While the dust may still be settling after A-Day, it is clear the life market has been rejuvenated by the introduction of pension term assurance, writes Andy Milburn
Providers had three options open to them in the run up to A-Day: they could choose to do nothing; they could launch a pension term assurance (PTA) product to try to defend their existing book of ordinary life cover business from walking away; or they could launch a new PTA product to chase not just new sales but sales made through advisers who have reviewed existing cover with their customers.
The majority of providers went for the latter option. There are now 10 PTA products available to IFAs in the UK from Bright Grey, Bupa, Friends Provident, Legal & General, Liverpool Victoria, Norwich Union, Scottish Provident, Scottish Equitable, Standard Life and Royal Liver. In addition, Axa and Scottish Widows are planning to enter the market. Only Prudential and Skandia have said that they have no plans to launch into the sector.
Features
So what are the features of the new PTA offering? And ignoring the obvious cost advantages, are advisers and customers getting as good a deal from them as the products available under ordinary life cover before A-Day?
All PTA providers currently offer level and decreasing sum assured. If you want the cover to increase in line with inflation or the Retail Price Index then half offer this feature - including Bright Grey, Liverpool Victoria and Royal Liver. That is a big reduction in the number of providers offering this compared to those who offer it with ordinary life cover products.
Waiver of premium is an important optional extra on ordinary life cover products. However, only four providers offer this alongside their PTA products - with Legal & General being the only one including it for no extra cost. Again, far more providers offer waiver of premium on their ordinary life cover.
Liverpool Victoria is the only provider to offer gift inter vivos cover and joint life cover on its PTA product. That said, the IFA jury seems split on how successful these features will be, with some advisers preferring to recommend two single life plans instead of joint life cover.
Looking at technology, seven of the providers allow advisers to make online applications or provide online underwriting - a big reduction compared to the number of providers who offer ordinary life cover products online. In-depth teleunderwriting is still something that few providers have woken up to in the ordinary life cover arena. Therefore, it comes as no great surprise that there are just four providers that offer teleunderwriting on their PTA products: Legal & General, Liverpool Victoria, Norwich Union and Royal Liver.
All of the 10 providers offer guaranteed insurability options and terminal illness cover within their products.
The real difference of opinion among providers seems to be around switching customers out of PTA and into ordinary life cover at some point in the future.
Switch option
There are currently four options open to providers in this area:
• Do not allow it
• Allow it, but on a case-by-case basis
• Allow it as standard, but the switch is made at new business rates available at the time of the switch, without any further underwriting
• Allow it as standard, but the switch is made to the original gross premium rate that applied to the PTA product at the time of sale, without any further underwriting
Of the present PTA providers, half chose to go for option one and refused to allow customers the ability to switch out of PTA in future - for example, in the event of the customer reaching or nearing their lifetime allowance. None of the providers went for option two.
Legal & General, Liverpool Victoria and more recently Scottish Equitable chose to follow option three. While this seems a great idea, given that there will be no further underwriting, will the customer want to pay a potentially higher premium if new business rates increase between the time of purchase and the time of switching?
Friends Provident, Royal Liver and Standard Life have chosen to follow option four. This means that the customer will not have to go through further underwriting or pay a higher premium, even if they need to switch out of PTA, back into ordinary life cover, at a later date. I wonder how many advisers are aware of these differences in strategy among the PTA providers?
The dust is still settling, but it is clear that a large percentage of what would have been ordinary life cover sales are now going down the PTA route instead. Maybe even close to half, based on our own experience in May and June. Looking further afield, more than 75,000 PTA quotations were produced from industry portal the Exchange in April. That figure rose to exceed 194,000 in May and more than 300,000 in June - with over 1,900 online applications being submitted through the Exchange since April.
It is clear, even just a few months after its revitalisation, that PTA is already having a major impact on sales of life cover in the UK. However, when you compare its products and online processes to those available through ordinary life cover, the PTA market has some ground to make up.
Andy Milburn is IFA market manager at Royal Liver
