In the battle to secure market share, providers are constantly reviewing, updating and launching pro...
In the battle to secure market share, providers are constantly reviewing, updating and launching products. One of the more recent approaches has been the development of packaged, or menu of benefits products, which provide a number of protection elements under a single umbrella contract and allow clients to select the combination of products that best matches their needs.
These plans are based around a number of term assurance products, which are consolidated within a single policy with one monthly premium. Comprehensive menu plans cover the protection needs of the mortgage, personal and business markets. They also allow IFAs to tailor the product to the exact requirements of their clients. By combining products in this way, econ-omies of scale mean that the packaged approach is often cheaper than buying the individual components separately.
Such plans can appear confusing to clients due to the number of combinations available, however the core benefits are no different to those available on a standalone basis.
Rosalind Pearson, research and planning manager (personal finance) at Swiss Life, says: "Packaged products are made from the same core benefits, but you can add products on to the basic policy. It can be made as sophisticated or as simple as the client needs."
Providers say that these products are ideally suited to IFA sales because financial advisers already have a sound knowledge of how the products work. Roger Edwards, product marketing manager at Scottish Provident, says: "We did some research and found that while more customers are aware of life assurance, critical illness and income protection there is still confusion as to which they need, how much they need and how they interact."
There are a number of providers who offer menu term assurance products although the number of individual components within them can vary. Most menu products usually include three or more of the following benefits: life cover, critical illness, income protection (either to cover an income or mortgage repayments), unemployment cover, waiver of premium and in some instances, healthcare cash benefits.
Modifying plans
The flexibility of menu products means that IFAs can add value to the sale by building an individual product around the needs of their client. So while budget constraints may initially mean that the level of cover is quite low, as time goes on it is easy to modify the plan to add new products or change the level of cover. Edwards says: "IFAs can build up a portfolio of coverage quite quickly. They can use it to create tailor-made solutions for their clients and can offer an advice-driven sale."
Scottish Provident launched its Self Assurance range in 1996. Updated last year, it now includes life cover, critical illness, income protection, waiver of premium, unemployment cover (on its mortgage plan) and healthcare cash benefits, making it one of the most comprehensive menu products on the market. Edwards says: "By putting together a number of products into a menu format, people can now choose the combination they want - they can add or take away products and increase or decrease the level of cover they want at any time. It can remove overlapping charges and some of the overlap between products."
Another provider, Scottish Equitable, is set to launch into the menu products market in January 2001. Aegon UK, the parent of Scottish Equitable acquired Guardian Financial Services earlier this year and the new product will build on Guardian's Protection Programme in terms of the benefits on offer, and will offer a full range of personal, life and mortgage products. Laura Shanks, individual protection product manager at Scottish Equitable, says: "A lot of standalone products do not have the flexibility of menu products. With the full menu product clients can pick and choose their benefits and then choose variations within the scheme such as lump sums, reducing or income benefits.
"It gives IFAs an element of control over the cost. So, if the premiums for a lump sum benefit are too expensive, then the benefits linked to income may be cheaper."
IFAs are recognising the advantages of these products since they can help save time and offer a greater level of cover to people who may not be able to afford the cost of several different policies. IFA Diane Saunders says: "Menu plans are a good idea. Anything that simplifies the process for the client and the IFA is going to be welcomed. It is a good idea to be able to mix and match because the speed in which people today change jobs and move home means flexible products are very useful."
Marginal savings
However, some protection providers believe that cost savings could actually be quite marginal in some cases. Nick Homer, product marketing manager at Norwich Union Healthcare, says: "Some providers will be able to make efficiency savings and reflect that in the cost. But people now expect a saving from a modular product. It can be done but the margins are very slim and sometimes there is just no fat to trim."
The majority of providers still do not offer menu of benefits products and they have been criticised because they could be seen to compromise the role of the IFA. While they may be able to adapt the plan to suit the needs of their client they may not be offering them all the best products. Homer says: "It could actually weaken the role of the IFA because they are the ones who package products around clients' needs. It is their job to know where providers are strong. They understand the finer details and the best products for the clients from the best providers."
Kevin Pearce, protection marketing manager at ZIFA, agrees that by purchasing everything through one provider in a one-stop shop, the IFA may not be getting the best terms for their client since they may have to compromise on certain products. He says: "If you look at the market leaders across all the main product types then there is no one provider who has got the entire market sewn up."
Although many providers offer a number of products that can be bundled together, they are not all comprehensive menu products. Some packages may be linked solely to personal or mortgage protection, and some may not have the flexibility to vary the level of cover of the individual products.
Some packaged schemes are linked to mortgage protection. Ronnie Martin, protection director at Legal & General, says: "Mortgage protection products are growing in popularity as people realise that there is a need to protect their mortgage payments." Legal & General and Scottish Amicable both offer packaged mortgage protection products that include life cover, critical illness benefit, terminal illness and permanent total disability (PTD) cover among others, but they do not have a full range of options within the different component products. So, for example, with Legal & General there is no option to increase or decrease the term and with Scottish Amicable PTD cover is only available under own occupation.
Some entirely mortgage-based schemes will lapse completely following a claim because the purpose of the protection has been fulfilled when the mortgage is repaid, whereas a full menu-based product will simply cancel the affected part of the policy.
Edwards says that due to this, and the fact some products within mortgage-based policies offer a more limited choice, they can be cheaper than comprehensive menu products. "There can often be a slightly greater premium discount than with a full menu product."
Employee benefits
Most menu products are aimed at the individual market and there is currently only one provider - Scottish Equitable - which offers a menu of benefits scheme to the group market.
There are a number of advantages in menu products for employers in that they only have to provide the information on their employees once, they only have to deal with one protection provider, and they can adapt the level of cover to suit the changing needs of the company. The products are similar to individual policies in terms of benefits offered but the flexibility of the products may not be as extensive as that offered by some individual policies. The Scottish Equitable scheme for example allows the level of cover to be set around the individuals in the scheme, but changing the level of cover may not be possible until the scheme comes up for renewal.
Scottish Equitable's Employee Protection Menu offers a combination of group life, income protection, critical illness, permanent total disability, spouses' life assurance and high earners' cover. Through alliances with other providers they also offer group personal accident cover, PMI and dental insurance. Rod McCarthy, marketing actuary at Scottish Equitable, says: "The key difference between group and individual menu protection is the approach to underwriting. Group underwriting tends to use a broader brush because the fact that the employees are fit enough to get to work counts for something."
There is certainly a place in the market for menu products. Providers are beginning to recognise this and several currently have products under development. They can be a cost-effective way of getting a high level of cover although there is some concern as to whether they can always offer all the most suitable products in a single package. Pearson says: "We are not trying to do the IFA's job. It gives them another choice but it is down to the IFA to find the best product for their client."
Ben Marquand is a staff writer
