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The Life Insurance Market
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Robert Reid recently wrote of the increasing likelihood of consumer detriment being caused as a side-effect of the consolidation amongst Life Insurers. I’m not sure that the FSA is yet alert to it, but I believe the FOS case-load caused by this issue is growing.
The way these things tend to happen historically is that a few of us close to the market sound the alarm and are ignored. Years later the FOS notes that it seen increased growth of complaints in an area, and then years after that an FSA investigation occurs and the whole financial services sector is thrown in disrepute once more. I was one of those that warned about PPI many years before the Competition Commission and then the FSA decided it was an issue. We were ignored then, when the problem could have been nipped in the bud and a reputation damaging scandal averted. Despite the tremendous organisational pressure that must be facing the FSA we must not be ignored now.
The trouble is simple to explain. The quality of handling of customer claims and technical and servicing enquiries amongst life and health and unemployment insurers in run-off mode appears to be becoming worse. Examples of where it is below any reasonable expectation are growing daily. The solution is equally simple. Those running such businesses need to be held to account fast, before their failures again swamp the FOS and smash our reputation as a sector.
While an insurer is open to new business it must remain conscious of its market reputation amongst the professionals and consumers. That means that, in a close Protection claims decision for example, the impetus to save the claim monies for the bottom line is counterbalanced by the urge to maintain a good claims record and avoid negative publicity. This balance of pressures leaves the customer likely to be treated fairly. But where the insurer has no reason for existence other than the bottom-line profit it generates from its existing book of business, that balance is lost. Those who run that insurer have no retail brand to protect and earn their bonuses by improving the bottom line. After all, the profit in consolidation comes from stripping out cost and there cannot be one consolidated claims or service team that has not seen its numbers near halved or more.
Don’t get me wrong, consolidation and run-off are entirely proper and legitimate business areas, but some involved in them are not accepting the costs needed to service the back-book properly. They appear to be under-resourcing their service and claims teams in order to grow their profit over the long period until the books are closed. The same thing is happening to once outsourced unemployment covers where the contract between the marketing insurer and the underwriting one has lapsed.
Poor admin erodes consumer confidence, poor tax and technical service causes serious, if rare, individual consumer detriment, but Protection claims handled unfairly are the most evil and damaging of all. All the good work done since my firm led the call for insurers to publish claims-paid tables in CI and IP; is going to be slowly undone, by those who no longer care about our opinion.
The last truth means the market cannot provide a solution to this potential abuse. So it must be up to the FSA to require those who are no longer seeking to win new business to prove that they are maintaining service standards. The clearest sign of a problem is the FOS’s case load, and that should guide the FSA’s enforcement teams as to where they should focus. Hurry Up!
Tom Baigrie, LifeSearch CEO
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Life Insurance is a quality product that will help provide for your loved ones if you are no longer around to take care of them financially. In essence it is a policy that financially protects you dependents if the breadwinner dies. But what about if the breadwinner becomes diabled or is ill for a long time and can no longer earn a salary? Life Insurance doesn't cover that.
That's why LifeSearch recommends Income Protection as the first policy that most people should explore, especially if they do not have any dependents. Unfortunately not may people in the UK have such a policy because it is not well known, yet customers are far more likely to claim on it than a Life Insurance policy.
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The Association of British Insurers has announced that insurers paid out a total of £1.9bn for life insurance and critical-illness claims in 2010.
More than 40,000 families and individuals received a claim payment last year, with £47,166 the average amount paid out.
The rate of claims paid by insurers remains over 90% for all the major products. Fewer claims than ever are being declined.
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Since LifeSearch re-invigorated the activities of daily living (ADL) definition debate last month there’s been a lot of discussion on the use of ADL as an occupation definition for income protection and critical illness. The Specialist Protection Adviser forum on LinkedIn received its longest ‘thread’ on the issue and the debate has continued in the pages of trade magazines. If you have time, please do take a look at the debate on the Specialist Protection Advisers thread on Linked In.
So is ADL an anachronism? If not, then why do some advisers feel it is better to choose a reviewable own occupation definition than a guaranteed ADL policy? The problem with work-based definitions is that they are not as customer-friendly as own occupation, yet there seems to be no real reason why all insurers cannot offer own occ.
Cost, of course, is an issue because insurers will have to offer own occupation policies at a higher premium. There seems to me to be no reason for policies not to have an own occupation option though- just price it in and, if it’s too expensive, advisers have the option to reduce the cover or term for their client.
A solution for insurers to help advisers avoid this conflict would be to offer manual workers both own occupation and work-based definitions, then let them choose with the help of their advisers which one is right for them. After all, is there such a thing as too much choice being a bad thing? Some say it is simply adding to the confusion, but IP isn’t sold on its simplicity and, in any case, if all, instead of just a few, insurers offer own occupation, wouldn’t that make things more standardised and not more complex.
The retreat of the welfare state makes it more important than ever that we get the message out that a personal Protection policy is important and that we back this up with high quality products that pay out instead of creating a succession of negative headlines. The welfare state cannot be relied on to deliver anything other than the minimum of safety nets. Consumers don’t realise that their standard of living and repayment on debt, like a mortgage, would be difficult, if not impossible, to maintain if welfare payments were needed and solely relied upon.
So if the industry is going to offer up a viable solution we need to make sure it will do what it says on the tin. Own occupation definitions from all providers on CIC and IP policies is a good solution. You could say that this is being a little harsh on ADL because ‘something is better than nothing’ as long as it's correctly advised and right for the client. While this is true, there also seems little reason for all insurers not to offer the adviser/client the option of the ‘gold standard’ of own occupation too. Something TCF is the best option of the bunch.
Mat Morris, Senior Policy Adviser, LifeSearch
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