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Price v Service - individual protection

In the first in a series of articles looking at adviser and insurer attitudes to pricing and underwriting, Emily Perryman looks at the driving factors shaping the individual protection market

January 2010 Features

Protection providers have spent a vast amount of time and money in recent years on improving their underwriting processes and adding extra features to their policies. But in a price-driven market do these developments actually matter?

The popularity of portals among intermediaries would suggest they do not, as these comparison sites only list products according to price and not on their service levels or quality of cover.

Roger Edwards, proposition director at Bright Grey, the insurer, says: “There is still a lot of price obsession in the market, which is partly fuelled by the fact that everything we look at is a league table of prices. Some advisers look at add-ons and underwriting, but there are still a lot for whom price is the only thing that matters.”

Research carried out by industry analyst Defaqto supports this view. Defaqto asked IFAs what most influences their recommendation of protection products and found that 61% said price, 26% said quality of cover and only 4% said service. A further 8% selected “other” and most of these referred to value for money.

While the research was carried out in 2007, Ben Heffer, insight analyst at Defaqto, says: “I have no reason to think that this position has changed, and I believe that IFAs still use price as a major differentiator, particularly since the providers that write the most protection business pursue a price-driven model, i.e. Legal & General and Aviva.”

Chris Hulme, director at IFA firm The Clayton Hulme Partnership, says underwriting, service and price are all important when choosing a provider, but price is widely considered the main driving factor.

“Where a client has a squeaky clean bill of health price is without doubt the overriding factor in provider choice. Although service is a major issue, particularly at the time of a claim, service changes with time and it is difficult to predict how an insurer will service at the time of a claim,” says Hulme.

COMPLIANCE

The compliance departments in IFA networks can make it very difficult for advisers to justify using providers further down the price list, especially as the value of extra benefits and good service are based on opinion rather than measurable facts. Trying to justify using a more expensive provider for simple protection products is even harder.

Neil McCarthy, sales and marketing director at Direct Life & Pension Services, says: “For very simple protection products such as term or family income benefit there is no reason why an adviser wouldn’t recommend the cheapest, which equates to best value to the consumer, unless there is a particular feature that is important to the particular case such as cover being required during underwriting. On occasion advisers will let customers know if an office is experiencing poor customer service resulting in delays and if speed is important to the customer they can choose not to select that office.”

In many cases, consumers simply want the cheapest product. A lot of protection business is sold in connection with a mortgage and clients are usually strapped for cash at that time. However, Defaqto’s Heffer says this often depends upon the standard of salesmanship.

“The importance of quality cover needs to be explained to them so their needs can be fully met. This underlines the fact that people need protection advice more than ever. There needs to be a sea change in the approach to protection across the industry: the providers need to devote more marketing effort to protection to support IFAs in a quest for better quality sales, and advisers should focus on need rather than perceived budget using menu style plans to recommend solutions that meet all the client’s protection needs,” says Heffer.

COMPLEX PRODUCTS

Most providers and IFAs agree that when it comes to complex protection products such as critical illness (CI) and income protection, there is more scope – and need – to evaluate the quality of cover. Advisers have the opportunity to talk to their customers about claims payments and support services during rehabilitation or diagnosis of illnesses, which can have an impact on the provider selected.

Susan Barclay, head of marketing at Scottish Provident, says: “Buying protection is about the features you’d expect – competitive price and quality service. While these are important, protection is a complex product and the key point for consumers is that not all plans are the same. Often the cheapest product does not represent the best value for money. It’s therefore very important that consumers shop around and preferably seek the advice of an IFA before buying.”

Lee Wells, senior partner at IFA firm Ablestoke Consulting, says it is more important to demonstrate to a client that they will have comprehensive cover, the underwriting process will be simple and efficient, and they have a reputable insurer who will pay claims swiftly. He says that as long as the price is reasonable, these factors are more important than price alone.

“After all, any price is too much to pay if you find out that you are not covered for something you thought you were, or that the application process took so long that you suffered prior to the policy being on risk. The value of a policy is the benefit of the protection it will provide,” says Wells.

ORDINARY RATES

A disadvantage of relying on portals is that the price quoted is often much lower than the price the consumer will be offered once they have been underwritten. According to Bright Grey’s Edwards, providers are issuing ordinary rates to fewer people than they did previously. Advisers therefore need to think about whether providers really are at the “top” of the portal. Another downside is that most portals only support single benefits rather than multi-benefit policies.

“Portals, even professional ones such as Assureweb and Exweb, are not a shortcut to the right price comparisons,” says Hulme. “Take L&G’s multi-product discounting – this is not taken into account in such portals. They have a long way to go but are at least a start.”

To encourage IFAs to consider factors other than price, Edwards suggests that portals include a ranking based on the number of product features, along the lines of Defaqto’s star rating system. However, comments from portals suggest this is unlikely to happen.

Paul Yates, business development director at 1st – The Exchange, says: “Price is a key component in the product selection criteria, but should be balanced with other factors. That is why we also supply the Exweb Product Research service that helps compare product features. Service levels are highly subjective and can vary from one distributor to another. It is not the same as buying off Amazon. These are therefore not covered.”

MULTI-BENEFIT PLANS

Direct Life & Pension Services has its own adviser-facing site, LifeQuote Protection Portal, which is unique in that it allows advisers to compare the solutions for multi-benefit plans. It also delivers compliant suitability texts for advisers who wish to use its Intelligent Protection component, which summarises the products chosen by the customer in their priority order, the costs of that policy and the products the customer has chosen not to purchase.

“To support their compliance functions we provide research output confirming the product solutions and prices available at the time of quoting,” says McCarthy. “Many use our tele-admin/teleunderwriting services to collect medical evidence and complete the applications, effectively transferring the medical disclosure risks to us. Within our portal offering we also deliver full admin support and policy tracking to get the policy on risk.”

Others suggest that insureres should take some responsibility in removing the focus from price. David McCormack, protection marketing manager at AXA, says providers need to show clear differentiation in both consumer and adviser benefit.

“Offering full teleunderwriting means the adviser can spend less time filling in forms and more time dealing with clients. Consumers also benefit from not having to disclose personal medical details face-to-face with their adviser,” he says.

However, while intermediaries welcome faster underwriting and rehabilitation services, they also point out that add-ons must create value.

“Adding features to get, for example, the maximum number of CI covers to get high scores on the research tools does not per se add huge value,” says McCarthy. “Adding benefits and features that are of value to the insured and their dependents and advisers will help differentiate providers and move the selection process away from just price.”

WHAT MOST INFLUENCES ADVISER RECOMMENDATION OF A PROTECTION PRODUCT?

RESPONSES FROM THE 42 IFAS WHO SAID “OTHER”