Study: Small increases in rates would solve most of sector's problems
By Johanna Gornitzki
The rate war has caused most of the problems in the protection industry, a new report has revealed.
The study, conducted by CWC Research, showed that both insurers and reinsurers are aware that a 10% increase in rates would solve most of the problems facing the sector.
The research, which questioned 40 intermediary firms as well as 15 insurers and eight reinsurers, also revealed that most advisers are convinced that a 10% change in rates would have no impact on sales.
However, providers continue to fight the rate war.
Commenting on the findings, Phil Hull, product manager for life, pensions and investments at Sesame, said: "It may be a good idea in theory but no provider is going to 'break ranks' and increase rates by 10% and lose competitiveness. We also need to be clear that, although it is the providers who set the rates, it is the advisers who chase the cheapest rates that drive the rate war."
Jon Briggs, head of protection research at Hargreaves Lansdown, on the other hand, claimed life companies had gone mad selling on rates. "This is very dangerous for IFAs. I think that perhaps many advisers don't realise that an increasing number of people are not getting the standard rates anymore and that only a decreasing number fits the criteria. Inevitably, I think everyone will go down the preferred underwriting route," he argued.
According to the study, cost and claims are the two issues currently troubling the protection industry, with consumers wanting competitive prices and assurance that the claim will pay out; while insurers wish to quote a price cheap enough for them to get the business and do not want to pay claims where non-disclosure has been taking place.
CWC Research believed these problems will lead to longer application forms, more cherry picking and more claims being declined for debatable reasons as reinsurance terms and conditions are toughened.
A tough non-contestability clause could also be the outcome of the Law Commission proposals with possible increases in premiums and tougher underwriting.
This, in turn, will lead the sector to focus more on lifestyle-based products and tele-underwriting, the firm argued.
Most insurers also need to "get smarter" to make sure that it is made easier for applicants to reveal all relevant facts, the report suggested. Possible solutions include even more detailed application forms, better questioning style and more intelligent underwriting systems.
