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The Life Insurance Market
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In a recent interview in Q Magazine, rock singer Jon Bon Jovi spelled out his thought on...Life Insurance! And how it helped him quit smoking.
"(I quit because of) the cold hard truth. I tried to get life insurance and the price with smoking was so ridiculous it was enough to p**s you off and just throw them in the garbage. So it was cold f**king turkey."
So Financial Protection is clearly the new rock 'n' roll. Next week, Marilyn Manson on his favourite Income Protection provider and Rihanna discusses the importance of Trusts.
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Bupa has taken major strides to improve its Income Protection product with several major updates.
Bupa are now offering premium discounts when health exclusions are added to their IP contract for spinal and mental health disorders. They join Fortis and Aviva in offering this very consumer friendly option which means that those with poor health will be able to save money on their premiums. Bupa already offer this option on their Critical Illness policy.
In addition they have extended their Best Doctors initiative to their IP contract. This means that their customers have the opportunity to receive a second opinion about their condition from world renowned doctors.
Good stuff!
Matt Morris, LifeSearch
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New research from AXA shows that women are financially stronger now than ever before, yet they are not properly protecting these finances against illness or death.
Over a quarter (27%) of women surveyed claim to have sole responsibility for paying the family mortgage, with 30% solely responsible for the main household bills while 25% and 29% are solely responsible for children's education and childcare costs respectively.
Yet only a third (38%) has any life insurance and only one in five (18%) protect themselves against critical illness, potentially leaving their families economically vulnerable if the worst were to happen. The majority of women have no protection in place and AXA stats show that out of those who do have cover, the average value of a life policy is only £90,000 and critical illness just £80,000 - enough to cover roughly two years of the average working woman's worth.
A worrying 37% of women simply believe they don't need cover. However, AXA stats show that one in 10 women who take out a combined life and critical illness policy will either die or suffer from a condition enabling them to claim before the end of their policy and one in 25 who take out life cover only will die before the end of their policy. While 58 deaths per 1,000 (nearly 6%) among women will occur during key working years (before 60).
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The Competition Commission (CC) has provisionally decided that consumers will benefit from the introduction of a point-of-sale prohibition for all forms of payment protection insurance (PPI), with the exception of retail PPI.
They say that point-of-sale prohibition will stop the completion of sales of PPI during the sale of the associated credit product such as a personal loan. It was one of a package of measures the CC planned to introduce following its investigation into PPI, which concluded that businesses that offer PPI alongside credit face little or no competition when selling PPI to their credit customers.
In its provisional decision published on May 14, the CC has concluded that the benefits of a package of remedies including the prohibition, by introducing greater competition and choice and lower prices to the market, will outweigh the disadvantages, in particular the potential inconvenience to some customers.
The CC will now invite comments on its provisional decision before publishing its final verdict in July. If it upholds its provisional decision, it will move to introduce the full package of measures as swiftly as possible.
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Client's needs: the client, a young mother, came to us looking for Life Insurance after spending a long time obtaining premium quotations from price comparison websites. She is very budget conscious.
Our recommendation: our adviser recommended that she buy Family Income Benefit (FIB) instead of tradition ‘lump sum’ Life Insurance. FIB pays out on the death of the policy holder, same as Life Insurance, but pays out a regular income instead of a lump sum.
Result: the client bought the FIB policy over a 21 year term, which means the policy will be in force until her child leaves University. It is also index-linked, so it will increase with inflation over time and the real value will not be eroded. The policy was less expensive than the Life Insurance premiums she had found online too.
If you need a Protection case study please contact the LifeSearch press office on 020 7065 1020.
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The most destructive bouts of mis-selling have shared the same visible early-warning symptoms. They are present again in one hitherto unnoticed corner of the market.
Sales-diseases seem to take many years to become obvious, but in the meantime those trading in the symptomatic way earn very well, while a bemused regulator looks on and tries to work out whether tackling the new and thus unproven abuse would be unduly influencing the market. Eventually though consumer detriment becomes patently obvious and the regulator moves in to cure the fever as more and more consumers start to complain that they are suffering.
The symptoms are all apparent right now. In a currently small corner of the market consumer demand is there, but ignorance is the norm. New players enter the market from other broken markets in search of the commissions available. They bring the hard line sales tactics that are their key to success. The resulting many small start ups and one or two bigger firms all are developing a reputation for sharp practice and boast ambitious growth plans. The big institutions are following in fast.
It should sound familiar, the sequence is eerily similar to that seen in Pension Transfers, Endowments, PPI and Sub-prime mortgages. Just like in those cases the result is again a rapid increase in a new version of old and proper business activity, the new one done through a regulatory gap, and done hard and fast and with a sharp increase in churn activity and lapsing policies.
The new game on the rough edge of town is the telephone based selling of ICOB products without advice. It sounds boring, but it carries within it the seed of serious reputational damage to us all. It will take time for the consumer detriment being caused to manifest itself, but when it does the suffering consumers will be seriously ill or recently bereaved, so we can expect no media mercy. A major insurer told me today that this sales method will continue its current 200% + annual growth in market share until at least 1/3 of all protection sales are made through this channel.
Like all the best cons, the trick is simplicity itself and a bastardisation of best practice. The bastard version sees you tell the client that you will not advise them, but you then impart all information that promotes a sale and none that hinders it. You prey on consumers half-knowledge with half truths and to make a quick churn you use phrases like, “Critical Illness Benefit is very expensive, but many people choose Terminal Illness Benefit and XYZ Life have a special deal on now that includes life cover if you apply in May.” Or, “A joint life policy costs less than one each and you don’t need to bother with those complicated trusts.” Or, “We don’t deal with ABC Life because their claims record is not very good.” To succeed you simply invest in lots of sales training and no technical stuff, other than the jargon needed to impress gullible consumers after a cheap deal. You link up with a few providers to whom you promise vast volume and you flog, flog, flog. And the regulator won’t bother you for years yet.
The FOS once said that they saw no way that a salesperson could have a telephone conversation with a customer and not give them advice. It’s time the FSA saw that truth and clamped down on non advised tele-sales boiler shops. Non-advice should never involve a sales conversation and that means it should be on-line or not at all.
Tom Baigrie, LifeSearch MD
(This article was published in the 13 May edition of Money Marketing).
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The best-laid plan to protect a customer’s family with Family Income Benefit (FIB) is often thwarted at claims stage when insurers offer the option to commute the benefit into a lump sum.
Beneficiaries often do not know the benefits of receiving an income and often go for the tempting lump sum. This reduces the insurer’s administration costs, but means that the policy fails to do what it was bought for - to provide a long-lasting income.
Advisers feel that taking the time to explain FIB to a customer is pointless if the beneficiaries are likely to end up taking a lump sum anyway. This partly explains why relatively few advisers recommend FIB
The practice of commutation should be re-thought so that those taking out a policy know that their families will have the regular income they want them to have.
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Posted by @
11:17 AM, May 11
Brian, actually I agree with you. I certainly don't think lump sum payments should be banned, but commuting to a lump sum is far too common and often happens without input from an adviser.
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Posted by @
10:56 AM, May 11
Hi Matt
Agree entirely with the sentiment - we do not have any reference at all in our policy conditions relating to this and do not promote this.
However we would consider if asked via the intermediary/customer. Its all down to individual circumstances really at the time of claim.
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Posted by @
09:30 AM, May 08
I see your point but think it a little too simplistic Matt.
Whilst an income is what the plan was taken out for, at the date of death circumstances may have changed and a lump sum required.. say DIS was no longer available because the insured had left/lost their job after taking out the FIB. Personally, I disregarded Death In Service when an adviser but too many folk include it in their protection "planning".
I can think of a few more examples but my point is this; it's the adviser's job to advise and if the adviser has a good relationship with their client then the client will likely heed what the ADVISER is saying to THAT client at THAT time… given needs change.
As Emma said, lump sums are not good for everyone, but equally we shouldn’t assume they are no good for anyone, ever.
Perhaps a debate around using different covers for different tasks is worthwhile Matt e.g should cover cease because someone has stopped working or their mortgage aid off.. and if the answer is no, why sell term rather than WOL - unless the date of death is known in advance of course (said tic)?
Perhaps a term on gntd rates for specific debts (mortgage etc) and wol for family/partner/estate protection... FIB for income generation....costs allowing of course… but don’t assume the sums assured and terms have to be the same for all purposes….nor taken out all at the same time.
My point is this: products are but tools and the adviser is there to help with advice in using them - would you not agree.. in which case choice can be a good thing rather than a confusion…and you’re trying to smother it ?!
The above is a personal view, meant for discussion purposes and not intended to reflect that of any company I have, am or may work for in the future.
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Posted by @
01:23 PM, May 07
Spot on Matt, if this practice is the norm as i suspect then LifeSearch has a new goal in getting providers to TCF, following on from our successes with CIC claim stat publication and premium reductions on exclusions. As commutation is so easily proved to be a poor decision I hope they agree to proper advice being a requirement each time FIB pays out.
Tom
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Posted by @
02:24 PM, May 06
So true. It takes time to explain the benefits of this valuable type of cover, and when clients understand that an income is going to be best for their family should the worst happen, their loved ones often choose to take the lump sum, because they do not have anyone explaining what is going to be best. Providers should also do more to promote this cost effective option and help to boost sales. Lump sums are not good for everyone, yet few get to know this.
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Congratulations to James Charles of The Times and Madeleine Davies of Health Insurance magazine who won Consumer and Trade Protection Writer of the Year respectively. The press have done a great job of covering financial protection over the past year.
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