Study: Protection advice still price-driven in 'increasingly dysfunctional market'
By Lucy Quinton
Advisers are still choosing policies for their clients based on cost, according to the results of a study published by NMG Consulting.
The findings by the consultancy firm showed that the protection sector is "an increasingly dysfunctional market, in which advisers allocate business on the basis of quoted price, insurers are rewarded for focusing on price and on cost over service or product quality, and clients ultimately bear the consequences".
The findings of the inaugural report are based on interviews with 120 advisers and networks based in the UK between May and August 2006.
Commenting on the results, Hamish Worsley, UK director and head of strategy practice at NMG Consulting, said: "Insurers generally focused on cost efficiency and have moved away from supporting advisers in selling protection. This has led many advisers to focus more on investments and pensions where there has been innovation and improvement in servicing."
The research also showed that price was the main driver for advisers' recommendations and many advisers revealed they focused on quoted price to ensure a simple and objective basis for client recommendations. It found that price-focused insurers such as Norwich Union and Legal & General dominated today's market.
Alan Lakey, principal at Highclere Financial Services, said: "As any protection specialist knows, the cheapest is rarely the best and the main aim should always be the best value for money. This presents a different answer to clients with different aims, aspirations and affordability."
The report also found that advisers thought providers passed the buck when it came to accepting responsibility when dealing with problems once identified and "are rarely proactive in identifying, resolving or reporting on servicing issues".
However, the reputation that advisers are more than willing to rate providers with their feet as "relatively minor or one-off mistakes - poorly handled by the insurer, or by the adviser - led to the termination of lead relationships built over many years".
Providers that were in advisers' good books were Skandia, Zurich and Royal Liver, while Norwich Union was considered the worst provider, with a staggering 42% of the vote. The report found that, in spite of these observations, Norwich Union had the second highest share of advice relationships and consequential sales, while Skandia, Zurich and Royal Liver underperformed on these measures.
