Bernie Hickman makes the case for the industry to push customer engagement, regulation and the issues - defining the way forward before it is too late
The protection market has changed considerably in the last three years, perhaps more so than at any point in its history. As a result, consumers have access to better products offering greater choice, flexibility and value for money. But there is at the same time no place for complacency.
One dimension of recent improvements is a rising appetite to challenge a passive acceptance that most customers do not easily engage with what providers offer and few understand anything about protection products beyond the most basic level. In saying this, it would be wrong to suggest that the sector has only just woken up to the problem. Many a marketing person will have been to a customer focus group and come away yet again with a wry shake of the head.
But industry frustration has not always inspired improvement - as a professional community, it has perhaps been too often guilty of intellectual smugness. The fact that 50% do not know what 50% means, is only one of many rueful and recurring jokes about consumer competence in financial matters.
Genuine concern
The concept of a protection gap has been with us for quite some time and is thereby at risk of becoming a cliche. Nonetheless the resolve and zeal of those in the industry to find new ways to engage and serve customers is striking. It is, needless to say, in providers' business interest to gain new customers but there is more than mere self interest in this. There is a genuine ambition to see the protection industry improve people's security for themselves and their families to the greatest practical extent.
What is new, therefore, is industry professionals seeking once again to break out of this stalemate; to find novel ways to connect and engage. Few imagine this will be easy and some things may have to be done differently. It could prove a bumpy ride for the purist.
But has this ambition for change arisen only because of sustained regulatory pressure? The FSA's Treating Customers Fairly (TCF) initiative is, after all, much the same thing is it not? Not necessarily, although in saying this, there are certainly benefits from regulatory reform.
The problem with the implementation of TCF was that, on one level, it seemed something of a 'no brainer', while on the other it was really difficult to know quite what it meant in practical terms. The danger remains that it sounds more like an exhortation than a manifesto of specific and hard-edged regulatory requirements.
It is obvious that the industry has to reclaim the customer agenda in a positive way. If it does not, then few will be surprised if the Government or regulator feels the need to continue with one form of initiative or another.
The Association of British Insurers' (ABI) revision of best practice in relation to non-disclosure is a good example of how the industry can be seen to listen to public concern and move to re-engage confidence. The simple fact is that the public regarded unrelated non-disclosure in particular, as the clearest evidence of insurance companies wriggling out of paying claims.
The ABI Committee involved shared misgivings about what the new guidelines may mean in some cases, but for a major market to exist, public confidence is absolutely essential and no matter what the finer points of technical correctness, the 'right' outcome must be broadly acknowledged. If a few questionable cases getting through is the price of widespread confidence, rising product take up and the majority of claimants receiving financial support when required; then so be it.
It is hoped the ABI will go on to tackle other areas where clinical, technical and legal issues give rise to tensions regarding specific customer understanding and general public perception. The management of Total and Permanent Disability benefit is certainly one such area as is the legal reform of an insurance contract.
In progressing industry initiatives however, the real key lies in the practice and behaviour of individual companies; product providers and distributors. High profile initiatives, no matter where they come from, will always wilt in the end if they are not sustained by a culture built on genuine concern for the customer
Honesty is the best policy
Openness and transparency are rightly said to be the marks of a confident industry and the publishing of critical illness claims data is certainly a good move in that direction. But, despite improving figures, there are still too many declined claims. The event that really defines this - the worst of all customer experiences - is the application process.
Progress is being made to elicit the relevant and necessary information with telephone-based disclosure and interactive, or reflexive, underwriting via online point of sale systems. But there is still some way to go.
Finally, it would be helpful to highlight two areas of great significance on the protection horizon.
Firstly, and almost inevitably, the Retail Distribution Review (RDR). While this ostensibly excludes the sector from consideration, the reality is that the greater part of its distribution also deals in the range of products concerned. If the outcome substantially changes the shape of that distribution, then not having been part of the review will of course seem little more than a technicality. If providers cannot reach customers, they cannot hope to support or serve them.
There are two dangers. The first is that protection is simply not considered and is therefore left to find its own way in the new savings and investment-dominated regime. In highlighting the matter the industry is somehow seen to vote for formal inclusion. This is certainly a dilemma that many will be keen to address this autumn.
The second point is it has been too easy for a financial adviser to avoid discussing protection with clients by simply excluding it from the initial disclosure document given to customers. There is, of course, a need for advice to be flexible and for different specialities to exist in the market but this has in fact led to protection needs being under-served.
The FSA has recently announced that the services and disclosure document will replace the menu and initial disclosure document. It is designed to give advisers greater flexibility and allows advisers to consider the disclosure that best suits their business model. However, there is a real case to be made for protection needs being addressed head on and for it to be much harder to avoid dealing with those needs. The renewed drive to find ways to connect with customers must include maximising the opportunities to discuss protection with an adviser. The industry needs to ensure the customer is the central focus.
Bernie Hickman is managing director of protection at Legal & General
Retail Distribution Review: the story so far
In April the FSA published an interim report setting out current thinking on the RDR following a six month consultation with the market (www.fsa.gov.uk/pubs/discussion/rdr_interim_report.pdf). Feedback to the June 2007 discussion paper called for a clear separation between advice and sales.
The interim report will be followed by a full feedback statement in November which will set out our conclusions and a timetable for change.
Significant considerations - such as the impact on consumers and firms, and legal constraints - may mean it is not possible, or desirable, to achieve a simple separation of market services, and it may be adapted for consumers.
November will also see the release of a timetable for possible regulatory changes and necessary transitional arrangements.
The key features of the simpler landscape are as follows:
- Advice - there would be only one type of adviser. All advisers would be independent, both in terms of status and in their practices, their remuneration would be determined without product provider input, and they would recommend products across the whole market. They would also all meet appropriate minimum professional standards.
- Sales - the starting point for sales is services that are strictly non-advised. These services are intended to encourage higher levels of savings and protection so that the needs of more consumers are met. They would operate within the current regulatory framework.
- Money Guidance (MG) - in partnership with the Treasury, the FSA is taking forward a 'Pathfinder' following recommendations made by the Thoresen Review to determine whether and how this national service may develop. MG has, among other things, the potential to stimulate more consumers to seek out regulated advice and sales services.
