With the results from COVER's latest annual Insight research revealed, Peter Carvill looks at trends in the protection industry and the effect they are having on intermediaries.
Following a tumultuous 18-month period that saw the protection industry assailed on all sides by transformations in many of its working practices, the ripples of change in how intermediaries conduct their business are becoming evident.
The latest annual COVER Insight Research, conducted exclusively online, was taken by 270 intermediaries over a period of six weeks. Of those questioned, nearly half (44.6%) were IFAs, and the majority of respondents (67%) focused mainly on individual, rather than group, business.
The advent of new regulation such as Treating Customers Fairly (TCF) has raised significant concerns among those questioned, with 17% declaring that they had stopped recommending certain products because of new regulation. Some 76% of those polled asserted that one of the key issues that they have to confront was new legislation.
However, many key figures within the industry felt that new standards and rules, particularly TCF, were beneficial to both customers and intermediaries.
Andy Milburn, IFA market manager at Royal Liver, believes that TCF is going to be a valuable step towards looking after customers.
"We believe TCF is a positive step, because it covers everything we do, although there is still plenty of work to be done," he says. "We feel that TCF has been the Financial Services Authority's (FSA) biggest play to make the industry get its act together. Would we have had the pensions mis-selling scandal if we'd had TCF?"
Roy McLoughlin, senior partner at Master Adviser, echoes Milburn in his assessment of TCF: "It is clearly good news for both IFAs and customers. As long as there is a level playing field, particularly in protection, that can only be a good thing. Remember that we are customers of the insurance industry too."
The new regulations and recommendations viewed warily by those answering the survey encompassed more than TCF. Other recent developments include the end to pension term assurance (PTA) from December 2006 when the Government announced that the tax relief on the cover was to be cut, and the Association of British Insurers' new definitions of critical illness from April 2007.
Paul Cowman, category manager for protection at Just Retirement, says the about-turn from the Government regarding PTA took the industry by surprise. "At the time PTA was withdrawn, there was confusion and concern from providers as it was less than nine months since HM Revenue and Customs indicated there would be tax relief on premiums," he explains.
Moreover, paperwork was noted as a major challenge by 70% of respondents, despite the growing utilisation of online systems for submitting applications. Cowman explains that "the growth of online capability has been one of the success stories of the protection market".
He says: "Nearly all of the main players have very robust online capability for most products and, increasingly, it has become a deciding factor for IFAs that are able to submit business online. Companies that do not have a full online capability will be losing business to those that do."
online services
Some of the reported difficulties of the gradual switch to online applications have been borne out by the survey, where 40% of intermediaries questioned said they still submitted applications via paper, as online services for products are not always available.
"That is a huge issue," says Milburn, "as applying for products online is the way forward. One or two providers are close to writing all of their business online, yet there are many that are scared to switch completely from paper."
The quality of the online systems in use was also explored by the study. Just over half of respondents (53%) stated that they preferred to research products and providers using third-party portals such as The Exchange, which itself was named by 75% of those surveyed as being the best.
The variance in quality between online systems is a point illustrated by McLoughlin, who observed that seemingly 'flawless' systems are often anything but. "Online applications are sometimes a law unto themselves, as unfortunately they do not always work. Our experience is that online applications are an exercise where fingers need to be crossed," he comments.
As with any business involving consultation with, and direct sales to, customers, the balance of price versus quality is approached in many different manners by intermediaries.
The survey asked respondents how they would choose between two products that were similar in features and price. Surprisingly, there was no definitive answer: 25% said the speed of underwriting was the key factor, while 21% opted to judge based on customer service and 17% felt that claims service was the crucial issue. This indicates that with no industry consensus as to the best approach, choices are being made on the individual preferences of the intermediary involved.
There was a similar spread of answers to the question of when price may be more important than quality: 22% thought price was more important when affordability was the deciding issue, while 19% said quality should never be substituted for price. In addition, 17% said term policies should be the crucial factor.
Milburn believes that the extra expense may be worth the peace of mind that the right product would supply. "Affordability is an issue but if the difference is only 10 pence, then what is reliability worth? Many advisers won't do business based only on price, and it works because, if you do things like that, you are susceptible to customers walking away."
The issue of declined claims has been a stick used to beat the industry with recently due to its relation to non-disclosure on application forms, despite more than 80% of claims being paid out by insurers. "This is a real issue in protection, as half of declined claims are due to non-disclosure. When a policy does not pay out because of non-disclosure, there is not only a failure on behalf of the product but there is an ill client who will not receive their payment," Cowman says.
According to the survey, there appears to be a belief that non-disclosure on applications is largely unintentional. The most suggested (30%) solution was for application forms to be produced with more clarity.
Milburn agrees there is a need to take a long hard look at application forms, citing particularly the amount of reading required to fill in details. "At 41 pages, your attention span goes and you miss something. Tele-underwriting and wet signatures will have a greater impact on non-disclosure," he says.
Tele-underwriting is widely seen as an advance in the industry for dealing with non-disclosure. Just under a third of intermediaries (29%) said they had used it, and that the service had been supplied by the providers themselves.
As to the question of whether tele-underwriting has had a positive or negative impact on the industry, more than 70% of those who had used the service said the effect was positive. In comparison, 75% of those yet to take the plunge were unsure of what effect there had been.
Effective safeguard
Different forms of signature were also thought to be effective safeguards against non-disclosure. Obtaining an online signature is the most popular method used by intermediaries, with 89% stating that this was one thing they always asked for, and 48% thought obtaining a physical signature would be effective.
In addition, 75% said they believed proper explanation of the importance of full disclosure and the consequences for not doing so was a relevant measure, and 30% said the double-checking of applications by IFAs would also reduce incidences of non-disclosure.
Milburn explains that the problem may be more than an issue of what IFAs can do to educate their clients, saying that providers must also take on responsibility. "We need to look at the whole issue, not just one section of it, because a large number of providers aren't doing enough to educate IFAs," he says. "It's a processes and practices thing rather than an education thing. If you're not given the bullets, then how can you fire the gun?"
COVER Insight 2007 points to a number of interesting observations about an industry that has experienced rapid change in the past 18 months, and with more to come. The adoption and implementation of measures and practices by the industry to align itself with new regulations has been a challenge, and is likely to remain so in the future.
Non-disclosure is still an issue, and will probably continue to be so as long as there is a protection industry, but how big an issue it will be will be decided by the actions of everyone involved. As it is, there is no standard industry response or approach to certain issues - such as price versus quality - so whatever happens in the next year is sure to be interesting. n
