Business protection remains relatively untapped by the IFA market. The latest Think Tank debates what the market needs to do to turn this around. Alex Broad reports
Kirstie Redford: One of the current issues for business protection is that there is little penetration in the IFA market. There still seems to be little action, yet it is considered to be a great opportunity. Why do you think that is?
Nick Kirwan: I think that is changing. More people are being drawn into the business protection area of the market. One of the barriers has been that it has the perception of being complicated. The way to be successful is to keep it simple.
Chris Boatman: Is it that there is a lot of work involved to get to the final policy? Is that perhaps the problem?
Nick Kirwan: It is not specifically business protection; it is for protection in general.
Chris Boatman: I do not know. I think that is one reason why IFAs shy away from it perhaps, because it is perceived as being complicated and they think it is a long, drawn- out process.
Nick Kirwan: We recently set up a case team. We ensure they are in touch with the adviser to speed things up. Perhaps the area where they think it is more complicated is the sales process before they get to the underwriter. I think one of the difficult points is that they are often selling to a business and the decision-making process can often be different.
Chris Boatman: It is about divorcing product from advice issues. Some issues can appear complicated. One reason we do not sell as much as we could do is that we do not know enough about the issues facing these clients. It is about knowing enough about business issues and understanding the client's business.
Nick Kirwan: I think it is an area where the IFA has an advantage because they are small businesses. If they do not understand it, who does?
Andrew Valentine: IFAs are afraid of business owners, of getting the board of directors together and telling them what they need to do. It comes down to the legal framework.
Kirstie Redford: Do IFAs have that knowledge?
Andrew Valentine: No. They do not know about the tax situation, for example. They go to a client and they are comfortable selling products. But they have to look at overall business propositions. Where do they see themselves in the future? You have to look at a client's business and the personal objectives of those involved in the company.
Kirstie Redford: So there are big training issues for IFAs if they want to get into this market?
Andrew Valentine: You can do well simply selling products, but it will get tougher.
Paul Wilson: It is about under-standing the business issues. There could be any reason why someone needs to exit a business. You have to talk about succession planning, for example.
Nick Kirwan: But that will make the sale when you understand the needs of the client. As far as legal structure is concerned, help is at hand. We are not alone in offering technical help desks.
Andrew Valentine: Companies want proactive advice. We conducted a survey recently and 95% are not getting proactive advice. A company can move on ten-fold in several years and if the IFA is not monitoring that, they could have an inappropriate legal framework and products. The IFA could upgrade that.
Nick Kirwan: If the business has outgrown its structure, why haven't they got business protection? This is an area for the IFA to win over.
Andrew Valentine: As soon as you talk about pensions, it scares them off. If you say 'I want to find out about your business,' they will be pleased. If you mention products, they switch off.
Kirstie Redford: How keen are businesses to get advice?
Andrew Valentine: They aren't. They are nervous. The first thing is to get the business valued, talk about exit planning and find out how much the business is worth. Then you can go back and base your recommendation on fact not fiction. There is a lot of confusion. There is a lot more we can give in terms of business protection.
Kirstie Redford: Are current products adequate?
Paul Wilson: They haven't moved on a great deal.
Kirstie Redford: How long have they been around?
Nick Kirwan: There are some dedicated business protection insurance products that are adaptations of a theme. In that guise business protection products have been around for eight to 10 years.
Paul Wilson: But they only offer a partial solution. The problem now is there are easier things to sell. These things have been left but it will come back, it is cyclical.
Nick Kirwan: It is all part of the big picture. Companies will have different non-insurance type solutions. They might offer a stake in the business, a pension scheme and all those sorts of things to encourage people to stay. It is all part of the plan of having a healthy business.
Andrew Valentine: I am keen to make the process as easy as possible for the client to follow. Don't just look at business protection, look at exit planning and other areas. Clients need to think about corporate man-slaughter, recruitment, cashflow, and a lot of other concerns. Something based around that could be a solution. Business protection is a way in there; it is part of the overall planning.
Nick Kirwan: IFAs need a roadmap that sets out the events. It would cover issues surrounding exit planning, succession planning and what they need to know and when to ask for help.
Paul Wilson: A lot of it comes down to business-to-business skills.
Andrew Valentine: How many IFAs are working in the corporate market? What sort of penetration is there in the market? There aren't many who work in it day in, day out.
Nick Kirwan: Only one in 20 companies has any employee cover in place. In terms of specialists, I think there are more generalists who do bits of mortgage business, investment and pensions. But I bet, if you look at their customer base, there will be lots of businesses forming as part of their environment. It can be on their agenda, but only if they feel confident enough to talk to the client about this. When it comes to certain aspects they must be able to feel they can ask for help. They have to ask experts. I would like to encourage people that if they need help, they should ask - it is available.
Brian Kerry: We have 300 IFAs in our business and few consider themselves business protection specialists. That is why you have a penetration of one in 20 businesses.
Claire Williams: But these people must have business clients on their books.
Brian Kerry: We have 3,500 corporate clients and I bet less than one in 20 will have business protection - they'll have pensions and that kind of thing. Although we are changing things, we see it as a huge way to move business from financial services into general and vice- versa. The general side has a much closer relationship with clients. It is about getting closer to them.
Nick Kirwan: Surely these people look at taking out insurance as part of what they do? If you're running a business, you're insuring your premises, etc.
Brian Kerry: But business protection - whose responsibility is it? IFAs sell pensions and it falls between the two. The investment side is dead so it is about changing focus.
Nick Kirwan: But if only one in 20 have some protection what a great opportunity.
Brian Kerry: Yes and often it is not even properly arranged.
Nick Kirwan: I think people do need to think about what the product offers on a long-term basis. Directors are going to want to keep the policies for longer, but they have to adapt, change and grow with this business.
Andrew Valentine: The chances are they will take a protection policy out and then look at the bank statement a few months later and cancel it. Servicing the policy is essential as well. Who goes back and checks that they still have what they need?
Nick Kirwan: That goes back to the concept of pre-wiring the sale. It is different selling to a business than an individual. It might go to board level - it is important that everyone who will be party to the decision is brought into the discussion at the beginning. Then, six months down the line you do not get the finance director asking why a policy has been bought. The IFA must ensure the key people are involved in the decision.
Andrew Valentine: If you get in the SME market you have to get them to buy in. You have to make them understand why they are taking the policy out and the long-term effects of that decision. You have to go to the board, chair the meeting and drive the decision through. A lot of IFAs shy away from it.
Kirstie Redford: But isn't that a lot of work?
Andrew Valentine: It may be a lot of work but that is how you will benefit in the end. You have to keep the client for the long term. On the employee benefits side you have direct access to the HR manager - they have time to look at options because that is one of their functions. But when you get the board director, they might be in a different part of the country, so you might have to go through the HR manager, which is a different proposition altogether.
Nick Kirwan: Although there's more work involved, one of the pay-offs is that we do end up writing much bigger cases. Some of the cases we see at Scottish Provident are rewarding for the IFA. The remuneration is very good.
Paul Wilson: But that work leads to a product sale too. Once you have sold, the underwriter can be quite onerous, they have to go through some lengthy medical tests and, particularly for very large cases, it can be quite tough to get it through.
Chris Boatman: One of the problems is we need to align the sales and underwriting process because often they're divorced. When we are dealing with £1m-£2m cases of course there will be a lot of tests involved and yes, it can be a barrier to some people. From purely financial underwriting aspects, because the IFA often does not understand what they are doing, we can see that. Tell us the story - you know the client, tell us the background. That often does not happen. Sales and underwriting need to be aligned so there are no nasty surprises. Reinsurers are taking 90%+ of the risk. They are the ones taking the risk.
Kirstie Redford: Are there any solutions?
Chris Boatman: We are happy to visit IFAs or finance directors. We are happy to help. We offer that service, but they may not want that help.
Nick Kirwan: It depends if they can offer it themselves. But however that information gets to the IFA, whether it is from the insurer or the reassurer, it is important it gets there. Something is better than nothing.
Paul Wilson: Those advisers who are successful in this market have a good understanding of the underwriting process as well as business-to-business expertise. They pre-wire the client.
Kirstie Redford: Does there need to be more communication?
Andrew Valentine: I think there are two skill sets. They want to sell concepts and services. We need a roadmap for the sales process. It is the planners and research teams behind the IFAs who need to be tackled. They are the ones who are involved with the process.
Nick Kirwan: They also need to use a language the business will understand.
Paul Wilson: You have to raise the issue of underwriting during the sales process.
Chris Boatman: You have to identify where the need is.
Andrew Valentine: The first meeting should be fact finding, then you go back with recommendations and talk about possible solutions. But it is the researchers doing that work. There needs to be a clear process. We need a blueprint for this process.
Andrew Valentine: The business market is about partnerships. You have a whole raft of different companies - sole traders, partnerships, limited companies and plcs - they all have different needs and yet we tend to say one size fits all. It comes back to the legal framework. They all have different requirements.
Nick Kirwan: Shouldn't that play to the strengths of the IFA. If every- one has different needs and it is complicated, then isn't there a really big need for tailored advice? If IFAs did focus on it, advice in this area should be more valued than in any other area.
Andrew Valentine: But to penetrate this market you have to understand the needs of the market. We need to specialise. We split our team according to the size of companies. We have people who deal with sole traders and others who deal with plcs. It is like any other business: you go to experts. In this market you have to focus on what you will get best value on. They have to earn and learn. Spend one day as a corporate specialist and four days as an IFA.
Claire Wilson: All the large companies are willing to give them support. If you are not sure what to do, we are there to guide you.
Andrew Valentine: In a meeting with a corporate client you look at legal issues or tax, for example. You have to control the meeting and you have to convince them. About 90% of this is about confidence.
Nick Kirwan: They have to set their own agenda.
Andrew Valentine: IFAs have been great leaders in investment planning, pension planning and life assurance planning but there are no leaders in the corporate market. IFAs love to be led.
Nick Kirwan: If they come to workshops they will be meeting other IFAs, discussing some barriers and issues and they will learn a lot. They shouldn't underestimate their own skills.
Andrew Valentine: There is a lot more we could do ourselves. We should be working together more.
Kirstie Redford: Does anyone have any final points?
Nick Kirwan: It seems to me everything is coming together at the right time. There has never been a better time to attack this market. It is a lucrative area.
Chris Boatman: Product development is promising. When the products become more suitable for the needs of the clients, it will help.
Andrew Valentine: In terms of providers, critical illness protection brochures could be more focused on business, not insurance, speak.
Paul Wilson: Until we have business-like conversations, it will be limited.
Brian Kerry: I do not see that the IFA will change. It will be the province of specialists. It will be the larger organisations.
Nick Kirwan: Aren't they looking for alternative income streams?
Brian Kerry: Yes but they will look to easier products.
Andrew Valentine: We have 50 people (10%) in the corporate market. The guys think it is wonderful. There are ways of doing it but how adept are IFAs at networking?
Claire Williams: I think it has to be a gradual move from their comfort zone.
Andrew Valentine: However, the amount of IFA businesses you see where they are often earning more than the business owner is incredible.
