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The Life Insurance Market
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It seems frankly bathetic to write about anything else when the savers of Cyprus seem likely to have their money stolen by order of the ‘Troika’ charged with saving the Euro.
It might be that many of the foreign savers using Cypriot banks came by their money in ways they wouldn’t want fully investigated, but that would be to mix up prejudice and the law, which Europe has avoided since 1945.
It seems to me that an awful precedent is being set – that a government, when desperate for funds, can raid the savings of those who bank within its grasp.
Along with tales of extreme regulatory arrogance on this side of the channel it forms a deeply disturbing trend, where those in authority over us, supported by a deep belief in their own virtue, can play fast and loose with civilised norms in order to protect their projects or further their plans for perfection.
In this column’s little corner of the world it is becoming clear that protection needs to explain itself very convincingly if the present intermediated distribution landscape is to survive and grow, as consumers badly need it to.
Our threat may seem trivial compared to the chaos elsewhere, but it originates from the same minds and needs facing up to fast. To do so needs collective effort and this requirement has lately driven a flurry of talk of the need for trade bodies.
The Protection Code of Conduct campaign is not a trade body, but it has recruited 50 major intermediaries to its cause and has a leading light in each distribution channel to volunteer to serve on a steering committee, so it could perhaps become one. But within days of starting to think about that, other far more experienced committee men tell us they are considering starting offshoots focusing on protection, so the question we now face is whether to join in the efforts of others or follow a more focused agenda.
Protection has always suffered by being a sideshow to the main fare of investment and pensions at the CII, Aifa/Apfa and the ABI, or saving and mortgages at the BBA and BSA, but it is a market worth specific dedicated full time focus.
And looking at the post-RDR position, it is the retail side of our market that most needs most to now be properly represented.
For my money a new trade body is needed that is:
1. By protection retailers and of them too. It can happily include those manufacturers who also distribute, and find funding from wherever it can, but its focus must be resolutely on the retail interface between those who sell or arrange protection products and the consumer.
2. Determined to achieve what is right for the consumer. There is no need to duplicate regulation or the work of the CII but those that do not uphold minimum standards should be left or slung out.
3. Inclusive of all retail streams, advised or non-advised, online or phone or face to face. Consumers want to deal in all these ways, so they must have the same underlying standards. It is no longer about what an adviser must or must not do.
4. Set up very fast and have an immediate first intent to engage the regulators before their thinking gets past the point of no return, which perhaps takes much less time than it used to.
One adds another acronym to the alphabet soup at one’s peril, especially if one has no experience of forming a trade body before, so we will engage with others more experienced in these dark arts and report back in due course.
Watch this space.
Tom Baigrie - first published in Tom's regular column in Money Marketing.
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The protection industry needs to get better and communicating and retaining existing customers.
In our post G-Day world, one positive outcome is that retention should improve because customers will find it harder to replace protection plans taken out in the last couple of years with something cheaper.
But we should not rest on our laurels. Customers in our financial climate are trying to reduce monthly expenditure; if they can’t remember the reason for taking out cover, and don’t see any immediate benefit, these plans will be at risk.
Providers have focussed heavily on new business and it is now time for investment in existing business. Intermediaries need to know quickly if a premium is missed so that they can take action. Some providers have good electronic warning systems but others still rely on snail-mail.
And when customers want to re-instate policies, some processes are so cumbersome that bizarrely, it's easier to set up a new policy.
Providers must also get better at informing intermediaries when contact details change so we can keep touch with customers. Intermediaries tell providers about new contact details, but unfortunately providers are poor at returning the favour.
Prevention is of course better than cure; we need to ensure customers are not tempted to cancel in the first place.
Intermediaries and providers must maintain contact with customers to ensure they value the cover they have.
One proposal is to introduce an annual statement. Put simply the provider would summarise what cover the customer has, what the policy does and could also highlight where there might be gaps in coverage.
Intermediaries could send this to the customers themselves or if sent direct, customers will be encouraged to contact their intermediary with questions.
As long as intermediaries are involved and can determine the method of communication, it would be a positive move and one backed up by a study conducted in September 2012 by The Syndicate (a research partnership between Protection Review and Hannover Re) as 80 per cent of its 3,000 consumer respondents supported an annual statement.
Ancillary benefits are another means to improve retention.
Let’s face it, with protection, customers are paying for something they hope never to have to use. However, if there are features that can be utilised without having to claim, customers will see more value in their cover.
PruProtect’s Vitality programme leads the way in this respect, offering a huge range of benefits including discounted health screenings and free cinema tickets, and it is the only company to reduce premiums in return for loyalty.
The Syndicate’s research found up to 75 per cent of policy holders would be less likely to cancel if loyalty was rewarded so it makes sense for more providers to do this.
LV= is another to offer benefits through discounts on its general insurance products and a multi-advice helpline that policyholders can use at anytime.
Across the board there should be more such offerings and what is available should be much better promoted.
Reducing the infamous protection gap should not just be about attracting new customers. We need to make sure we keep the customers we already have.
Emma Thomson - first published in Emma's regular column in Money Marketing, 12th March 2013
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It’s too early to be sure of course, but I wonder if the recent protection price changes, which were mostly price rises of course, have not changed our market a bit for the better? That thought begs the question as to whether what’s good for the supply side of a market can be good for consumers even if it costs them a bit more. It would be easy to ridicule the very thought, but it seems to me that Protection is different to other markets in many ways and this might just be one of them. Though that of course depends on what the market does with its new found improvement.
Let me explain.
The first effect that we’ve noticed since the price rises is a reduction in lapses. Policies bought last year cannot now be bought for less this year and that is proving good for margins in Protection distribution and manufacturing. The second effect is that our average premium per case has naturally grown a bit, but also that so far at least consumers are not being put off by this at all. One could be cynical and say that they didn’t buy enough when it was cheap and they still aren’t buying enough now that it’s a little less cheap, but they are buying what they did and paying a bit more and thus our margins are a bit better, as will be providers’.
And that’s where the oddly different nature of the Protection market comes into it. For unlike other insurance markets Protection is barely marketed at all, claims are very rare and claimants are reluctant to tell journalists of their misery and thus the relief Protection has brought them. So the market is to an oddly large degree created by sales peoples’ supply side push, rather than advertising or buyer demand. Don’t get me wrong, there is buy side demand, but it’s nothing like as big as it would be if consumers were truly conscious of the risks they run and that Protection can cover these effectively and at very reasonable cost.
My hope is thus that where higher margins arise they might be deployed into greater sales effort, or even education and marketing campaigns that would get consumers to understand their Protection needs. And that, as I hope even a consumerist would surely agree, is good for them. In short, if Protection is indeed a good thing that is more sold than bought, as the old saw puts it; then making the sellers better able to communicate effectively is a good thing. The same would be true if those who sell pensions and savings were better able to communicate the horrors of an old-age without either, rather than the marketing field being left open to the pushers of dreams that are the debt sellers.
Notwithstanding recent TV efforts from Aviva, Unum and even a distributor or two, those of us who sell financial responsibility have so lost the consumer’s attention that compulsion is the most talked of solution to a need the free market should be perfectly capable of fulfilling in its entirety. It’s sad that the only truly profitable products in recent memory just now are overpriced active managed investment funds, dubious over 50’s insurance and of course PPI, which became super-profitable only because it was mis-sold; but for us honest Joe’s still dreaming of a 10% profit margin and hoping to use it to encourage consumers to be more financially responsible, the recent price rises might just help us to help them.
Tom Baigrie
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A final extract from Tom's LifeSearch Awards speech
Last year I wondered whether the theoretically perfect world the regulator sought might start to become practical perfection in 2013, and the huge cost of RDR thus prove worthwhile. It’s perhaps too early to tell, but I wonder if you have seen a surge in those hoping to make a living by selling protection. I hope so, but I wonder if your distribution marketing team will lead you to support all of them, even those who you know will mislead consumers, or will your risk control team Click into action and Jump to stop you providing free credit to the incompetent and overambitious and not too bothered about the rules?
If you manufacturers control your distributors’ behaviours properly, our market could see genuine long-lasting quality supply side growth, and with products that are still very often sold not bought, that could drive genuine buy side growth.
In fact trust me on this. I’m a distributor. The consumer will buy more protection if more people are selling it. Lots more.
Trouble is the people selling it have to do so properly, or otherwise our collective reputation will continue to languish and the regulator will step in.
That need for quality control is why, a year ago I laid out a Protection Distributors Code of Conduct, designed to apply not just to advisers, but to all who distribute protection by any means. We gathered support for its five rules from 50 major firms right across distribution, and a steering committee has been appointed and had its inaugural meeting.
It consists of one of each different type of Distributor:
• D2C is represented by Mike Ward of payingtoomuch.com
• R2C non-advised by Luke Ashworth of protected.co.uk
• R2C advised model by me and LifeSearch
• Independent FTF by Roy McLoughlin at Master Adviser
• Tied FTF by Claire Limon of Countrywide.
And the Protection Review are acting as an honorary secretariat.
We think all those with their own in house distribution should join us, and we’ll be moving our agenda forward through this year now that G-Day is out of the way!
Tom Baigrie
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Another extract from Tom's LifeSearch Awards speech.
You Providers may have come up with a different G-day plan each and every one, and made our lives a near impossible jigsaw. But never mind the pain of being a true independent, in the end we had choice and you handled it all pretty damn near faultlessly and what could have generated 1,000 complaints, at LifeSearch generated about 10.
And your pricing currently seems to me to be like a market should be, different strokes for different folks. I like it that you are either unable or unwilling to re-start up the price war, long may that courage last.
It does consumers no good when their insurance is so underpriced that neither distributors nor manufacturers have the funds to effectively market the need for their products.
And so I hope that the regulatory lull is allowing you to spend all day every day working on innovation and differentiation and improvement. Or is it all Solvency 2 round by you?
Are you are holding your first post G-day brainstorming sessions and are they are all about how you will differentiate yourselves so you can price properly?
Like E-sure or Sheila’s wheels do, say! Did you see their returns to shareholders? That’s how you do it, not by being the cheapest date, but by being the most attractive.
My hope is that you are all working on how to make different product and pricing and marketing work boost your margins.
One way you might like to think about is trying to retain customers a bit better. Offer loyalty discounts perhaps, or other incentives like PruProtect do with increasing effectiveness. Or allow us to put policies in trust easily, not with 1970’s style documents, envelopes, stamps and ink; for trusts are TCF and cut churn, but you make them so hard to do.
And how about all of you doing what the best of you do, telling us electronically as soon as you learn that a DD is going south, rather than telling us about a lapse when you claw back 3 months or more later. What the hell help is that! And how about making reinstatement easy and attractive? In some cases your rules make rebroking always better for the client, and we hate it and so should you. Listen to the F&TRC Protection Forum and change your rules and cut your (and our) churn.
And what about respecting our relationship and reputation, by telling us when our customers call you to change something about their policy because they see your name on their bank statements, rather than stealing them off us by asking them if they want to go back and make another call and deal with us at the same time as offering them a deal there and then direct!
They’re our customers we sent to you, you should not hide behind systems deficits or worse still a warped idea of TCF in pretending to police our relationship with our customers when finding fault with us, profits you.
We are coming after this institutional petty theft!
Tom Baigrie
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Regulation needs to heed the law of unintended consequences and change focus.
I hope our regulators can see that it isn’t only or even mostly the way you are paid that governs the way you behave, but rather it is the culture you work in that is all important.
Retail banks weren’t bad for customers because they paid bonuses to counter staff, they were bad because of their approach to product design and charging and thus to their trusting customers was to make as much money out if them as they could get away with.
It’s cultural change that should become the focus of our new post-modern regulator. For rules always spawn unintended consequences.
I’m not clever enough to write the book, but there is a credible logic in saying that the global financial crisis we are still living with was caused and made catastrophic by regulation itself. It’s accepted that its root was the US sub-prime mortgage boom and bust, and that market took off when AIG seized a regulatory arbitrage opportunity when they realised they could lend mortgage money in ways that US banking regulations forbade banks doing.
There you go! By trying to control things you don’t like through law, not education and cultural enforcement, you often eventually create far worse pain than ever existed before you stepped in. Wouldn’t it be wonderful if M Wheatley saw that point and realise that MAS could be his most powerful too if it changed shape to truly educate consumers, rather than merely informing the interested.
Tom Baigrie
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