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The Life Insurance Market
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In March 2004 I first explained how non–advisers were cheating the public by not explaining what the words “We don’t give advice” mean in FSA terms. I went on to explain why this was particularly pernicious in the area of protection, where innocent mistakes can destroy families long after anything can be done about them. 3 years later the FSA has addressed this issue in the draft ICOB rules. It has been a long hard road explaining this truth in the face of simplistic dismissal from the insurance establishment. I have no doubt at all that they will now do their utmost to get those draft rules changed and if they fail in that, to ensure that they are never enforced effectively.
The big providers fail to realise that the real profit in protection lies in providing well worked out solutions to an individual’s needs, rather than trying to sell more term life assurance to people ever less likely to claim on it. The collision of the commoditisation model and the supermarkets’ product diversification model has proved to easily attractive. The future is shown by ASDA’s delight in the results achieved by their decision to use advice after trying it the other way and my own business’ rapid growth in a consistently shrinking market. In protection, advice makes money, non advice barely breaks even.
If the leaders at the ABI opened their minds and decided to invest in growing the market rather than squabbling over a share of it, they would embrace advice and leave the new ICOB rules as they are drafted. But as they will not, I would urge you, gentle reader, to join me in campaigning on 2 specific points.
1. Term Life Assurance must stay where the FSA intend it to, in the ‘Pure Protection’ category, where it is subject to the same regulation as other protection products. This is right, because “life insurance” is not as simple as it looks, indeed it is not even one product. Its tax free income version should be considered by every buyer, and no one should buy life cover while they need IP, which they are far more likely to claim on. The term “life insurance” serves as the entry point for consumers seeking to protect themselves and to have it separated from the other ways of doing that causes grave consumer detriment.
2. Non advisers are required by the new rules to explain to their customers that it is up to them, the customer, to decide if the product being sold is suitable for them. They are further required to do this in a way that achieves the outcome the FSA require, that those buying without advice do not think they are getting advice and understand what this lack actually means. But this explanation will reduce non advised sales and so will be dealt with in the time honoured way. It will be robbed of any relevance to the customer, by being reduced to parroted jargon. After all,” advice” and “suitability” rightly have specific consumer protection meanings in our world, which they do not in any other. We need to make sure that these rules are not rendered as ineffective as their predecessors if advice is ever to be seen to add value at the point of sale.
It is up to advisers to ensure that the new rules mean that non advisers properly explain their shortcomings. Providers will not; they are still hooked on the commoditised approach, which may be fine in motor insurance, but does not treat customers fairly in protection.
This article has featured in MoneyMarketing, 2007
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