Protection business in 2012 and 2013 will be affected by events this year and some fundamental changes to the way customers policies are priced into the next. Richard Verdin explains.
The only certain outcome is that joint policies with different genders will remain the same on price with the likely outcome that life and CI policies will rise in price for females, and the price of income protection prices will rise for males.
No one knows what affect the competitive environment will have after that.
The point is that this is yet another inflationary pressure on protection pricing reinforcing implications already highlighted above.
It seems that it will not take very long for entrepreneurial advisers to work out those thinking of buying a policy early in 2013 might (depending on the cover they are looking for and their gender) be well advised to buy during 2012.
It goes without saying that it is never good advice to buy something just because in the future it will be more expensive. Many such sales have a way of unwinding themselves through the complaints process when the “economies” prove unjustifiable.
The result of all the above is it is reasonable to assume that following a summer holiday rich in sporting events, we may see a rise in new business to be offset by a subsequent lull in 2013. All of which – as was said at the start – has implications for resourcing, planning marketing activity and ultimately cash flow and profits. The gender directive will also affect product/proposition development.
Consider this, in a post-gender directive world, where a male customer buying CI cover discloses a family history of breast cancer, the genderless response to his price may mean providers applying a rating.
What is quite likely, therefore, is that providers could offer exclusions in replace of ratings so that the men and women will be able to pick and choose.
This may develop further with products having cover benefits offered to all at the same price, but targeted at specific genders.
Again, a great planning tip for advisers is that whilst the law is the law and prices will have to be genderless, that isn’t the basis on which insurers and reinsurers will value cases. Insurers will value a better than market mix of female lives for life and CI and males for income protection. So if your business has such a mix you may well benefit.
For the reasons detailed above, we can see greater volatility in the short term than we are used to. But the protection market and those who trade within it are resilient.
Having come from an adviser and broker background, as well as having witnessed the astonishing switch from mortgage to family cover sales immediately following the mortgage market meltdown, I know that while appearing stagnant the protection market is in fact sturdy and far more sustainable than many imagine.
The past 15 years have proven that the absolute price is not the constraining factor of this market as a whole; at the top level this market is price inelastic. Price is a competitive issue only within the market. The landscape is changing, but it is rich with opportunities.
Six out of ten UK families are still without financial protection and while we can’t manage something rounded to the nearest hundred billion pounds, it is our responsibility to help each individual and each family address their gaps.
Then, as our grandmothers would say: “If you look after the pennies, then the pounds will look after themselves.”
Richard Verdin is protection director at Aviva
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