In a bid to increase online transactions, more providers are disincentivising paper business. What impact could this have on the protection market?
Market views
Louise Pritchard, Norwich Union Life
Incentivising e-submission over paper business has many advantages for the protection market. This is largely due to the benefits e-submission business offers both IFAs and their customers.
Those IFAs who have embraced e-submission are already benefiting from immediate underwriting decisions, a significant reduction in additional paperwork, such as health questionnaires, as well as the removal of room for error due to online validation.
Research carried out by Norwich Union into understanding IFA attitudes to using e-submission has shown there are two distinct camps of thought; those who have embraced e-submission and those who have so far resisted. Therefore, only by offering differentials in commission will this encourage reluctant IFAs to move towards using the electronic capabilities available to them.
Historically, the move to offer an incentive to produce quotations in the protection market has resulted in almost all IFAs producing their own illustrations from either portals or providers' own extranet sites. Without this incentive, which started back in the mid-1990s, it would be interesting to see whether this shift in behaviour would have occurred.
Technological advancements, such as the ability to apply and obtain an immediate underwriting decision online, means providing e-submission incentives for the application process is the next evolutionary step in the protection market.
Stephen Wynne-Jones, Assureweb
The real impact of providers disincentivising paper business and its subsequent impact on the protection market should not be overstated. While it means that intermediaries will be relying more heavily on technology when conducting business, ultimately, this will lead to greater efficiency and overall market improvement.
Providers are merely recognising the differential cost for doing paper-based business and some success has been achieved with this strategy in the past. Some providers already see up to 70% of their protection business conducted electronically and any attempt to turn an e-incentive into a paper disincentive is simply designed to accelerate this transition.
In principle, this news is welcomed and it is anticipated that in time, this will become the norm. Online business reduces errors, speeds up the application process and is in the financial interest of the intermediary.
It will take moves from providers such as disincentivising paper business and launching specific e-incentive campaigns to ensure the sector finally switches on to the real benefits of electronic new business.
Nick Kirwan, Scottish Widows
The last two years have seen a huge increase in online protection. Arguably, the key driver has been faster administration where straight through processing via smart underwriting systems can offer instant cover to over 50% of applicants.
Some insurers also offer incentives depending on whether their target market is the consumer or the intermediary. One approach is to pay a slightly higher rate of commission for online business. Another combines higher commission rates and lower premiums. Here, the intermediary's commission is about the same because the higher commission rate applies to a lower premium, a method that seems more consumer focused.
One potential banana skin for intermediaries is where the online process involves them passing on client details. With all protection, it is essential that clients can rely on their policy to pay out when the worst happens. They can only do this if their application has been answered carefully to the best of their knowledge and belief.
From 14 January 2005, the Financial Ombudsmen Service (FOS) can order intermediaries to pay up to £100,000 compensation to clients with valid protection complaints. It is easy to see how this could happen if an intermediary inadvertently fails to pass on important details resulting in a declined claim for non-disclosure.
Online business should be good news for the industry, providing we take care not to learn hard lessons from the FOS about handling client details. Done carefully, online protection business should continue to help the market go from strength to strength.
Kevin Carr, LifeSearch
The advantages of e-business for the intermediary are plentiful. Firstly, it provides speed and enables many clients to be covered immediately. Secondly, it provides control. Life offices are renowned for making mistakes, which will not happen if the intermediary takes more care.
Life offices are also greatly frustrated by the ongoing submission of paper applications with information missing because the intermediary has not completed the form properly. This cannot happen with electronic submission.
A further advantage is the provision of an online tracking facility, which allows advisers to view the current status of their cases online, without needing to sit and wait for the life office to answer the phone.
While this means the intermediary does the work of the life office, if the service provided to clients is improved and more business goes on risk as a result, then this is an advantage. As long as providers make it worthwhile for the intermediary by developing simple and quick interactive systems and providing financial compensation for the additional work generated by enhanced commission.
The way each provider treats the intermediary market in terms of commission is also interesting. Some are offering additional commission for electronic submission, some make no change, and – as opposed to upping the level for online submission – some are dropping the level of commission for paper-based applications.
