While term premiums are unlikely to fall much further, IFAs are likely to see many improvments to the sales process, as Adele Burton discovers
Term assurance sales continued on a strong footing last year despite being dogged by controversy over endowment policies. The life industry is hoping for a smoother ride this year, although the review of the Standards of Best Practice due out in May is sure to spring a few surprises.
Billed as one of the simplest and most effective types of protection, term assurance is also one of the cheapest forms of protection and the past year has seen more competitors enter the market, although there has been consolidation between groups.
The tragic events of 11 September also had an impact in the latter part of the year ' with sales rising as a result. Nick Kirwan, head of product development at Scottish Provident, says: 'We have seen a marked change since 11 September. A lot of people seem a lot less secure since then. Interest rates have also been low and stock markets volatile, which means investors have been reluctant to put their money into investments. In this sort of environment IFAs are unlike to turn to protection.' he says.
During 2001, some term providers implemented further rate cuts, but experts are uncertain whether this can be sustained in 2002.
Ronnie Martin, product director at Legal & General, says: 'We won't continue to see the sharp downward movement in price which we've experienced in the last couple of years. Future mortality improvements have been taken into account very largely in today's pricing and it would be unreasonable to expect them to carry on in the way they were. Any movement in price is more likely to be a reflection of customer servicing and processing. This means that the downward movement would be less than in the past couple of years.'
Jerry Warner, marketing development manager at Standard Life, agrees: 'There won't be the same degree of rate cutting this year ' being able to pass savings on to customers can't go on. If premiums start to bottom out there will be more emphasis on quality.'
Alongside pricing issues, the state of the mortgage market could have an effect on term assurance. Industry research has shown that 45% of term assurance is mortgage-related and providers expect this figure to increase.
Last year's endowment demise did lead to a reduction in term sales but Laura Shanks, product development manager at Scottish Equitable, believes that this is now over. 'Endowments have had an effect on the mortgage protection market but I think this is coming to an end now,' she says.
As a result of endowment policies hitting the headlines during 2000 and 2001, Mike Haughton, protection product development manager at Royal & SunAlliance, believes that more people now opt for repayment mortgages which in turn opens up a bigger market for those requiring term assurance to cover mortgages.
He added: 'Those providers who can handle large applications with minimum administration will be the winners. They will be looking at bulk deals to get the business through as quick as possible.'
Changing borrowing trends have also had an impact on the term market. Kirwan says that he has noticed an increase in the numbers of people taking out flexible mortgages rather than fixed deals, which suggests consumers want more flexibility over all of their finances ' including protection.
'Huge numbers of people are now taking flexible mortgages rather than fixed. This means people are demanding the flexibility which goes alongside flexible mortgages. There are now more flexible protection plans on the market and this is a trend which will continue,' he says.
However, research from Legal & General has shown that 85% of males and 92% of females do not have any term assurance on top of their mortgage, which Martin says offers many opportunities to intermediaries. 'There are still lots of opportunities in the market particularly for individual and family protection,' he says.
As for the housing market in the coming year, the mortgage industry believes that current interest rates are as low as they will probably go and is predicting a buoyant year and this should be good news for the term market. Kirwan says: 'Interest rates are low which implies the mortgage market will be buoyant.'
However, if there are pressures in the housing market, Martin says that advisers will move into other areas such as business protection, where term assurance can play a vital role. 'Using the opportunities that stakeholder has provided, advisers will be talking to businesses about stakeholder issues and they can then talk about business protection at the same time.'
One area to look out for in the coming year is e-trading. Several insurers believe that more intermediaries will look towards this as a source of business practice. With the advent of new technology enabling applications to be processed online, providers are optimistic that this is the way forward for intermediaries.
Haughton believes that more intermediaries will turn to technology in order to accelerate business applications.
'Providers will try to be slicker in their processing in terms of speed and efficiency. IFAs will be able to put business straight onto the books via the internet. At the moment there are only two or three providers doing it but I think there will be a lot more.'
Martin agrees: 'The move towards e-trading on term assurance is gathering pace. IFAs are responding well and see it as a benefit to speed up the whole transaction and allow cover to be put in place quicker. More and more IFAs will begin to submit business online.'
As there are currently only a handful of intermediaries using this procedure, this could be one of the major growth areas for 2002.
Martin also sees further developments in 2002. 'Income benefits are now available as an alternative to a lump sum and there has been a development of point of sales tools which advisers can use to identify protection needs at the point of sale,' he says.
So while IFAs may not be able to offer clients lower and lower rates, the sales process is likely to see substantial improvements ' making life easier for IFAs.
Adele Burton is a staff writer
