Life must remain within a suite of products that includes critical illness and income protection Kevin Carr
Peter Le Beau, Le Beau Visage
I used to work with an actuary who responded to every question we asked with the comment "It depends on what we are trying to achieve". Until recently, I had never used the line myself but I think the treatment of protection business depends on what the Financial Services Authority (FSA) is trying to achieve.
If it is trying to group complex products that require advice in one group and commodity-type products in the other, it would be logical to divide up protection products with critical illness (CI) and income protection (IP), together with private medical insurance (PMI), on one hand and term and payment protection insurance (PPI) on the other.
We need to look holistically at all the protection needs of individuals, and it is difficult to do this if products are housed in different regulatory silos. The priority of an adviser should be to meet the specific needs of the individual. But if term is in a lighter-touch regulatory group, the temptation will be to focus on this and place the other protection products on the 'too-difficult' pile.
This would lead to a very clear case of consumer detriment, it would dumb down the value of the more complex protection products and it would be another nail in the coffin of advice. It is vital for the future of the industry that protection is treated as one coherent block rather than seeing its products sliced and diced according to their complexity.
Bernie Hickman, Legal & General
I welcome the FSA's review of the Insurance Conduct of Business (ICOB) regime and the move towards principles-based regulation. When we already have in place clear principles of customer fairness, having too many detailed rules can be counter-productive as time and energy is spent on complying with the rules rather than focusing on achieving the right outcome for consumers.
Including the payment protection insurance requirements, the current proposal is to have three categories with progressively more rules. If a consumer received advice to take out a product in each category, for example PMI, IP and unemployment cover, having three slightly different sets of rules and types of literature could become confusing for the consumer and unnecessarily complex for the adviser. I would like to see the FSA remove even more of the rules for protection products within NewCOB. The same standard of consumer protection could be achieved through the general application of the FSA's principles together with an appropriate degree of emphasis on senior management responsibility and thematic work.
If a protection product category is still considered necessary, I think term life insurance should be outside of this to keep the specific rules to a minimum and encourage providers and advisers to focus on reducing the protection gap.
Kevin Carr, LifeSearch
It is absolutely essential for the future of IP and CI sales that life cover remains in the same regulatory grouping as them. In recent months, I have heard some life offices talk of how life cover is a simple product and should, therefore, sit under the simple regulation, while CI and IP are more complex and should sit in the higher category. However, this view is perhaps naïve and does not take into account the likely unintended consequences of such a decision.
My view is that life must remain within a suite of products that includes CI and IP. If life cover is detached from other protection products, sales of CI and IP will suffer because if a company has to be regulated under more complex and, therefore, costly regulation to sell CI and IP, they will not bother and will just sell life cover, which will restrict consumer access to the products they need most. It is more a case of familiarity and the consequences of a mistake, than being simple or complex.
If CI and IP sit under more complex and costly regulation while life cover sits under simple regulation who is going to bother selling CI or IP? About the same number of people who would pay a fee for protection advice, which in the present environment is a pretty low number. The FSA was quite right to keep these products together in its original consultation paper, and it would be quite right to stick to its intentions.
