The whole of life market has been hit with yet another year of poor sales figures, but is there a way that the sector can grow to offer a more up-to-date offering to consumers? Lucy Quinton reports. Click here to download pdf
More depressing than the January blues was the news that the whole of life (WOL) market had suffered yet another abysmal year of sales figures. Declining sales figures have plummeted to new depths, according to figures from Swiss Re's Term and Health Watch 2007, which reported a drop from 205,532 in 2005 to 195,141 in 2006 – the lowest it has ever been. This is a decrease of 5.1% down from the year before.
WOL has long existed in the industry to fund inheritance tax (IHT) liabilities and to provide for succession planning in the business sector, in addition to being targeted at people aged 50 to 55, with the purpose to create a fund to meet funeral expenses. However, over the past few years, it has been held back by an industry that seemingly prefers to focus its efforts on sectors that have proven to be more profitable.
Its lacklustre performance is summed up well by Matt Morris, policy adviser at LifeSearch: "The only real reason for taking out WOL is for IHT planning. As such, it is an important but small area of the protection market."
Morris explains that this is because of the cost of it. "It's an expensive product because there is no term and it is guaranteed to pay out – this will deter some people," he says, adding that "many WOL products are linked to investments, so a poor investment return will push up the premiums".
In addition, underwriting WOL generally takes longer than for term policies. This can be attributed to the fact that clients are usually older in these instances, and may have more health issues as a result.
Peter Chadborn, principal of CBK, agrees, and says that the market is down due to cost: "All protection business is sold with a focus on price, and now customers are also focused on price."
Chadborn adds, however, that there are other reasons for its declinature, including compliance issues. In the past, WOL was sold more for general protection needs and incorrectly to cover mortgages.
The other issue surrounding the market is a transactional one. Most protection is sold on a one-off basis, and for the cheapest amount rather than focusing on lifestyle planning, such as taking in to account a customer's retirement.
Alan Lakey, principal of Highclere Financial Services, adds that the lacklustre feeling towards WOL is down to perception. "The problem is not with WOL but with the public's overall perception of protection planning. It is seen as optional and not allocated the importance it deserves," he says.
Higher initial cover
Another reason the market is so depleted is that term assurance is seen as being better value, as it buys a higher initial cover. In addition, unit-linked plans with built-in regular reviews are not popular with consumers when they reach the review stage and are advised to increase premiums or decrease life cover.
There appears to be a real split between product providers and advisers when it comes to market perception about WOL. While advisers are looking more confused, product
n cont. p.40
providers continue to exert the product's potential with intensity.
From a provider's perspective, Ian Brown, head of protection marketing at Skandia, says WOL is a specific product that meets a very real client need. He believes that it "will continue to do so", adding: "There is a large and growing need for protection in the areas it is suitable for, especially in the IHT and business protection arenas, and there is therefore great potential in this market."
The only reason why WOL seems to have outsold term assurance back in the early 90s is because little of the latter was sold in the first place. However, the trend did not last for long. Since WOL policies used to be unit-linked, they performed poorly in times of stock market falls and went out of favour.
According to the Swiss Re report, the total number of new WOL sales split by distribution channels are 126,980 by mail, contributing to 65% of the total amount; 38,233 from IFAs, amounting to 19.6% of the total; and 27,956 tied sales, a total of 14.3% of the overall figure. The remaining amount was brought in by telesales and the internet.
Lakey says: "The market for WOL plans is necessarily small, because more people leave it too late and, when at an advance age they are advised of the relevant premium, they demur at the cost.
"Historically, direct sales forces have sold these plans as a means of providing life cover with a savings element – this concept is now discredited. The prime selling point of WOL is that it will pay out, while term assurance may pay out. Actuaries calculate the potential life expectancy and thereby compute the premium," he says.
There is currently a spend culture in society, as opposed to a saving one, which
n cont. p.42
previously existed in decades gone by. This consumerist 'I want it now' market makes it often difficult for advisers, who feel they are pushing water uphill.
The year-on-year falling sales figures act as a further example in that less thought is being given to the future, and instead people are relying on the here and now.
Lakey believes this to be because of 'nannying' – the result of the State providing means-tested benefits that suggest to many people that there is no need to save, insure or take out pensions. While last year's survey suggested a glimmer of hope, the picture makes for bleak reading in 2008.
Potential interest
While one adviser last year said that it was essential that IFAs promote themselves better as specialists in the IHT planning field to gain traction in this market, others seem to be less positive. According to Morris, recent advertisements on television seem to be bearing the load of garnering any real potential interest.
Brown says that the answer lies in the industry continuing to "provide clearer information so that clients understand what the cover does and how it can help them, and thereby have confidence in any contract that they enter into".
He believes advisers are looking for ways to make writing protection business as simple and efficient as possible, and that there are opportunities to build relationships based on partnership and sharing of information to achieve that aim.
While it is probably not top of the agenda, the product does still have its uses – albeit on a small scale. Brown explains: "It is still ideally placed to help high-net-worth personal and business clients plan for their own and their families' futures."
According to Swiss Re's report, the top five product providers from sales figures are Axa Sun Life, Royal Scottish, Engage Mutual, LV= and CIS. While due credit is perhaps given to these players for persevering with this sector, the lethargic tone people receive when they merely mention WOL suggests that this product may as well be dead in the water.
With an attitude such as this, it is highly unlikely that any change is going to happen in the WOL market over the coming year. n
