The FSA and Office of Fair Trading met last month with providers and advisers to debate short-term income protection final guidance. There were demands for the regulator to go further than simply highlighting PPI problems. Has the regulator done its job? Or does more need to be done to encourage healthy STIP sales?
Dennis Haggerty, marketing manager, i:protect
Regulation is understandably tough after the PPI apocalypse. However, for regulation to work it must be clear. Unfortunately, much of it around PPI-style products is now based upon the subjective judgement of the regulator.
In the absence of legal judgments to clarify what ‘ a good consumer outcome ‘ is, or what ‘reasonable steps' actually look like, it is anything but clear. Uncertainty breeds fear. Why should a provider offer a product today that might simply prove to be a stick with which the regulator could beat them in three years' time?
Product approval from the regulator is not something any product provider would seek. However with the current uncertainly, it is understandable some might see this as offering insurance against retrospective regulation. The FSA/OFT firmly reject any notion they will approve products. Nevertheless, the FCA will have ‘early intervention' powers over products, which does nothing except add to the length of the regulatory trip wire.
The government, debt charities and social commentators all agree that there is a need to offer regular folk a simple product to protect them from financial shocks.
Leading insurers consulted closely with the FSA to overcome PPI issues and to design STIP to address this market. However, it has been shackled with PPI regulation simply because the FSA is caught on not repeating past mistakes. In different circumstances, STIP would be considered a good product offered in the public interest, but current regulation will deny it a future.
Phil Veale, director, Chiltern Consulting
I can fully understand the regulator's focus on STIP given the experience of PPI. One of the issues has been marketing. Consumers need to know what they are getting. However, there are positives to take from the PPI product in terms of simplicity and underwriting. A more open-minded positive approach by the regulator and industry to STIP should be adopted, rather than a negative stance which does not help development.
STIP plans have a lot going for them with regard to the relevant protection gap. There is generally a lot of focus on a "belt and braces" approach to IP but that is not necessarily shared by consumers. Firstly, they may not need a long-term contract. That is because they may return to work after a relatively short term or adapt their life to their health situation. Therefore a short-term product would be more appropriate.
There are many aspects of IP that could be improved to make it more accessible. Benefit levels could be set to cover mortgage and living expenses, ruling out state benefits allowance. If the contract does not pay out until retirement, it should mean less underwriting and thus make the application process easier.
Different options with income cover should not been seen as a retrograde step. STIP can be a way to provide consumers with income in a more accessible way. It can also act as an entry level product for future up-sales as appropriate. The regulator should allow the industry to develop relevant products.
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