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News Review: Protection


The myth of simplified protection products News in brief


by Kevin Carr,


chief executive of Protection Review


and MD of Kevin Carr Consulting


Very rarely these days does a meeting go by without the topical subject of simplified products coming up in con- versation. In theory I agree – products should of course be simple enough to under- stand. However they should also be fair, of a certain qual- ity and competitively priced. People won’t buy overpriced rubbish just because it is simple. Well actually we all know


that’s not technically true but we also know it is far from ideal. And that’s the conun- drum when it comes to pro- tection. Is it possible to cre- ate good quality yet simple protection plans that are also competitively priced? In theory this answer should be a rather simple yes. But the point that often


gets overlooked is underwrit- ing, especially by those who focus on savings and invest- ments where someone’s smoking habits, health, fam- ily history and hobbies aren’t part of the transaction. Underwriting allows cover to be fairly priced but also adds a level of complexity to protection products. With- out it we are left with auto- accept payment protection insurance and over-50s style plans. Yes they are relatively simple but they are also typi- cally over priced and often provide an inferior level of cover.


Simple protection prod- ucts like PPI and over-50s plans are often expensive at least partly because they aren’t underwritten and thus rely on cross-subsidisation of healthy and non-healthy cus- tomers. There is a trade off because underwriting brings com- plexity, but removing it adds cost. As for quality – market- ers can try to make it all look simple, but is that fair?


When good intentions turn bad


Having spoken at a recent industry event about all things protection including the pros and pros of writing life policies in trust, I was approached by a mortgage adviser after the session who kindly congratulated me on many of the points I had to make.


Commenting specifically on the value of trusts he told me how every mortgage customer is urged to take life insurance and asked to meet with a local solicitor to discuss trusts and wills. What an excellent little arrangement, I said. Trusts, or sometimes other solutions such as ‘life of another’ policies, should be considered for almost all life policies as put simply, they ensure the proceeds from a life policy are paid promptly to the right people typically without the


22 MORTGAGE INTRODUCER FEBRUARY 2012


threat of inheritance tax. Some major protec- tion sellers have even set up their own in-house online trust forms.


My initial positivity however was soon cur- tailed when I learned of how the arrangement works financially. I’m told the solicitor charges a set fee for both the will and the trust in the region of £2,000 + VAT. What is more, the fee is then added to the loan so that ‘customers’ can afford it. There is nothing wrong with asking a solicitor to arrange trusts and wills, in fact if the adviser doesn’t offer the service it isn’t good practice. However, in this example I do think it is some- what expensive and perhaps unethical when added to the loan.


Any simple products need


to provide ticks in four boxes: simple, quality, fairness and a competitive price. But I’m not yet convinced it is pos- sible to achieve all four at the same time. Of course it all depends on where we draw the boundaries. But those who may argue the opposite may wish to revisit the defini- tion of the word quality. What might we do in-


stead? I’ve long called for fi- nancial services to be taught in schools. The idea that we should know how to work out angles and bearings but not understand pensions, in- surance, loans and how the tax system works has always been beyond me. As Tom Baigrie, chief ex-


ecutive of LifeSearch and a previous boss of mine, puts it: “Finance is where adults meet maths most, so I hope we see the focusing of rel- evant maths questions on finance and eventually an examined financial skills module as part of the maths curriculum.”


• The number of payment protection insurance com- plaints referred to the Finan- cial Ombudsman Service has jumped by almost 60% over the past three months • Ageas Protect will contact all of its existing critical illness customers to inform them that their terms and conditions have been improved, with some claim- ants receiving increased payments


• Intermediaries are being warned that a significant rise in protection premiums in late 2012 could put an end to the re-broking culture of recent years


• Reinsurer Pacific Life Re has appointed James Tait as head of protection marketing • Moneysupermarket says opting for a healthier life- style such as quitting smok- ing could help to reduce the cost of life and critical illness cover


• Steve Devine of trade body Protect has warned the in- dustry not to underestimate the magnitude of the FSA and Office of Fair Trading’s recent consultation on PPI • Clients will be entitled to damages if insurers fail to pay claims promptly, accord- ing to the latest proposal by the Law Commission • LV= has made changes to its underwriting rules which will result in an increase in the number of applications receiving an immediate online decision • This year’s Protection Re- view conference and dinner will take place on July 11th in London


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