Year after year the business protection market fails to live up to predictions that it will rise like a phoenix from the ashes. Johanna Gornitzki looks at the obstacles hindering sales
Business protection has never been an easy sale. Not only has there been little interest shown by employers in the product, but advisers have also turned their backs on the sector. At first glance, the reason for this is unclear. How could advisers ignore the fact that there is a huge untapped market waiting to be explored? And why are employers not taking more precautions to safeguard their businesses?
Intermediaries have, to a large extent, avoided the sector because of the perceived complexity surrounding it. And surely, it is more difficult to process a business protection policy than it is to advise on an individual or group policy.
Untapped market
While business protection policies are designed in the same way as income protection (IP), critical illness (CI) and term assurance products, the sum assured tends to be larger for a business policy compared to an individual one. And the higher the sum assured, the more work has to be undertaken before putting a policy into place.
Providers typically have a financial threshold for large sums assured and if clients go above that limit they will generally become subject to a more thorough financial underwriting process, which includes having to provide additional information. For most life offices, this limit is around £500,000, but it can range from £350,000 to £800,000. Since most businesses commonly need around £500,000 to £600,000 for key man protection, the majority of companies fall into this category, which means that most of them have to provide additional information, which for example, could include supplying a copy of the last three years' audited company reports and accounts.
It is here that intermediaries have to tread carefully because not only does this put a further strain on them to ensure they give the correct advice, but it could ultimately also expose them to liability as this is a very complex area. Therefore, it is no wonder that a large section of the intermediary community shy away from this area of the protection market.
Adding to the strain, it appears that while many advisers seem to have a general knowledge of business protection, very few seem to have any expertise when it comes to the finer details. Indeed, this is where one of the biggest obstacles lies as many advisers feel they do not have sufficient knowledge regarding the complexity of the various potential solutions available.
This has effectively left the UK market with very few business protection experts, something which in itself, has proved to be another obstacle. Further exacerbating the problem is the fact that business protection should be written in trust in order to make sure the business benefits from the policy in the most suitable way. This is an area where many advisers feel that they lack experience.
"It has not helped that only 4% of intermediaries sell more than 50 business protection cases per year," says Mick James, marketing manager for protection products at Standard Life. In that kind of environment it is hard for advisers to keep on top of developments.
To address this problem, some insurance companies have introduced field underwriting, where an underwriter comes and talks directly to a client in order to settle a deal. He or she will then focus on the financial side of the application, as it is here many advisers feel that they do not have enough knowledge. "The majority of intermediaries are fairly confident with the medical side of the underwriting process. It is the financial side they are worried about because they are not used to it," explains Matt Rann, head of underwriting at Scottish Equitable Protect.
Field underwriting could also solve another obstacle often experienced by employers when taking out business protection. As a comprehensive financial underwriting process often needs to take place, this type of cover could be quite onerous and time consuming. A busy managing director of a small company simply does not have that time to spend. Anything that would speed up the process would therefore be welcomed by both advisers and their clients.
Other ways in which providers are trying to encourage advisers to enter the market have been the launch of business protection guides and seminars on the subject. This, they hope, will both educate intermediaries and make them more confident. So far, however, their efforts have been in vain as it has not enticed advisers to push the products. The emphasis on more easily sold products coupled with the fact that it takes a long time to see a business protection case through, has left many intermediaries disinterested.
A large part of this is also due to the fact that employers have shown little or no interest at all in the area. "Employers are focusing on insuring the things in the office instead of the people," says Alison Turner-Holmes, protection marketing manager at Skandia. Advisers are clearly aware of this. In research conducted by Standard Life in 2002, 22% of intermediaries said the greatest challenge when focusing on business protection was indeed to find clients. Another 12% of respondents also stated that persuading clients to opt for business protection cover was one of the hardest things to do when advising on the product.
But why are employers so hard to convince? While the need for business protection is certainly there, it seems there is a lack of awareness about what it is. A lot of firms do not know they need to protect the business itself, and may think that covering their employees is enough. Of those employers who are conscious of their protection needs, a majority also seem to have a desire to bury their heads in the sand, with many of them presuming a disaster will not affect them.
Besides a lack of confidence among advisers and a lack of awareness among employers, there is also another factor that is keeping sales down - the absence of any official business protection sales figures. The reason behind this is that business protection sales have always been lumped together with sales of individual IP, CI and term assurance.
This may make sense as the products are the same, but if the business protection market is ever to take off, there has to be some official data suggesting that this is a separate market. James agrees. "This lack of figures makes it difficult for the market to kick off," he says. Without any indication as to whether sales are increasing or decreasing, intermediaries will stay well away from the sector.
To overcome the barriers currently facing this market, both providers and intermediaries have got a job to do. While already supplying brokers with guides to business protection, life offices need to continue to actively support advisers if they want sales to make a leap upwards. Trying to gather official data would also almost certainly help to give this market a much needed push.
Lack of awareness
While providers need to offer advisers their support, intermediaries, on the other hand, have to inform business clients about the importance of protecting the business itself, and make them more aware of what could happen if they fail to do so. "The adviser has to say to the client, 'you are running a business, you tell me how easy it will be to replace your head of sales? And how costly it would be?'" says Rann.
Although there are no official sales statistics for business protection, most providers estimate that the uptake is between 5% - 10%. Turning this around in favour of the intermediary, it means that nine in 10 businesses could be in need of advice. "With cover so low, even walking down the high street with a leaflet about business protection may have a large impact," says James. Intermediaries should also try to strengthen their relationship with individuals that work closely with employers if they want to gain more business protection business as a lot of sales are made on the back of referrals made by people such as solicitors and accountants.
As has been shown, there are a number of things that advisers could do in order to try to overcome the barriers facing the business protection sector. While protection providers have continued to serenade the market, the stark reality is that intermediaries are still not convinced that advising on the product is worth their while.
The truth is that a lot of energy is still spent on other areas of the market, and as long as these sectors provide advisers with enough lucrative business it is unlikely that they will ever consider focusing whole heartedly on a market that has so far failed to take off. However, if the interest from employers were to grow, then the very few business protection advisers that currently do exist in the UK will surely be smiling all the way to the bank.
COVER notes
• The lack of confidence among intermediaries and the lack of awareness among employers are the main reasons the business protection market has failed to take off.
• The absence of any official sales figures has also contributed to the low uptake.
