AXA has entered the market with a menu-based protection solution that offers buildings and contents cover. Is this type of proposition welcomed in the market and are other providers likely to follow suit?
Market views
Mike Williams, Watson Wyatt
The inclusion of household insurance in AXA's protection menu is an innovative and logical step. In 2003, 52% of term assurance, 55% of critical illness (CI) and 60% of income protection (IP) policies were sold in conjunction with a mortgage. This considered, the logic is clear - why not add another relevant insurance as part of the package - and what could be more relevant than household insurance alongside a mortgage sale?
The other significant step forward is the crossing of the life/non-life divide. Too often this 'technical' distinction, supported by the prevailing regulatory environment, provided a justification for dividing both offerings and channels. Taking customer needs as a starting point forces a clearer viewpoint, and AXA is to be congratulated for pushing the boundaries a bit further.
Timing may prove less than kind however, with the volume of protection sales dropping by over 10% from the first three quarters of 2003 to the same period in 2004 and the housing market slowing significantly, with Halifax predicting a 15% drop in housing transactions in 2005. Further, 'Treating Customers Fairly' may reduce the flow of mortgagees between providers as lenders evaluate opening their re-mortgage offers to existing customers.
If AXA succeeds, no doubt other providers will follow suit, but with co-ordinated regulation under the Financial Services Authority (FSA), the opportunity to really stand back and consider customer needs in all sorts of areas must be the bigger goal.
Mick James, Standard Life
Competition is always healthy so it is good to see AXA coming back into the market. The approach to the menu product includes new ideas such as offering household cover as an option, and providing multi-buy savings to customers who purchase more than one part of the proposition. There are now a number of menu offerings in the market and this is good for competitors and the consumer, as it keeps all providers on their toes.
There will always be advisers who like to bundle products together and equally there will be those who believe that, by buying each constituent part independently, they will be able to choose the product features and price that most closely match their customers' needs. The menu products are hampered by the difficulty of getting comparison quotes off portals such as The Exchange, and it is yet to be seen if the customer, throughout the lifetime of the contract, will value the flexibility that they offer.
In COVER's Protection Insight 2004, research showed that guaranteed rates, the number of conditions covered and premiums were the three most important features noted by IFAs for a CI product, with availability of a menu product lying in 14th place. For IP, clarity of definitions of incapacity, guaranteed premiums and number of definitions of incapacity were voted the top three with availability as a menu product falling further down the priority list, at 15th place.
Louise Pritchard, Norwich Union
New integrated propositions such as this are welcomed in the market. The advent of regulatory change from the 14th January 2005 opens up an ideal opportunity for advisers to maximise their income per sale.
The key areas of focus required with this kind of proposition are price, process and product offering. The price of taking out an integrated protection package should ensure there is something in it for the customer. Each element should be discounted and/or priced competitively in the market to ensure the customer is getting a good deal by taking them out as an overall package.
Process is also key. Both to the seller and in terms of the customer experience. A hassle-free process and the ability to re-use data during the sale is vital to ensure the proposition appeals.
In terms of product, many providers currently offer general insurance products, such as Accident, Sickness and Unemployment (ASU) cover, as part of their life assurance plans. The move to offer other mortgage-related general insurance products such as buildings and contents insurance seems the next logical step.
Customer inertia could determine the success of this, particularly with re-mortgages. If someone buys life cover and the ASU alongside their new mortgage, they may not want to change the buildings and contents cover they already have.
Also, since buildings and contents insurance has traditionally been driven by price, it will be interesting to see whether or not customers will be happy to change behaviour and move back to purchasing through advisers, instead of shopping around and buying direct, which is a trend the industry has seen over the last five years.
Diane Whicher, Whichers IFA
AXA, or at least Sun Life, used to be a very useful player for sub-standard lives for life cover, so it will be interesting to see if this is still the case now they have re-entered the market. In addition, it will also be good to see whether they intend to introduce pension protection products in 2006 as this is going to be a huge market for re-broking, especially for higher rate taxpayers.
In business terms, AXA is also usually in the top ten to 20 companies with regard to premiums for buildings and contents. However, there have been some issues surrounding the company's service levels, and if it cannot cope with the business it already has efficiently, what hope is there for any new products?
Putting various types of business under one umbrella may have advantages for ease of paperwork, but this usually does not get the client the best premium. Although this may suit those who are financially better off, as time is money, these types of clients tend to use an insurance broker who has expertise for their buildings and contents. They would not expect an IFA to arrange this cover. Those looking for cheaper premiums are unlikely to find them under one company. AXA's proposition is a great idea in theory, but I am not convinced it will be successful.
