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The Life Insurance Market
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A few weeks ago I addressed the Head of the FSA’s RDR review and others at the Cicero RDR conference. I took the opportunity to explain some of the arguments this column has discussed since I realised in 2004 that a key threat to the growth and success of advice in financial services was the near-unregulated growth and success of non advised selling in financial services. The advent of RDR has crystallised that threat, by considering a huge raft of change that advisers will have to cope with, while non-advisers will face no such cost of change.
Simply put, as the Government proved in causing the demise of Final Salary Pension schemes, if you regulate the good to perfection, the bad take over the market. That is already demonstrated by the retreat of advice from the mass market, and its replacement by those who sell but do not advise. This takeover is made easier by confusing FSA jargon. “Non advisers” are actually just sellers, but don’t have to say so. They don’t have any duty to check suitability, but don’t have to say so. In fact even if they did, no consumer would readily understand what that meant. In short sellers can easily use FSA speak to confuse normal consumers into believing they are getting the same service as they would from an adviser, but for less cost.
Without that consumer understanding of the difference between advice and sales in financial services, advice has become devalued amongst all but the most wise of consumers. So in my talk, I challenged the FSA to undertake to promote and support advice as better for consumers, before they seek to perfect its outcomes. We shall see, but to encourage them to consider making this effort, may I demonstrate just how the sly cleverness of the salesman is still alive and well in non-advised UK financial services.
The PPI market is a hugely profitable one, though sales are shrinking somewhat now in the face of pressure from the OFT and, belatedly, the FSA. In fact the current premium rates on PPI/ASU depend, I’m told, on it being sold to many who can’t claim. If it is only sold to those it should be sold to it needs to become dramatically more expensive.
So the search goes on for the gullible, but the new target is not those who can’t claim, but rather those who should have a better type of policy, but who can be seduced from that path by the simplicity of applying for PPI. The better policy is known as Income Protection (PHI as was) and as you will know, it should be the first consideration of anyone trying to protect themselves and family against the financial effects of personal disaster. Except that today if you type those words into a web search engine you get pages full of Income Protection advertisements actually selling various types of PPI.
The sharp sellers have realised that they can pass their product off as Income Protection and sell it to innocent clients as if it was the proper thing. That will be bad for the consumer, but good for the sellers as those suited by Income Protection have relatively low claim rates. Trebles all round, as Private Eye would say!
Now the Financial Promotions team at the FSA could stop this, but I suspect they have little stomach for the fight. It would be different I think, if it was advisers working this little scam, but just how can we convince the FSA that it is high time the sellers were sorted out?
This article has featured in MoneyMarketing, 2007
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