As the face of the protection market undergoes significant change, providers should be working with advisers to help ease the burden, says Gerry Warner
The good news for providers, IFAs and consumers is that a more streamlined protection market is emerging as a result of regulation.
IFAs are, of course, already coming to grips with depolarisation, new regulatory demands and a newly regulated mortgage market, which means providers should be doing their bit to help ease the burden by providing attractive and practical products and second-tonone support services.
Compliance obligations facing IFAs seem to be forever increasing.
This, coupled with rising cost pressures, raises some concerns about their ability to remain profitable or indeed, to survive.
Obviously fewer IFAs on the ground is not good news for the consumer.
The protection industry has never been more competitive and the choice of providers is huge.
This competition drives providers to attempt to differentiate themselves through price, product tweaks, an array of added value benefits, and increasingly, service.
Price may drive the choice of provider for many consumers, especially in areas such as mortgage protection, but a good financial adviser will know that cheapest isn't always best.
A good adviser will understand the finer points such as which provider is most appropriate for a client with a specific medical history or condition; or which has a more inclusive, if robust, attitude to underwriting.
With so much choice, the need for a greater number of professional advisers has never been greater.
Availability Despite the challenges facing advisers in the protection market, there is still a lot that providers, distributors, and consumers can look forward to.
Perhaps because of problems in other markets, or because we are all waking up to the huge protection gap that exists, or due to the push from central Government towards more 'self help', there has been increased focus on the need for protection.
Established players are being joined by new entrants who have realised that to compete in a lowcost, low-margin environment, the proposition must be enticing.
Being attractive on price is an advantage, but boasting slick processing through online systems, fast underwriting decisions, and immediate risk where necessary are equally important.
Jargon-free 'plain-English' literature and additional features which, if well-researched, can make the difference, will be welcomed by consumers and advisers alike.
The often referred to protection gap, does exist, with many mortgage- holders seemingly content not to protect against the possibility of an untimely death or serious illness.
Out of a working adult population of 27 million people, the critical illness (CI) book is some five million strong, and only about one in 10 have individual income protection (IP) cover.
This industry has much to do to create more attractive, more affordable products that better meet the needs of an increasingly financially aware consumer, one that seems more willing than ever before to research financial products before buying.
Having said that, it is the financial adviser who, with years of experience in this business, best understands the needs of his or her clients, and providers simply cannot develop the products and services of tomorrow without genuine, deep and meaningful co-operation in this area.
Providers and distributors working closely is key to the future success of the market.
While much of the current term market is rebroked business, advisers have begun to realise they are having to look elsewhere, particularly with the likely upward trend in rates and despite the fact that consumers seem more comfortable re-mortgaging than they did several years ago.
Rebroking becomes less likely where CI cover has been included, given the reduced availability of guaranteed rates and the corresponding price hike these plans have experienced.
The CI market is divided at the moment and this division needs to be addressed.
Should we offer guaranteed rates at a higher cost, or reviewable ones with the potential for unexpected increases should morbidity experience deteriorate? Does the product continue to do what it set out to? Will it become unaffordable in the longer term? Perhaps not surprisingly, there is also a huge appetite to address the issues surrounding the IP market, and again, it will be a case of distributors and providers, plus good consumer research, combining to make this work.
If the rebroking market opportunities are set to diminish, other opportunities exist for the intermediary market and providers to work together.
Not a week goes by without some reference to the ever-increasing Inheritance Tax (IHT) issue.
The threshold, below which tax is not paid, has simply not kept up with house price inflation, and as a result, many thousands of householders are falling into the tax-trap without even realising it.
Nor, does it seem, do their advisers, unless regular contact and annual reviews are maintained.
Older clients, larger sums assured and more complex underwriting may turn some advisers away from this area of the market and yet, with the correct amount of support from a provider that understands the issues and can provide the right solutions, this problem can be addressed.
Inclusive underwriting, an ability to talk directly to underwriters, access to technical and legal helplines, with trust documentation, and an efficient whole of life plan all make this a more comfortable sale for all concerned, and fill yet another gap.
Businesses also suffer from a huge lack of protection cover in terms of key person, shareholder and business loans.
Varied research suggests that as few as between 5% and 25% of businesses have any form of protection cover and yet proprietors will readily admit that their businesses may not survive long following the loss of a key employee.
Bad press Businesses arrange pension schemes, insure plant and machinery, why not address an equally important need? Working closely with a provider who has the required underwriting skills will ensure that opportunities are not lost, nor indeed are the clients.
The protection market is not without its problems.
Whether it is the fault of the drive towards shorter application forms, the desire to get more cases on the books quickly, whether it is innocent nondisclosure or otherwise, every so often the industry suffers from the bad press associated with repudiated claims.
It is certainly difficult to envisage any provider trying to avoid claims for the sake of it.
Insurers do not seek to alienate customers, nor the advisers who choose to place business with them and who can just as easily take it away.
Going forward, the key is to ensure that the drive to secure business swiftly and efficiently does not get in the way of obtaining all the information needed without confusing the customer.
One thing is certain though, while individuals do not all have the foresight to invest in the stock market or make pension provision, the vast majority do, however, have some form of protection need.
Fortunately the protection industry is wellequipped to meet that demand.
Gerry Warner is protection development manager at Zurich
COVER notes
• Established players are being joined by new entrants who realise that to compete in a low-cost, lowmargin environment, the proposition must be enticing.
• This industry has much to do to create more attractive, more affordable products that better meet the needs of an increasingly financially aware consumer.
• Providers and distributors working closely is key to the future success of the market.
