate the public and deliver the protection message in a meaningful way.
Reidy Flynn, FOS
Disputes about protection products generally relate to a customer's failure to disclose information or the fact that they were not made aware of the policy scope as well as exclusions.
I believe many disputes would be avoided if customers were given more time to think about their answers and encouraged to check their medical records.
If they had a copy of the application form to check, they would be able to correct mistakes, rather than waiting for the insurer to look at their medical notes after they have made a claim.
Emphasising the benefits of a policy rather than explaining the contract in a balanced way is likely to lead to insurance being mis-sold.
The industry could do more to help customers understand the product they are paying for.
This does not mean they have to understand every clause - but they should know why the product has been recommended to them.
David Child, The Exchange
In 2006, we will see significant changes in the types of product sold and a major shift in the way business is conducted.
In the first quarter there will be enormous focus by all sector specialists in bringing new products to market for A-Day. These products will need to deliver requisite e-business facilities to ensure demand can be met. At the Exchange we are already working to ensure we include PTA products in our comparison tables, while allowing users to differentiate them appropriately
With continued pressure on the industry to reduce costs, improve efficiency and deliver quality service to consumers the old mantra of better, faster, cheaper, prevails.
In the year ahead, new distribution models will start to have an impact on the market. At the Exchange, we have seen a steep rise in the number of portal-powered protection panels and multi-ties created in the 12 months since depolarisation. And more will follow as distributors seek to protect market share by offering advisers a choice of access. So far distributors have given much consideration to choosing the right providers for their panels. As the trend continues, dream teams of providers will emerge, creating a two-tier league of protection and other product specialists.
And finally, advisers and products will benefit from the more efficient process which will revolutionise the client experience. As unnecessary costs and labour-intensive processes are eradicated, service levels that were once reserved for high net worth clients will become more commonplace across the client list. Services that typically counted man days will happen at the touch of a button. It sounds like a Utopian vision, but we are already making it happen.
For example, the administration headache of tracking new business across various providers will be revolutionised with the introduction of aggregated new business tracking.
Tele-underwriting, which is poised to become the ubiquitous industry standard, replacing many GP requests, will also remove cost and delay from the process.
