Protection review

If you want to know how to mine coal…

Mike Allison

director of protection, Paradigm Mortgage Services

There exists an old but often-forgotten adage that if you want to learn how to mine coal, ask a coal miner. It is simple to see the logic that they will know best.

Simple as the idea is, whichever industry we are in, we often forget the basics and plough on and do what we think is the right thing as opposed to seeking the thoughts of those who know best.

There are a couple of examples of this that have raised their heads over the past month or so where the principles of telling rather than listening may have been better focused.

To give some context, we must go back a little, to the last liquidity crisis in 2008 and its relative effect on life insurance sales. As banks had no appetite to lend due to the liquidity crisis – and they certainly wanted to use their own distribution for what they did have, rather than that of intermediaries in the main – many advisers turned to reviewing their client banks and advising on protection.

This did bring about a surge in life sales, and was a benefit to insurers and those doing it in terms of income streams. If we look at the position today, however, it is somewhat different.

For reasons well-documented in the mortgage trade press, it is now tougher to get clients the mortgages they want at a price they can afford, and firms are handling several times the workload they were previously to achieve the best outcomes for their customers. At the end of this correction, it will undoubtedly be looked back on as a time when the value of a mortgage adviser shone through – although, listening to many, it probably doesn’t feel that way right now.

What I don’t think is a positive measure is to trot out the lines heard from late 2009 touting the simplistic view that when the mortgage market is slow, the life market will rise.

In the current situation, for example, advisers often do not have the time to speak to clients about their life needs that they did back in 2008. In addition, many potential customers are not happy about their revised mortgage payments, and may therefore not want to discuss the merits of protection as immediately as many might think.

So this and other simple messages, such as “Don’t forget to add indexation now we’re in a cost-ofliving crisis,” should be well thought through before being bellowed from the rooftops.

Listening to the current plight of mortgage firms, we might think that a focus on sales of non-core mortgage products is the way forward for them, followed by finding solutions to cut down on the administration of life and GI sales.

Clearly some insurers (both life and general) have been striving to do this, and should be applauded.

The heightened awareness of signposting, especially in relation to the upcoming consumer duty implementation, can help here, too. We must remember that signposting is not an all-or-nothing scenario, but instead can be used as a back-up plan for advisers when things are especially fraught.

In turning to consumers themselves, it is vital they be listened to before we as an industry try to determine what is needed to ensure that they are properly insured. The now eagerly awaited AMI Viewpoint survey tells us a lot here regarding consumer behaviour, and is well worth digesting as we all think about plans for 2023.

Listening to what customers think of us and our industry should be used to shape how we do things. The research tells us that consumers still think advisers are more concerned with getting commissions than with finding the right solutions for them.

There is still a huge amount of anxiety out there regarding claims – which has led to over half (56 per cent) of consumers still not believing claim statistics. Each year the majority of those asked say they “don’t trust” them.

If that is what consumers are thinking, then it probably would be wise to add the statistics produced by insurers into client presentations; if that is not the case already, then it should be done as a first-strike measure.

I am not going to go through all of the research in this article, as I think it is worth looking up and reading through, and we will certainly be promoting it to Paradigm Protect firms – in an empathetic manner, of course.

As things start to settle down a little, and with the advent of a change in lending habits – perhaps more product transfers than were previously imagined, depending on the pricing of lenders versus remortgage opportunities – I believe firms will look at life sales as an avenue for developing their own income streams.

That, along with the consumer duty, will undoubtedly be formulated into 2023 business plans for many – but this must be done at a time when advisers can control more of their time and resources, and not attempted with a simple flick of a switch. M I

AMI research shows the way forward

Kevin Carr

CEO and MD, Carr Consulting & Communications

The Association of Mortgage Intermediaries (AMI) recently launched its third annual Viewpoint survey on protection insurance as part of the mortgage industry.

“The great protection shift” report takes a detailed look at barriers, consumer expectations, communication, perceptions, misconceptions, and more, based on extensive consumer and adviser research.

The findings are highly interesting.

KEY FINDINGS

One of the standout numbers is that 44 per cent of advisers expect the consumer duty to increase mortgage brokers’ focus on protection. This is astonishing, especially as the cost-ofliving crisis escalates, as affordability is one of the main reasons people don’t currently have protection – cited by over a third of consumers.

Regarding cost and keeping policies in force, 37 per cent of advisers are currently “not doing anything” to help customers keep their existing cover in place, preferring to wait until customers contact them, if they do at all.

Advisers think all parties, including themselves, should be doing more to promote protection among consumers, while customers still think advisers are mostly motivated by commission.

Just half of those consumers with a protection policy are aware of the added-value benefits, yet a fifth have used them (these could include virtual GP appointments, expert medical second opinion services, or counselling).

Almost a third of consumers mistakenly think they cannot buy income protection if they’re self-employed, rising to 42 per cent among those aged 18 to 34, while two-fifths of consumers think protection cover is always the same whether purchased through an intermediary or directly.

And if they were buying protection today, over half of consumers would go online compared to just a quarter who would want to buy it face-to-face – and just three per cent by video.

CLAIM STATISTICS

It is getting on to twenty years since protection insurers began regularly publishing claim stats.

Back then, we knew most claims were paid – but there were several high-profile declined claims in the media that were giving the industry a very poor reputation, and many policyholders were looking to cancel.

Nowadays, over 98 per cent of all protection claims are paid, and the industry has been praised by the media for its transparency. However, over half (56 per cent) of consumers don’t believe claim stats, with this scepticism higher among older people. Are the numbers too good to be true? And more importantly, what more can be done to amplify them?

FIVE-POINT PLAN

In terms of outcomes, AMI CEO Robert Sinclair proposes a new five-point plan to “propel the industry forward.”

He says advisers need to consider whether they clearly and confidently articulate the value of protection advice to consumers and that firms need to consider their approach to protection, considering consumer duty.

For advisers who don’t want to write protection, there are many today who can provide services to act as their protection adviser in a way that suits all parties.

For insurers, AMI want improvements in service in which providers commit to working with advisers to understand the pain points and address them where possible.

In addition, we need to make far better use of claim statistics and work with industry bodies to tackle the barriers highlighted. As AMI chair Andrew Montlake notes, “We have to accept that it’s time to evolve, and to look at things differently.”

NEWS ROUND-UP

 Paradigm Protect has announced a partnership with Assured

Futures, which sees the firm providing signposting options for

Paradigm members.  According to research by LV=, 60 per cent of surveyed 25-to-44year-olds who don’t have protection in place would feel more

“financially resilient” if they were covered; research among 4,000 surveyed UK adults found that while 12 per cent of respondents have income protection provided by their employers, 26 per cent of surveyed adults who don’t have a group or individual policy would like to have one.  Guardian has partnered with

UnderwriteMe on its IFA protection portal.  Aviva has made improvements to its Core and Upgraded Critical

Illness plans. M I

Protection advisory could provide additional income

Alan Lakey

director, CIExpert

Most people in the protection industry consider critical illness plans to be the most complex product. There are a number of reasons for this, some of which are:  the use of precise and often complicated medical terminology;  the wide and confusing range of options available;  plan documentation that is often badly presented and lengthy;  the necessity, now bolstered by the imminent consumer duty requirements, to properly understand the product.

Mortgage brokers, like financial advisers, are busy people. Whether they’re dealing with clients, searching for new business, or placating the regulator, they often have little time to focus on areas that might be deemed peripheral to the main tasks of arranging mortgages and remaining financially solvent. 2023 promises to be a grim year, possibly on a par with 2008, the year when thousands of mortgage brokers went out of business, and brokers must look at other sources of income to balance the books. Moving into the protection advisory world seems the obvious answer, as it conveniently dovetails with the core business of arranging long-term debt.

This also raises a moral as well as a financial issue. If you have arranged a long-term debt, probably the largest debt thus far in the borrower’s life, then surely there is a duty-of-care requirement to advise on and arrange suitable protection against the perils of premature death, serious ill health, and lack of sick pay.

So, back to critical illness and why it scares many mortgage brokers. How many brokers are interested in or willing to bone up on understanding medical terminology? The truth is that it is infernally difficult to understand variations in condition wordings and the impact of sometimes-subtle differences. Trusted resources such as CIExpert can resolve this problem by comparing plans and providing plain-English descriptions of what each condition actually means.

The majority of insurers offer both a budget plan and a comprehensive version of their critical-illness policies, complete with future guaranteed insurability terms and valuable additional benefits such as second medical opinion and 24/7 GP access. Children’s critical illness cover is generally an optional benefit, as are total and permanent disability cover, fracture cover, waiver of premium, and other worthwhile options such as global treatment. However, these choices should not be a cause of concern for brokers who are looking to protect the debts they have just arranged for their clients. The overarching job is to ensure that clients are insured when contracts are exchanged, and the old adage that something is better than nothing resonates here.

With over 85 per cent of all claims down to cancer, heart attack, stroke, and multiple sclerosis, it is evident that the majority of plans can address likely claims areas. Therefore, it is often simply a question of whether cost dictates a quality or a budget plan.

Policy documents, key facts, and other brochures provided by insurers have a tendency to over-inform. Quite a few present their contents in an ad hoc fashion, making it difficult to easily uncover the information sought. Some insurers, such as Canada Life, have worked to cut through this and provide the required information with a minimum of fuss.

Understanding the product is another matter entirely. Those brokers who only occasionally dip their toes into the protection murk will likely not feel confident about their ability to understand fully the scope of the various plans. Again, one of the available resources – CIExpert, DeFaqto, and Protection Guru – can assist in discriminating among plans.

It is much easier to retain an existing client than it is to find a new client, and this is where expertise shines through. The best mortgage broker may still lose a client to another who has proved his/ her protection knowledge. The path to protection expertise is not an easy one, but is ultimately worthwhile, and as clients’ circumstances change, new business will flow through from them and their family and acquaintances. M I