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The Life Insurance Market
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We believe far too few consumers have adequate protection in place and, when disability or death strike those without adequate protection in place, they and their families thus suffer avoidable financial hardship and become unnecessarily dependent on the state.
The huge decline in Protection sales has accelerated of late and policy makers should thus seek urgently to remedy it by accelerating across to the protection market those strands of RDR aimed at improving consumer knowledge and increasing and simplifying consumer access to protection advice. Logically that must include increasing the availability of protection advice to consumers.
There are seven key points that must be accepted before any part of the RDR enters the protection market:
1. In a market without investment elements, like Protection, price is totally transparent. This makes adviser bias very clear to any consumer.
2. So the single biggest cause of provider and product bias is lower price.
3. The differences in commission rates between products and providers are small and cause no bias.
4. More advisers entering the protection market will not change any of the above except possibly to increase the sale of more comprehensive policies at higher premiums. This is a desirable consumer benefit.
5. Consumers' reluctance to purchase protection products makes mis-selling impractical.
6. The costs of advice and sale are all incurred at or directly after the point of sale. Commission reflects this fact effectively, and can be clawed back if the policy lapses. The consumer detriment in buying the wrong cover can be corrected at any time. The universal monthly payment structure means that consumers have every opportunity to correct errors or reflect changed circumstances without incurring severe detriment.
7. It is certain that charging fees for protection advice will reduce the sale of protection policies as they will greatly increase the initial cost. This would be genuine consumer detriment caused by the RDR and this risk should outweigh all others.
You can read the full submission here.
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A year or so ago I called for a protection-industry wide marketing campaign. My thought was that we should reverse the decline in the sales of protection insurances by getting the public understanding that they need cover against personal financial catastrophe caused by losing their income through death or disability or unemployment. How I wish a politician would stand up and tell the public that state benefits are miserably low and only likely to shrink in the future and that anyone who does not protect themselves against the financial effects of physical disaster is barking mad. But I suspect they will consider such honesty to be electoral suicide so it must fall to us who sell protection to get consumers thinking that what we sell is not boring and irrelevant, but important and virtuous.
Well actually I wasn’t bright enough to coin the last line. That came from the creative director one of the country’s largest creative advertising agencies. He’s involved because the idea has moved on a bit and with, I believe, just one exception, ALL the providers and reinsurers that trade in this market attended a series of presentations that described the research undertaken and the resulting consumer targeting, media buying, social affairs lobbying and campaign analytics combination we plan; as Money Marketing described last week. They heard a well thought out case, focusing on consumers who are not resistant to what we say, but who are confused and disengaged, as well as learning of how this campaign will link up with the several other initiatives from the powers that be aimed at getting consumers to take more responsibility for the personal finances.
They went very well indeed, though the low point might amuse you. It was when one old friend asked why we wanted to grow the market when that would just mean more competitors would enter into it. I was too dumbstruck to ask what had happened to the thought that more people need what we sell, and when a growing market last produced less profit than a shrinking one! I just did a gold-fish impression.
But if that was the low, there were many highs. The several who broke free from their executive caution to tell the meetings that we clearly must find the will to find the funds to do this and the many who have e-mailed to say they will be trying their damnedest to get their cash-strapped boards to stump up the monies needed, show me that though there are many, many arguments to be won, we might just do it.
One stance will have to change though. We decided early on, not to ask the distribution sector and the industry service and support sector to help with the funding. Taking a case like this to 30 odd institutions is challenge enough, never mind thousands, but of course all who trade and profit from protection sales stand to benefit from the growth such a campaign will surely cause should contribute to the £5.8m (inc VAT!) war chest we need to start this fight. Distributors, as I know all too well, are strapped for cash, but I best serve warning that should we face a shortfall from the insurers and reinsurers, we will be asking distribution to play a part, as well as the (generally very profitable) support businesses, be they involved in IT or underwriting or consultancy or heaven forbid, publishing!
Tom Baigrie
LifeSearch MD
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You can view and sign the LifeSearch petition here
Background:
Isn’t it bizarre that a country with a highly developed economy, such as the UK, should neglect to prepare its citizens in any way for dealing with that complex but essential world of personal finance?
Is it any wonder that we have a mountain of personal debt when we can open a bank account at 16 without having the slightest clue what it means to save? Or take out a mortgage at 18 without a clue about debt or financial protection? There is an appalling lack of financial education in UK schools yet understanding how money and debt work is a key part, and major source of stress, during every adult’s life.
When I was studying for my GSCEs in the early 90s, lessons such as Home Economics, Religious Education and Metalwork were compulsory, yet the knowledge that would have served me more substantially - knowledge such as understanding how pensions work- was never an option. Times haven’t changed.
Is it any wonder that the man and woman on the street so often fail to grasp the workings of personal finance when they, for the most part, have so little knowledge or training in these matters.
It seems a no-brainer that personal finance lessons - such as how to manage debt, how mortgage and pensions work, the need for financial protection, how to save and invest your money – should be taught at an early age. In reality the way we learn is usually through bitter experience. It doesn’t have to be this way.
Few of my friends from outside understand financial products, especially Protection. For that matter even less know what an IFA is (“there's an adviser at my bank!”). It should come as no surprise that we have a trillion pound protection gap and an economy in turmoil.
Changing this approach to personal finance education will benefit the consumer and the economy as a whole, and it would shine a light of reality into a debt-addicted culture. And the place to start must be educating the next generation of Brits, before the shroud of financial mismanagement envelops the potential bankruptees of the future.
So, what is the current policy on personal finance education? Well, no-one actually seems to know. I have investigated and, beyond a very vague statement from the department of education that “the subject is touched on” (they couldn’t tell me where or when or at what age), I drew a blank. There is no plan of educational action for now or for the future.
As an industry we talk repeatedly of closing the protection gap, but we need consumers to understand its relevance in safeguarding their financial health before we can make major headways into addressing their protection needs. Education is one place to start. The FSA has also rightly spoken about the importance of financial education in the past.
This is a glaring hole in our education system and our economic future. At present there seems to be no will to fix it. Perhaps it’s time we tried to change the status quo.
Click here to view the LifeSearch petition.
Matt Morris
LifeSearch
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Protection distributors and providers often work together in a very disjointed and sometimes dysfunctional and often even disrespectful way.
That disconnect may be the key reason for our growing failure to convince legislators and consumers that our products are relevant.
But all in this industry should be proud, for though we are not Doctors, we do save lives in a way. We all do vital work for the consumers and the wider economy we serve.
THE PROTECTION MARKET
• In underwriting processes things are getting a little better every day. Across the rest of the protection business things are getting worse.
• The consumer’s welfare state illusions and the government’s economy with the truth about the paucity of welfare state benefits and our industry’s failure to communicate with consumers are rendering our products marginal. My biggest competitor is a government lie!
• We say so little as our industry is dominated by conglomerate savings, investment and protection businesses who are happier marketing dreams rather than nightmares, and who find it hard to focus customers on what might go wrong, rather than how well their investment products might do for them if nothing goes wrong.
• We all know though, that the welfare state is a terrible state to find oneself in, and we all need personal cover against the financial effects of physical catastrophe. Consumers just need to take personal responsibility. And now is a good time to tell them that.
• But our regulator is a frighteningly disinterested one. Jon Pain covered the whole of his retail markets brief last week and did not refer to consumers’ protection needs once. That omission is a terrible indictment of our industry’s inability to communicate with its regulator.
THE EFFECT OF NON ADVICE
• In protection market terms, LifeSearch represents an advisory front line. We generate our enquiries online and turn them into advised clients. Non advised sales dominate online, with their partial covers, often higher premiums and very high lapse rates.
• And life insurance is in places already just a loss leader for securing customers for more profitable products like roadside assistance. That’s a shameful place for a product of vital social value to find itself.
• But we know that 76% of those who talk to us having bought a policy without advice find they want to change something important about that policy when they speak properly to an adviser. That’s why non advice needs a health warning.
• But insurers must take proper risks to profit fairly and life insurance itself is a very mature market which does not resonate with a population with little or no genuine fear of early death.
• Until the more likely working life risks of disability and morbidity are appreciated by consumers our market will continue to fade.
• What’s needed is to start waking consumers and their distributors up to their needs and the perfectly useable tools we offer for taking the risk of catastrophe out of their financial lives.
• The big brand name “Life Insurance” needs to stop meaning death insurance and start meaning insurance against real life catastrophes that happen to lots of working age people.
• If we can change our core brand to include disability elements, through products that, though diverse, are similar enough to be classed as one market, then we can again become relevant to our consumers’ perceptions of their needs.
THE NEED TO EDUCATE CONSUMERS THROUGH MARKETING
• The following 4 point logic sequence convinced 22 insurers and reinsurers to fund a research and marketing study, aimed at delivering an industry marketing plan. It will have a clear and simple branding, and will aim at disturbing consumer complacency through education. The process completes next week, with the 5th presentation to the industry’s corporate decision makers.
1. If consumers are not properly cognisant of the effects on their lifestyle of the physical catastrophes of death or disability or critical illness, and the government won’t tell them about those risks and the state’s inadequacies, then our industry has to, or accept decline.
2. What we sell is glum not glam and thus must be sold rather than flying of the shelves just because we give it a new brand or feature or capability.
3. But there are no huge sales forces, so it has to be marketing that sells, that gets the consumer asking us the questions.
4. And there is little point in reforming and innovating in an industry in long term decline. If we can get sales figures growing again, then all sorts of innovation and progress will naturally follow, as big business seeks to gain new market share, rather than merely squabble over old market share.
• The presenters are the UK’s largest behavioural change ad agency – much used by the government; the UK’s biggest advertising research agency, and Zenith, who are one of the world’s largest media buyers. We have built a marketing “A team”, coordinated by specialist large scale campaign coordinator and we’ve added a substantial focus on public affairs work.
• The industry is right now working out if it is prepared to fund its own resurrection or if it just accepts decline while it waits in vain for people to start dying young again.
• I’m pleased to note that this audience of 100 senior industry professionals voted 99 to 1 that the protection industry should commit to the £5m 1st year spend the plan requires.
And all these innovations would become affordable if our market was growing as consumers need it to, rather than shrinking because it has no voice. Now is the time to change that.
Tom Baigrie
LifeSearch
(Edited version of speech to the Panorama Underwriting Conference 1.10.09)
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Posted by @
03:52 PM, October 07
Just some feedback on the article by Mr Baigrie.
Firstly, well done on such positive work on the protection campaign. I’m sure it has taken considerable effort to co-ordinate such an initiative.
It was probably a rhetorical question, but a ½% levy on adviser fees is an excellent idea to promote the need for protection, especially from independent advisers – it would mean better economies of scale, and better quality advertising, with more impact, than the small and medium sized firms can afford. It would also help close the worrying protection gap many families have. This is good for families and good for the industry.
Many seem bitter and cynical in our industry, and would rather moan about situations, then resolve them. It is very pleasing to see a leading company, like Lifesearch, really make a difference in such a positive way and wanted to applaud this.
All the best, and good luck.
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Posted by @
12:28 PM, October 07
As is often the case, I agree whole heartedly with what Tom Baigrie has said above. Whilst most of teh work we currently do for clients is Investment and Pension Planning, we remain committed to meeting our clients protection and mortgage needs. The problem is delivering it and making sure we are paid for work on regular premium advice when we still see people who think that buying the cheapest on-line is great. They only know it wasn't right when they get to the claim stage and find that the small difference in premium for a plan paying commission was money well spent as they eitehr got the right product and trust as a rsult of teh advice, or if they did not they have a right to complain about poor advice which they do not with on-line purchase with no advice!
Innovative ways of marketing and delivery using good IT is the way forward, but ultimately protection is SOLD not bought...............
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