Bulletin 05, 2007
Round up
3 – the number of life insurance rate changes since the last bulletin, Legal & General, Scottish Equitable & Prudential
4 – the number of health events in April, including World Heath Day
82% - the number of consumers who said price was important in the purchase of term assurance, according to the FSA
13.3m – the number of people in the UK who have a term assurance product, according to the FSA
£394m – the total amount of critical illness claims paid by Legal & General since 1996
Introducing Matt…
LifeSearch is pleased to announce a new addition to the press office – Matt Morris, who joined LifeSearch in February as Policy Adviser and PR Manager.
Matt’s background includes journalism and public relations, most recently for the (almost) operational new Wembley Stadium. In his first month Matt has been busy sitting with our life insurance advisers, mystery shopping the competition in the life insurance industry and drafting press releases. He has already passed the CF3 insurance exam.
Matt will be working closely with Kevin on PR, products and life insurance policy issues, and is available on 0207 065 1020 or mattmorris@lifesearch.co.uk.
The Budget
Pension Term Assurance
We are disappointed, but not surprised by the Chancellor’s decision to end the availability of tax-relief on term life insurance products.
What is most disappointing is that this was an informed error by the Treasury, followed by a damaging u–turn, which has cost the life insurance industry tens of millions – for a market that effectively lasted just nine months. Such practice does nothing to improve consumer trust in the financial services industry or the life insurance industry. How refreshing it would be if the Treasury apologised for its mistake.
As for existing life insurance policies, we understand that contractual changes, such as guaranteed insurability options and indexation have been allowed, however, any voluntary amendments will not be permitted. Importantly, customers who applied for Pension Term Assurance before the pre-budget report in December who are currently in underwriting have until April 5th for their policies to start in order to receive tax-relief.
Inheritance Tax
The nil rate band threshold will increase to £300,000 on 6 April 2007 and will increase to £350,000 by 2010/11. While the increase is to be welcomed, many ordinary people will still face a potentially substantial IHT problem while house prices continue to rise.
We would urge Treasury to consider an easy and risk free reform. To exclude the proceeds of non-investment linked life insurance policies from IHT.
Comments of the week
“The relative complexity of Term Life Assurance means there are issues around advised and non-advised sales and access to the FOS (Financial Ombudsman Service). Entry by supermarkets into the market has sparked a debate over whether consumers are disadvantaged if Term Life Assurance is sold without advice. If consumers buy a Term Life Assurance product through an adviser and this turns out to be unsuitable, these consumers can complain to the FOS about the advice received. If they did not receive advice they cannot complain about the suitability of the product, although they do have scope for redress about issues such as misleading information or administration problems associated with the sale.”
‘Our rules have tried to address the problem of unsuitable sales and provide a framework for good practice in the sale of Term Life Assurance. Yet even increased disclosure requirements would probably not fully solve the remaining problems, given that consumers often do not read the life insurance policy documents until after the sale. There is some cause for concern over the issue of advised and non-advised sales, as our current rules mean consumers are not always aware of the implications of the type of purchase they make. This highlights the areas where ICOB is not delivering on all aspects of the four intended consumer outcomes of the regime. Specifically consumers may not receive enough information during non-advised life insurance sales to make an informed decision on whether Term Life Assurance is the right product to meet their life insurance and protection needs.’
FSA ICOB Review
And on a slightly lighter note…
“According to Wikipedia Homer Simpson has a BMI of 32!”
Steve Casey,
Product Manager, BUPA Individual Protection
Heroes of the week
Legal & General
Who last week published a new set of paid and declined critical illness claims statistics, which showed the provider paid out more than £92.1m in critical illness claims in 2006.
Compared to 1,626 claims paid, 326 claims were rejected; 236 for non-disclosure and 90 for not meeting the definition.
The overall number of critical illness claims rejected was 19% lower than 2005.
FSA
Who this week issued their interim report on general insurance (ICOB) regulation.
As the above quotes indicate, LifeSearch is delighted the FSA has recognised that life insurance and protection products are not as simple as general insurance (GI) products, such as car and motor insurance, and support the view that they should be regulated differently. We are also pleased the FSA are concentrating their efforts on personal protection products rather than GI, as the potential for consumer detriment in this area is far greater.
While the distribution of general insurance products works well, the FSA report found that firms' selling practices have an important role in reducing the risk of consumer detriment for those buying personal protection products, such as payment protection insurance (PPI) and critical illness cover (CIC).
There is, however, much work yet to be done.
We remain concerned that the FSA is yet to fully understand that the key cause of consumer detriment in personal protection is the growing number of non-advised life insurance sales and the manner in which these undervalue advice and product suitability. Independent research suggests that consumers are seeking advice from advisers less frequently in protection, which differs to the regulator’s view that most life insurance and protection sales are advised.
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