The results of COVER's recent DISCOVERED research, sponsored by PruProtect, confirmed price as the most influential factor when advisers recommend products. Johanna Gornitzki reports
The last 12 months have not achieved anything out of the ordinary for the protection industry when it comes to product development. Despite a few fresh showers of innovation delivered by PruProtect and Lincoln through their launch of severity-based cover and group income protection product respectively, the sector has failed to deliver anything but a mild change in temperature as insurers have kept themselves busy fine tuning their already existing offerings.
Product innovation has always been portrayed as the key to the protection market's success but would intermediaries agree?
COVER research, conducted exclusively online in April this year, showed that price is still the main factor for advisers when deciding what product they would suggest to their clients. Just under 40% of respondents to the survey said competitive pricing is the top priority they are looking for from a provider entering the protection market. This was closely followed by innovative products and good service, with 29% and 26% respectively.
Sammy Rubin chief executive of PruProtect, says he is not surprised by the findings. "Price has been a key differentiator in selecting protection cover for some time. We are, however, seeing innovation in the market that better meets consumer needs and allows intermediaries to offer their clients choice that is not driven largely through price. A price-based proposition diminishes the value of advice to some degree."
Most insurers spend a fortune on advertising when they launch a new product but according to the survey, money would be better spent targeting the trade media as a staggering 46% of advisers questioned said they first learned about new products through the trade press. Using a traditional sales representative to get the message across is also highly effective with 20% of respondents saying they are relying on these people to teach them about any new innovation hitting the market. Another 13% revealed that they relied on conferences and roadshows to keep them updated while only 8% said they learned about new products through advertising.
Stick with what you know
Some 43% of intermediaries look at value when developing a shortlist of providers to use, while 19% said they go on previous experience. That said, cost still plays an important part for many advisers with 19% saying they would look at price when creating a list of insurers to use, showing that being price competitive is highly important.
"We often hear that life cover has never been cheaper. Instead we should focus on the value that insurance cover provides. The importance of insurance cover has been eroded over time, but now we as an industry need to stop being apologetic about the cover we provide to the many individuals and their families. Affordability is a function of the implied value or utility from a good or service and if we can demonstrate the value, then some of the challenges around affordability can be addressed," says Rubin.
Around half (51%) of intermediaries believe there is enough product differentiation in the protection market, while 34% disagreed. But while most advisers feel like there is enough product differentiation in the sector, some 62% still believe there are gaps in the current market that can be filled by new products.
Unsurprisingly, a massive 80% think it is "essential" or "very essential" to take customers' long-term protection needs into account when recommending a particular provider.
The research also shows that the Financial Services Authority's Treating Customers Fairly initiative has been clearly embedded in most intermediaries' way of conducting business with 89% saying it is "essential" or "very essential" to offer true product choice to clients in order to meet regulatory requirements.
An ideal world
So what new products would advisers like to see? Reshaping income protection (IP) insurance seems to be on many IFAs' minds, with suggestions ranging from an IP product that would give own occupation but with claim periods ranging from 10, 15 or 20 years; a hybrid protection payment insurance and IP written under Insurance Conduct of Business as a protection product; and an IP product where a client can alter benefits or take a break if they change jobs. Overall, most advisers questioned said they would like to see a simplified IP cover which would be more affordable. Whether that is possible to achieve without losing too much of the benefits of the cover remains to be seen.
But while a lot of IFAs would like to see new product development, not all agree. One respondent argues the relevant products already exist but that effective communication and training are needed to sell them.
So how much do IFAs feel customers' needs have changed in the past five years? The general consensus among advisers is that the need for protection has increased over the past few years as employer and state provision have been reduced. Despite this however, they argue the interest in purchasing protection has fallen among consumers as the "live for today" culture is becoming more prevalent.
Cost is also a factor due to the increasing debts that clients have had to take out with increasing house prices making more people less willing to spend. One adviser commented: "I am finding a number of clients leaving themselves exposed as they use their entire budgets for mortgages alone and decline protection, stating they cannot afford it."
Intermediaries seem to be quite pessimistic in terms of the future of the protection market. Many think the sector will see little change over the next five years and some IFAs even believe the protection gap will widen. Only a handful of intermediaries think protection will come back to the fore again due to the shortcomings of the mortgage market, while many advisers think the market will contract and mergers and takeovers will continue to reduce the number of protection providers. As one adviser summised: "It depends on economic conditions: if times are hard, protection becomes less important to clients and therefore more difficult to sell. I would like to see cheaper premiums, but who wouldn't?"
Rubin is more upbeat. "Protection is an incredibly important part of financial planning and this has often been ignored in favour of booming investment markets and mortgages among other reasons. There are signs of intermediaries returning to protection given the slowdown in the housing market and volatility of investment markets. There is a huge protection gap that presents intermediaries with an opportunity to address the needs of consumers."
With the credit crunch slowly bulldozing its way through the UK economy, it is unlikely the protection market will remain unaffected. However, if the sector remains innovative it is possible it can get through the storm without too many injuries. As Anders Sander, senior consultant at Watson Wyatt, says: "With uncertain times ahead, further innovations may well be the only way to encourage more consumers to get the long-term protection cover they truly need. Providing solutions that fit more specifically to the needs of the individual would seem to be one of the ways ahead."
- The survey was conducted online in April with 134 respondents.
Message from our sponsor
The fact the protection market needs to adapt with continuously evolving consumer needs and medical advancements is not news for providers or advisers. However, what is interesting to note from the research is the extent to which brokers feel there are gaps in the protection market that can be plugged by new products.
Some 62% of advisers believe new products could help fill current gaps in the market and 29% say they are keen to see innovation from new entrants to the market. The research also shows that in addition to long-term protection needs, 43% of advisers examine the value of a product when developing a shortlist of providers to use. Almost half of brokers also believe it is essential to consider the long-term protection needs of customers when recommending a product.
At PruProtect we believe advisers are integral to any change in the market because it is through them that consumers are guided to the benefits of having relevant cover.
