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The Life Insurance Market
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If you want to make sure your Life Insurance keeps track with inflation, ask about index-linking your policy so that the amount you are insured for increases with inflation over the term of the policy. Critical Illness Cover, Real Life Cover and Income Protection can also be index-linked.
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As Financial Conduct Authority managing director Martin Wheatley lays out his vision of how consumers will be protected by the future FCA, I hope he reflects on the root causes of the utter mess savings, investment and protection is in today.
Any objective analysis would surely find the consumer has been awfully served by regulated financial services since 1987. The four statutory objectives of regulation have patently not been achieved these last 25 years.
Rather, the ordinary person’s desire to save and insure has been catastrophically eroded, indebtedness has soared and, unlike 1986, the average person now has no viable plan for remaining independent of the state when their earnings cease through retirement or ill health. The nation is sleepwalking towards personal poverty as a result.
We have all failed, from Chancellors to bank clerks and all points in between but it is those who have had power who must be chiefly to blame and it is their successors that must turn the thing round.
The reason it is the rule-makers not the rule-breakers who are chiefly to blame is because the Treasury and regulator have been unable to resist increasing their responsibilities to the point where no body in a free society can adequately discharge them. Rather than confining themselves to weeding out conmen and fraudsters, they have set out to ensure there is no way a consumer can strike a bad financial services deal.
In that effort, they must always fail but along the way the worthy desire has caused them to gather up all sorts of powers and levy all sorts of charges and taxes. But at every step, as always happens when one overreaches one’s ability, using those has caused unintended consequences far, far worse than the evils they looked to eradicate.
Perhaps the best example of this is that, in order to rein in a few fraudulent employers, they destroyed the entire private sector defined-benefit pension scheme model. It was the world’s finest method of placing long-term investment risk where it could best be locally borne. When they added to that the destruction of with-profits risk-sharing because it could never be perfectly fair to all and to stop a few providers overstating potential returns, they left consumers at the mercy of volatile markets and the resulting shocks meant the ordinary person simply stopped investing.
There is an endless litany of similar collateral damage and cost far exceeding the beneficial effects, culminating in the latest Financial Services Compensation Scheme and FSA budget increases, all falling ever more damagingly on the relatively few of the regulated who survive.
Of course, it is various misbehaviours within the industry that have continuously given the regulator reasons to take power but at every step the regulator has wielded power with such clumsiness that the innocent consumer has been unwittingly crucified.
Martin Wheatley needs to urgently consider how best he can stop that continuing and use his powers to best protect consumers against their impending poverty.
Tom Baigrie, Chief Executive of Lifesearch
This article was published in a recent edition of Money Marketing
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Top Tip: do not confuse 'Critical Illness Cover' with 'Terminal Illness Cover'. The former pays out if you suffer a serious medical condition; the latter is only a part of a Life Insurance policy that pays out if you have a terminal illness.
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LV= paid 100% of all Life Insurance claims in 2011 according to the latest figures from the insurer.
The claims records show that LV= paid out 95% of protection claims, including 91% of income protection (IP) claims, 88% of critical illness (CI) claims, and 100% of life assurance claims.
- The average age of an IP claimant is 45 years old
- The average age of a CI claimant is 47 years old
- Mental disorders were the most common reason for an IP claim (31%)
- Cancer was the most common reason for a CI claim (61%)
- The average annual benefit for an IP claim is £16,568, paying out for an average of just over seven years
- The average CI claim was £70,098
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Our advisers began voting for the Lifesearch Protection Awards earlier this month. They are voting on, among other things, which new protection initiatives have been the most significant over the past year
Last year was rather eventful. We saw many product enhancements, product launches, new entrants to the market (British Friendly, innovative advertising campaigns (Unum and Aviva) and, of course, the birth of Friends Life.
PruProtect has shown once again that innovation is possible if companies put their mind to it. The brand new education cover and its unique twist on family income benefit certainly give new options to those wanting to protect their families. Its improved Vitality programme gives a real incentive to customers to keep their cover in force, and it would be great if there were more initiatives like this available. If customers can get something positive from their protection plans, apart from the claims triggered by tragedy, they are more likely to keep paying their premiums.
Aviva and Unum showed both courage and brilliance with their television advertising campaigns. We should not forget to praise Zurich which advertises too, but Aviva and Unum raised the bar in terms of creativity. Whether you liked their ads or not, you cannot knock them for trying to get more people thinking about protection and, in particular, income protection. More please.
We had a whole host of providers making improvements to their critical-illness propositions (LV=, Scottish Provident, Bright Grey and Aviva), with particular focus on increasing the number of ABI+ definitions and partial payments. These improvements are welcomed, although there are debates about how valuable the changes actually are and whether they are just adding complexity to the product. The debate will surely continue but one company that did something slightly different was Ageas which once again made its enhancements available to existing customers, and reviewed previously declined claims to see if they could now make payments given the new definitions. That is treating customers fairly.
Income protection saw improvements too. Unum and LV= were just two providers that took steps to increase the number of customers who can have own-occupation cover. A very welcome move and, with the options offered by the friendly societies, there is no reason why any customer should not have this level of protection.
I would now like this positive focus on own occupation to shift to total and permanent disablement cover so that we can get a few more claims paid on this troublesome product.
Emma Prescott is head of life office relations at Lifesearch
(This article was published in a recent edition of Money Marketing)
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Scottish Widows are preparing to sell Life Insurance and other Protection products again after leaving the market in 2007. It's a move that LifeSearch welcomes as they should bring fresh ideas and new products to the industry.
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The 9th LifeSearch Protection Awards will be held on March 7th. The shortlist for the 14 categories are as follows:
Best Service Provider (New Business):
Aviva
Legal & General
LV=
Best Provider for Existing Customers (New Award):
Ageas
Friends Life
PruProtect
Most Improved Provider:
Aegon
LV=
PruProtect
Best Income Protection Provider:
British Friendly
LV=
Unum
Best Critical Illness Provider:
Ageas
Friends Life
PruProtect
Best E-Commerce Provider:
Ageas
Legal & General
Best Sales Material (New Award):
Bright Grey
Legal & General
LV=
Best Underwriting Team:
Aviva
LV=
PruProtect
Best New Initiative:
Ageas
Friends Life
PruProtect
Best Protection Story:
No shortlist
The Nick Crossman Award for Best Marketing and PR Team:
Aviva
LV=
Unum
Best Individual Impact:
Dave Warren (PruProtect)
Emma Trussell (Aviva)
Heidi Whittington (Legal & General
Graham Taylor (LV=)
Naomi Greatorex (Friends Life)
Neil Hartigan (Aviva)
Peter Culling (PruProtect)
Best Protection Leader:
Deepak Jobanputra (PruProtect)
Iain Clark (LV=)
Louise Colley (Aviva)
Richard Verdin (Aviva)
Best Overall Provider:
Ageas
Aviva
LV=
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