IRESS's Andrew Simon take a closer look at the perceived wisdom that 75% of protection cases go straight through without any need for further underwriting.
A word of warning for you. I'm about to make some assumptions here. You may agree with some and not with others.
There is a perceived wisdom in our industry that 75% of protection cases go straight through without any need for further underwriting.
Around 20% require further evidence, leading to ratings and around 5% are real problem cases that may be rejected.
If this is the case, why are some advisers moaning about managing client expectations - sometimes referring to a "lottery" when it comes to advising on protection.
Surely if around seven in ten cases go straight through, the odds are in your and your clients' favour; no? Well actually, yes and no.
I have two issues with these stats. One is to do with segmentation between direct and advised books and the other issue is around the dangers of averages.
First. Segmentation. I have little doubt the 75%/25% stat is accurate across both direct and advised books. I have no good evidence to counter it. And it feels about right to me.
However, we all realise the majority of direct business sails through with little problem - that's just the nature of direct.
Advised cases on the other hand, I think, are usually more tricky. I'd argue they are generally more complex, sometimes older lives and often with larger sums assured. So here comes my first assumption - finger in the air time.
I reckon, on average around 60% of advised protection business goes through on clean terms, around 35% need further underwriting and around 5% remain ‘problem' cases.
If this is true (or at least nearer the truth) we can start to see why some advisers are getting a bit fed up with status quo and - rightly - demanding improvements in systems to better manage clients expectations through a process which, although vital, can throw up some big barriers sale.
This brings me to my next issue. Averages. Averages can hide some huge extremes. 10 is an average of 9 and 11, but it's also an average of 1 and 19.
There can be some huge outliers depending on the make-up of an adviser's client bank.
And so for my next assumption. An adviser that deals predominantly with investment is likely to experience more cases that require further evidence than, say, a mortgage adviser with a younger, less affluent client bank.
So what might be a huge problem for one business is hardly an issue at all for another business. Averages neatly hide this wide variation.
So what are we to do? First, let's all agree there is a problem. Yes, it's tiny for some, but bigger for others. So it's a problem that needs fixing.
Next we need to land on a workable solution.
Some think a total re-engineering protection revolution needs to happen. For me this is like taking a sledgehammer to a nut. Actually, it's more of a steamroller - but that's for another blog perhaps.
I actually believe there's a far simpler and more elegant fix to this issue. All we need to do is ask a few more BMI type questions at outset to increase the certainty of a rate an adviser can effectively ‘click-and-buy' - akin to ebay.
That's what we're doing at IRESS. We're planning to roll out our solution to our customers in the summer. We think these straightforward enhancements will significantly improve the protection process.
It will help advisers provide greater certainty so they can manage their client's expectations better and I hope it will also result in easing the anxiety of those advisers who are dreading picking up that protection ‘lottery' case that's been sitting in their inbox.
Do you agree with the assumptions I've made? Have I missed anything obvious? I'd love to hear your views in the comments section below.
Andrew Simon - executive general manager product, UK at IRESS.
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