The Financial Services Authority (FSA) is thinking about dividing insurance into two categories - one more complex and one less so. But while it is pretty much set that critical illness and income protection will be in the higher-risk category, industry views are divided on whether life cover should follow suit. Where do you think the cover should be and why?
This resonates with the disturbed thinking behind the Retail Distribution Review (RDR) proposals that the consumer is better served by a division of the advice process.
This thinking is doomed by the fact that plans can include life, critical illness (CI), income protection (IP), redundancy and total and permanent disability cover. Even if the concept was sound - which it is not - the use of menu plans provides too many obstacles for such a system to work.
Protection insurance is not simple. Plan options, trust wordings and buy-back cover, for example, all make for complexity. This swings back nicely to arguments against non-advised sales. The RDR proposals are aimed at enabling simple products to be sold by direct sales staff, presumably to consumers who do not understand the concept of value.
Protection has not yet been commoditised, although some insurers seem bent on such an end result. If plans are so simple that you do not need an adviser, so simple that they can bought online from one of the bucket-shop haunts, then we will have reached the end of the road. All plans will be simplistic and price-based (apart from those sold by the banks and direct sales forces) and the efforts to distinguish by increasing the quality of the product will cease.
We know that both CI and IP are complex products and that there is a vast protection gap. We know that price reductions are insufficient to galvanise the market. So adding further layers of confusion will not help.
