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Protection industry braced for next challenge after surviving housing crash

• But concerns expressed about over-simplification of advice process

June 2010 News

MADELEINE DAVIES

A resurgent mortgage market could in fact widen the protection gap, as mortgage advisers once again struggle to find the time to focus on products deemed peripheral to the customer’s loan, it has been claimed.

Recent analysis from industry analyst Defaqto suggests that the traditional dependence of the protection industry on mortgage sales – it is broadly accepted that around half of all protection sales are related to house purchases – could be changing. Figures from the Council of Mortgage Lenders and Swiss Re show that while mortgage lending fell by 60% in between 2007 and 2009, mortgage-related critical illness (CI) sales fell by only 19.5% and total CI sales fell by just 4.7%. Commentators have suggested that this might reflect a new focus on protection sales by mortgage brokers.

“A very positive feature of the downturn in the housing market was that brokers did look more to protection,” said Mark Jones, head of protection at LV=, the life office. “There is very definitely a risk as the housing market recovers. We need to keep looking at how to improve processes of fulfilment so we don’t see that reversal and provide as much encouragement and support as we can.”

David Hollingworth, head of communications at London & County Mortgages, supported this view.

“When you get this sudden, almost overnight break in the flow of mortgage business, lots of brokers will have had a close look at protection and put it under focus as to whether they should be spending more time on that,” he said.

CAPACITY ISSUES

“You might have guessed as the volume of mortgage sales fell that the protection market would also fall off the face of a cliff,” said Richard Verdin, protection director at Aviva. “But there are a number of reasons why this didn’t happen. One is that, if brokers are doing less mortgages, they have more time and can push through customers’ minor objections to doing the whole job [the mortgage and protection] at once. Another is that mortgage advisers are going back to customers who didn’t arrange protection the first time around.”

Aviva has responded quickly to this trend by launching a pilot with four distributors, offering their clients the opportunity to top up their protection with no further medical evidence required. Verdin believes that recovery in the housing market will not result in an upturn in protection sales, as the same capacity problems will remain.

“The next opportunity to grow the market won’t be until we see an influx of new advisers,” he said. “It will ever be thus unless as an industry we attempt a step change in the way that consumer think about protection. We have to get them enthused about protection planning rather than relying on another event like a mortgage.”

LV=’s Jones said that a “fatigue factor” posed problems for advisers and clients spending time arranging the primary focus of their meeting before turning to protection. He highlighted tele-interviewing as an example of how to reduce the amount of time mortgage brokers need to dedicate to protection in the office.

Dean Mason, a mortgage adviser and practice principal at Masons Financial Planning, said that during the quietest periods in the mortgage market, protection had made up over half of his business. He agreed that time was the biggest constraint to continuing this focus as demand for mortgage advice recovers.

“People are so concerned with their mortgage that it’s hard to engage with anything else,” he said. “When it was quieter, you knew within 10 minutes whether you could help them on the mortgage side, so you could dedicate more of the fact finding time to looking at their protection needs.”

COMPLEXITY

Aviva’s Verdin suggested that one way to address the capacity issue might be to remove “unnecessary complexity” from protection. However, Alun Beynon, head of sales and distribution of protection at AEGON, expressed concern about making things “too easy”.

“From a mortgage adviser’s point of view they are wanting to do things very quickly, get it done and dusted as soon as possible,” he said. “That is one of the challenges we face, because we are trying to make things too easy, and you need to invest a little bit of time, especially if you are expecting to receive an indemnity commission.”

Kevin Carr, managing director of Kevin Carr Consulting, himself a former protection adviser, suggested that the treatment of mortgage advisers by some protection providers often leaves a lot to be desired.

“I don’t see much going on apart from a few patronising columns in mortgage magazines,” he said. “It doesn’t go into how they should sell protection or the information you would need to sell protection. A lot of people in the industry assume that they can just go and sell protection overnight. I don’t think the industry has done anywhere near enough to interact with and understand and develop the mortgage industry in order to maximise protection sales.”

The importance of proper training has been highlighted by the Financial Services Authority which has pledged to review the sales standard of pure protection products by mortgage intermediaries.

IFA support provider Direct Life & Pensions Services Ltd recently held six roadshows around the country and key account manager Phil Jeynes estimates that around 60% of those who attended were mortgage brokers. He agreed with Hollingworth that face-to-face support was important but also suggested that traditional sales tactics, challenging customers’ objections, could be deployed to better effect by brokers.

While the housing market is by no means out of the woods – gross lending for the first quarter of 2010 was down 24% on the fourth quarter of 2009 – providers remain hopeful that advisers will look back and find the silver lining in the slump.

“Those people with protection because of extra capacity in the mortgage market are in a much better position than they would have been if the mortgage market was buoyant at the time,” said LV=’s Jones. “Mortgage brokers have made a really positive impact on those individuals, as well as to their own businesses.”