Garry Heath , the executive chairman of specialist advisory firm, Special Risks Bureau, tells Angela Faherty how he hopes his new business will help to stimulate further growth in the market
Garry Heath has never been one to shirk a challenge. As one of the founders of the first trade association for IFAs, the National Federation of Independent Financial Advisers (NFIFA), it is fair to say Heath has made his mark on the industry.
"Being involved in the creation of a trade association at a time when there wasn't one for IFAs was a significant achievement, " he says. "The fact that I helped to create and was actively involved in running the organisation for many years is something of which I am very proud."
The NFIFA has since become the Association of Independent Financial Advisers and while Heath no longer heads the body, he remains active in the industry. He hopes his latest venture, the Special Risks Bureau (SRB), will help to address some of the issues the protection market has been facing in recent years. The firm has been running for just over two months and things are looking good.
"What we really want is to create a centre of excellence, so advisers or indeed, members of the public can contact us for any special risk cases. This includes people with medical conditions as well as those who have hobbies that may be considered as highly dangerous or hazardous," he says.
Heath points out that one of the major problems facing the industry is multiple applications. While it is easier for advisers to tout around for business, he says the cost to the industry amounts to almost £60m every year, much of which is wasted unnecessarily on duplicated medical reports and administration costs.
"There is a massive amount of money being wasted and a lot of companies are doing an enormous amount of work. Most of them cannot afford to keep spending this money on business that is never really going to come to fruition," he says.
Having speculatively observed the industry for some time, Heath, along with his business partner Mike Owen, stumbled upon a business opportunity that would help to address one of the many problems the industry has been facing.
"We were looking at the problems the industry had in various territories and while there wasn't much difficulty in finding any, the challenge was finding one you could actually do something about," he says.
This challenge led Heath to focus on those people who have difficulty in attaining life cover. He says the industry spends an enormous amount of money and effort underwriting all standard applications, but feels non-vanilla clients need a bit more attention.
"Most major insurers now have online application forms to store information and subsequently, issue policies in real time. While this is great for the 70% of standard clients in the market, what about the other 30% who represent the non-standard side of the industry?" he says.
It is this 30% of the market that Heath is targeting through SRB. It accounts for approximately one million people a year and could generate a significant amount of revenue for the industry if handled correctly. Heath estimates that of the million people classified as special risk cases, 900,000 will be accepted at standard rates after having a medical or after the insurer has seen a general practitioner's report.
"These are the cases we are aiming to secure – the ones the electronic sausage machine cannot cope with very easily. As insurers' systems get more and more efficient at dealing with the traditional vanilla client, there are a million clients sitting out there and they are getting left behind," he says.
To help the process run more smoothly, SRB is adopting a different approach to tackle the situation. The firm has an in-house medical underwriter who assesses all applications at the outset in order to determine what medical information is necessary. It is then sent out to insurance companies who can decide whether or not to place the risk.
"The situation is ideal as the insurers have no administration costs and have only one medical cost to share between them. Instead of each provider getting a medical report done and then not securing the case, we do that for them. It provides a better solution for everyone."
The SRB has already received its first 100 cases, but Heath has big plans for the future. He hopes to be securing about 25,000 to 30,000 cases a year in five years time as well as expanding the product range.
Currently, SRB deals with life assurance and critical illness applications. It plans to introduce impaired annuities into its business proposition in the first quarter of 2004 and hopes income protection can be offered further down the line.
"Income protection is an obvious expansion, but the problem is there is a lot of complexity involved with selling the product as it is. And when you add in the complicated area of special risk, then it makes it an even more difficult area to deal with. It requires serious thought and we don't want to make promises that we cannot deliver," he says.
Heath is looking to grow the SRB by increasing the number of IFAs on its books. It has already formed strong relationships with 140 IFAs through introducer agreements and hopes this will increase dramatically over the next 12 months. Currently, it pays out 70% commission to IFAs who bring business to SRB and the remaining 30% is retained by the firm.
Heath adds that one of the benefits of mopping up the business classed as specialist risks is that it will help to close the protection gap. He believes many clients self-exclude themselves because of a previous medical condition or because they partake in hazardous activities.
"The question is how many self excluded clients are there in the market? How many will not go to see an adviser because they have a medical history or go helicopter flying and presume they are uninsurable when they are not?
"If we can get to these people – the ones that can afford to cover themselves – then this is the best way forward. There is no point targeting those who cannot afford protection when there are a million people out there who can," he says.
Looking to the future, Heath expects a number of firms specialising in special risks to come to the fore. Indeed, since SRB's launch, another, Risk Placement Services, has already been established. But Heath is quick to add that he welcomes a bit of healthy competition.
"Inevitably, there will be a number of specialist brokerages popping up over the next few years and I don't think it will make a difference. In fact, I welcome it – the one way to go bust in life is to be the only antiques shop in town. If there is more than one company specialising in this area, we can raise the awareness to both the adviser community and consumers alike and grow the market," he says. "And that can be no bad thing."
