As new products stutter and stall, few providers are offering the kind of innovation needed to gain any ground towards the level of service policyholders really need, writes Lucy Quinton
Gauging the temperature of the new products in the market pool, it is undeniably tepid. After what was initially seen as a breath of fresh air with the emergence of two totally different products - Virgin Money's cancer-only plan and Prudential's Flexible Protection Plan - last year, the temperature has cooled significantly and the amount of new products entering the market has diminished ever since.
Despite the feeling that these are the only two companies that have demonstrated any real desire for product innovation, there have been several softer launches such as the revamped Pioneer Friendly income protection (IP) plan, the new Cirencester Friendly IP plan and WPA's top-up insurance, which provides cover for cancer treatment not available on the NHS.
Alan Lakey, principal of Highclere Financial Services, heaps praise on Pioneer's product, claiming it deserves to be an "outstanding success" as it is the only plan available that offers ongoing 'own occupation' cover for all classes. While he is still complimentary over the Cirencester product, there is a sense of caution as it only offers 'own occupation' for the first 12 months, apart from another option where the cover reduces over time.
Looking at previous developments, Prudential's Flexible Protection Plan has received mixed responses, with the more negative ones suggesting the product may be too complex. As Lakey says: "Critical illness (CI) is complex enough, yet this plan introduces variations of cover, new conditions and also different percentage payments depending on the lifestyle impact. I believe it is not only too confusing but also extremely likely to lead to complaints where the client misunderstands the terms of the contract."
Roger Edwards, products director at Bright Grey, agrees in principle with Lakey, saying it is a complicated product and in the current market he believes there is more pressure for something simple rather than something more complicated.
Exceptions
However, while it is easy to knock new products there are one or two people out there in the market that really do welcome such examples of product innovation. One of them is Peter Chadborn, principal of CBK, who says that, in principle, he likes what Prudential has achieved. "It's doing something different, particularly in terms of it being severity-based. Customers respond well to severity as it is seen as fairer."
Also jumping to Prudential's defence, perhaps unsurprisingly, is Angus Maciver, UK insurance business director at Prudential, who says: "We think that many are marginal improvements on traditional CI models. With the flexible protection plan product, we believe we are offering a product that has moved with the times and is benefiting customers by taking into account medical advances and the fact that people need cover that is continuous and proportionate."
Feelings surrounding Virgin Money's cancer plan are pretty much the same in the market from both the provider and adviser perspective. Johnny Timpson, head of distribution development at Scottish Widows, is forthcoming about the product, commenting on its innovative and attractive qualities to customers that look after their health.
However, advisers are less enthusiastic about the plan, with both Lakey and Chadborn describing it as "gimmicky" and Lakey going even further, declaring it "not even worthy of discussion".
Perhaps the area where the success of new products lies is in the smaller less hyped products, such as Pioneer's and Cirencester's revamps. Andy Milburn, IFA market manager at Royal Liver, says that where providers often go wrong is in the big launch, where there is lots of hype and it is followed by nothing when it all goes quiet.
"When are financial services companies going to learn how to do marketing less arrogantly? Quiet launch - underpromise and over deliver. Get IFAs onside. It's so much better for your reputation," he adds.
Milburn insists that, until the market gets its thinking cap on and develops a new product that is marketed less arrogantly and more aligned to advisers and their beliefs, it will probably stay in its current state.
Timpson, however, says that, alternatively, there needs to be a change in mindset and that, rather than rushing to develop new products, the market should step back and think about the customers' needs. He explains: "We should strive to improve the ones we have, make them easier to buy, own and adjust to changing needs over time. What we need to think about building, if anything, are very flexible menu plans or protection wrappers that offer a range of solutions with the flexibility to change the underlying shape of benefits as customer needs change. This would allow us to keep a customer for life, increase lifetime value and enable us to review the value share between provider and distribution."
However, contrary to what Timpson says, the majority of the market believes product innovation is essential to its continuity. Providers should strive to generate new products because, as Maciver says: "Declined claims are very topical and dominant in the press. Therefore, as an industry, we need to ensure new products offer what the customer wants and are aligned with medical advances."
Agreeing with Maciver, Edwards says that product development is important because the protection gap is so massive and existing propositions are only scratching the surface of the problem.
While the market may not respond well to product innovation, another concept - apart from a change in mindset - is product tinkering. One such provider that believes in tinkering is Legal & General; and Bonnie Burns, product marketing director at the firm, says it is essential because all products need refreshing from time to time, so it is necessary to keep an eye on market developments, consumer demands, regulatory changes and medical advancements. "We've been around in the industry for a long time and have a lot of experience. Launching new products just for the sake of being innovative would be a waste of money and wouldn't help customers if the products were ill-considered or overly-complicated."
Customer service
Providers should also be looking at areas of customer dissatisfaction in an attempt to make protection more accessible. Timpson says it is also possible to do more communication as an industry to support products. Ian Noble, head of life sales and marketing at Lincoln Financial, agrees, saying the industry is not calling for product innovation but innovation in service. "The demand is not there for these products. Providers are focusing on improving levels of service. People are looking more closely at electronic applications, tele-underwriting and improving non-disclosure. These are the major issues facing the industry," he adds.
When it comes to product innovation, though, the reticence of providers to follow Prudential and Virgin Money's example and try something new is perhaps well and truly down to Noble's belief that the answer lies in service innovation. However, industry figureheads such as Lakey are also keen to point out other contributory factors. He says providers have not followed suit partly because of the time and cost of dealing with the CI changes and fallout from the pension term assurance fiasco and partly because they have opted to sit on the fence and see where Prudential's experience will lead.
Edwards is also hesitant when it comes to product innovation, saying: "We will continue to see product evolution, but I do not see radical change in the adviser market unless a company is willing to take a longer-term view. What I would like to see is more investment into the process that surrounds the product. What can we do to innovate there? How can we improve the experience people have during the application process and during a claim," he adds.
Perhaps the answer to the industry's problems lie, therefore, in tinkering and service innovation as opposed to product innovation in particular as Lakey says virtually all 'new' products are versions of existing ones anyway. Noble expands on this idea, adding that the answer lies in having clearer outlines regarding non-disclosure, improved electronic underwriting services and enhanced understanding of the need for protection products. Besides, the industry seems to largely knock product innovation, bar one or two exceptions. This is further shown as experts in the market do not believe it to be the answer to its own problems such as declined claims and non-disclosure issues. Burns suggests the market should work together to improve consumer confidence and increase the proportion of claims paid. "This means treating customers fairly, educating customers and intermediaries on non-disclosure, providing clear literature and paperwork for customers and ensuring customer experience is positive. It's a combination of products, service, technology and experience," Burns adds.
In order for the industry to move forward, the product innovation pool may not necessarily have to be warmed up prior to entry. In fact, that pool may be better left chilled as it becomes redundant as market players move to other local pools such as service innovation and product tinkering. Should insurers all choose a similar pool, confidence would be enhanced by the industry as a whole working together to ensure education and understanding among consumers and intermediaries is heightened.
