Six things that will change the protection industry20/08/2015
The annual Protection Review conference took place recently in London, drawing a few hundred people from all corners of the industry to debate the key issues and what can further drive the protection market forward.
This year’s theme was ‘growing the market’, with sessions focusing on improving the customer experience, new distribution models and the opportunity presented by engaging employers.
Here, we look at the biggest talking points of the day, and how they could change the industry and influence the way advisers understand protection insurance.
Double commission – for advised sales only?
Arguably the most controversial point of the day was made by Michael Ward, founder of PayingTooMuch.com and previously the owner of Direct Life and Pensions.
During a panel debate about new types of direct to customer distribution models, he commented that the protection market could not grow unless commission is increased, arguing that there is currently no financial incentive to provide advice, as the seller receives the same commission on protection whether the sale has been advised on or not, despite advice taking ten times longer.
Mr Ward said: “We need more regulation because current regulation is not regulating the things that matter. We’ve got too many lead generators saying things that aren’t true to customers.
“If we paid agents twice the commission they get for an advised sale and leave non-advised sales’ commission where it is, you’d get more adviser business and they would go out and sell it.
“I think we need a better regulator and we need one that changes the emphasis. My great idea for a regulator would be one that cares about protection sales rising rather than making sure they’re just compliant.”
To highlight a similar point, Mr Ward commented that of his comparison site businesses, that travel insurance was selling twenty-times as much compared with life insurance, and that travel insurance is currently five times as profitable compared to life cover.
Commission has, of course, become a bit of a dirty word. In a post-RDR world, remembering that protection is (rightly) separated from the RDR, it implies a mis-selling scandal or at least a dodgy salesperson.
But does Mr Ward have a point? Is it right that non-advised sales earn the same amount when there is no advice and no responsibility for advice?
Make it personal?
An overriding theme of the day was that as an industry, we need to make the whole consumer journey more personal, including the products.
People are getting more and more used to services that are tailored specifically to them, and this will only continue to increase. However, insurers historically tend to have one product that is expected to fit a potential audience of 20-30m people.
It was debated that the personalisation of protection should begin with the products sold. Currently, protection products are largely generic, whilst designed to protect people with varying sets of circumstances.
Insurers hold a lot of data about their customers, so could it be possible in the future for insurers to look at someone’s salary, mortgage, debts and family situation and based upon all that information say, here’s a product created just for you?
There may well be a tipping point when big data (whatever that really is), wearable technology, online banking and insurance all meet up in a cloud based e-world where different benefits are put together, priced and sent as a ‘buy now’ pre-underwritten option straight to your phone, tailored specifically for you and your family – because they already know what they need to know.
The dawn of a new revolution for insurance?
As we saw in the latest budget from George Osborne, we are in an era of risk being transferred. We are seeing a continued retreat of the welfare state, and organisations transferring risk to individuals, meaning more than ever a generation will need to move towards insurance.
Gary Shaughnessy, chief executive for UK Life at Zurich, said the industry must be ready for the demands that would be made on it because of the welfare changes.
“It is a reality of an ageing population, and it is a reality of a changing dynamic in terms of the state’s ability to afford the welfare underpin and the taxation advantages that have been given to UK citizens.
“I would argue that it has never been more important that the insurance industry provides solutions to consumers facing a dilemma that they didn’t ask for, in some cases they benefit from, but in many cases didn’t ask for.
“There is an opportunity to make a very objective clear cut financial case to the government for incentivising the benefits of income protection. To do that we need to interact with the welfare rules.
“What we can’t have is a situation in a group environment or in the individual environment where an individual who protects themselves or a corporate that takes action to protect their employees finds they’re worse off because they lose welfare benefits. That’s not the intent of the state, but it is the reality in a minority of cases under the current rules.”
Indeed, the idea has even been floated within government by work and pensions secretary Iain Duncan Smith, that people could be encouraged to pay into ‘sick pay’ accounts to fund their own sick pay or to cover periods of unemployment, saying: “We need to support the kind of products that allow people through their lives to dip in and out when they need the money for sickness or care or unemployment.”
When asked more recently about the idea, David Cameron’s official spokeswoman said: “I think the PM shares the work and pensions secretary’s view that we should be doing more to encourage people to take personal responsibility for how they manage their affairs.”
Clearly it could be the most important time and greatest opportunity yet for the protection industry to create a true tie-up between state benefits and private insurance.
Is D2C friend or foe?
One of the age old protection debates is whether growth of a direct to consumer protection market benefits the advised market. Is the direct-to-consumer market the advised market’s friend or foe?
David Buckingham, new product development manager at SunLife, debated that direct distribution would normalise protection in the eyes of consumers, for the benefit of the industry, and compliments what is available through the advised market.
Mr Buckingham stated that there will always be customers that want to do it themselves, while others need a nudge and won’t go looking.
That the answer should not be to replicate an IFA proposition and offer that directly, but to simplify the proposition to eradicate the confusion that comes from too much complexity and choice in a direct market, and couple this with simplified underwriting and instant decisions.
Overall, the consensus seemed to be that the D2C market is a friend, and helps to give the protection industry a much needed boost in terms of consumer awareness and understanding of the need for protection. And while the adverts we see every day might not be perfect for the advised market, it’s not a bad thing to have families hearing about their protection needs on a regular basis.
In truth most D2C players are targeting different types of clients, often with slightly different products. A bit cheaper and a bit less comprehensive, which allows advisers to add value for those who need it and can afford a little more.
Can technology create a better customer journey?
Guy Williams, Liss Systems sales and marketing director, asked during his presentation whether the protection industry is utilising new technologies to deliver a better experience for the customer?
Electronic signatures were cited as one way of making the process of applying for protection much simpler and more convenient for the consumer, whilst being able to shave two weeks and significant costs from the application process. But so far only a handful of UK insurers are using the technology.
More than 70 per cent of insurers in the US market have implemented e-signatures. By using solutions like DocuSign, people can securely sign documents from tablets, smartphones and computers.
Mr Williams said: “Once the early movers prove the benefits of using e-signatures the rest of the market will follow like dominoes. When I first saw them a couple of years ago I thought using them is an absolute no brainer for our industry and they will become a hygiene factor in a few years’ time. The Americans have been doing so for seven or eight years.”
Not wasting the protection opportunity given by the onset of auto-enrolment was the topic explored by IFA Roy McLoughlin of Master Adviser.
During his presentation, Mr McLoughlin stated that according to the National Employment Savings Trust 90 per cent of companies need advice on auto-enrolment, which provides a huge opportunity for advisers to talk to them about the protection risks they face.
According to research from Zurich, 59 per cent of limited companies have no key person protection and 61 per cent of limited companies have no share protection in place.
As well as the opportunity to advise employers on their business protection needs, Mr McLoughlin also stated his case for greater education being needed around sick pay benefits, to ensure that employees have a true understanding of the provision they are entitled to, leaving them better able to plug any gaps.
In response, the Association of British Insurers stated it is developing a workplace statement that will allow employers to tell employees exactly what sickness benefits they would be entitled to, enabling people to better understand any financial weaknesses they may have.