In the wake of shock pre-Budget revelations possibly marking the end of PTA, Lucy Quinton reports on industry predictions for 2007 from the latest COVER survey
Towards the end of last year, as the festive season truly began to get under way, the COVER team decided to conduct a study to establish what intermediaries thought would happen in the protection and health insurance markets over the next 12 months.
The survey asked a mixture of both open and closed questions to ascertain the true feelings of the market.
The protection side of the business generated a lot of interest from those people who responded and most were forthcoming with their views on this part of the industry.
Although the year ahead looks set to be a challenging one, the majority believe sales in the protection market will increase over the next 12 months, with 48% saying that it will rise slightly. Only 1% of those surveyed expected to see the market decline significantly.
Delving down into specific sectors, last year kept intermediaries and providers on their toes, particularly in the areas of income protection (IP) and critical illness (CI) insurance.
IP has been considered a stagnant market, but this may change following the Association of British Insurers (ABI) Protection Committee's decision last year to look deeper into the area. Perhaps unsurprisingly though, 58% of respondents suggested that this would not be sufficient enough to generate sales in this market.
Nick Kirwan, chairman of the ABI Protection Committee, is not disappointed about the result, saying it has always been his thinking that the work the trade body is doing is, while necessary, not enough. "The first workshop identified that there needs to be more than product change," he says.
Overall, around 30% of people surveyed were optimistic about the future of IP, with just 17% being engulfed in the concept of a bleak midwinter.
Pension term assurance (PTA) is clearly another pressing issue on people's minds, as 84% said they expected marked sales increases in this field during the course of 2007. However, this has since been thrown up in the air after the Government slated the concept and indicated it may well ditch the tax relief on PTA in this year's Budget.
CI definitions
The survey also focused on the new CI definitions, which are expected to come into effect in April. A total of 47% of respondents believe the changes will help improve clarity when selling CI.
However, more than 50% said they were still unsure the new definitions would clear the fog surrounding the cover. Perhaps this uncertainty is tantamount to the uproar at the end of last year, when the ABI agreed to look at new medical evidence supplied by Swiss Re suggesting two rare bone marrow diseases - currently to be defined as pre-malignant and covered by CI when they become malignant - should now be termed as malignant. This debacle has put into question whether the new definitions will be implemented on the April date or whether the ABI is likely to postpone it to a later date.
The survey also highlighted some worrying ideas about what is set to happen over the course of the next 12 months. A striking 60% of intermediaries think that more protection products will be sold on a non-advice basis. This does nothing to strengthen consumers' perception of the protection industry as it would lead to greater uncertainty about whether they are actually buying what they really need.
Commenting on the news, Andy Peters, distribution director at Bright Grey, says: "It's certainly becoming easier for people to buy protection without advice, as many providers are geared up with direct online offerings, some adviser firms are specialising in non-advice protection sales, and the large supermarkets are promoting life assurance at the checkout."
Peters adds that this has not, however, generated additional consumer demand.
Conversely, he admits that: "For some, the simplest, cheapest product on offer may be exactly what they need, but others will have needs that are far more complex and need to be thoroughly explored. The worry is that if people don't seek advice, they don't always know what they are buying or if they have the right type of cover in place to meet their specific needs."
Sadly, as is so often the case, it boils down to price. According to the survey, price is likely to be the main focus for insurers in 2007, with 78% of IFAs polled saying the rate war is set to continue this year.
The survey also looked at the private medical insurance (PMI) sector.
Some 51% of respondents admitted they do not know if they are likely to see as much product innovation in the PMI sector during the course of this year compared to last year, with 35% suggesting that there will not be as much product development.
The decline in the individual PMI sector also looks set to stay the same, with 56% believing that will be the case. Only 34% thought it would continue to decline even further, while 10% provided a glimmer of hope, saying they thought it will increase.
An overwhelming majority (87%) said price will remain the main hurdle when choosing a PMI product over the coming 12 months.
Technology
Technology is another subject that is high on advisers' agendas. There is an ever-increasing demand for faster and slicker delivery methods that enhance the entire process. The underlying importance of this was manifested with 65% of respondents saying they have "a few developments in the pipeline" in this area for the coming year and 19% admitting they have "a lot planned" for the year ahead.
The importance of this area was underlined again with questions on what is likely to be the most important issue over the coming year. Technology was mentioned on numerous occasions with one respondent suggesting that "providers will not get business unless it can be done instantly. It's what the clients and advisers want".
Commenting on the findings, Paul Holland, chairman of Webline, says: "This seems a pretty fair comment. Our whole raison d'être is to encourage people to do just that."
The survey also highlighted several other important issues concerning the way the industry functions, how important it is to treat customers fairly as well as increase consumer awareness of the need for protection.
The latter suggests intermediaries will continue to try to make sure people are sufficiently protected. That, along with the strengthened emphasis on IP and new CI definitions coming into effect this April suggest the industry is in for an exciting year.Richard Walsh, ABIAt the end of last year, the Association of British Insurers (ABI) hosted a workshop on the future of income protection insurance. It has a vital and growing role to play, but faces some challenges ahead.
This year, the ABI expects to see progress on tackling these challenges, along with further innovation in the market, including new product development.
There should be reductions in the proportion of claims for protection insurance that are declined, especially for critical illness (CI). The ABI's new Statement of Best Practice for CI and work on clarity for consumers will kick in next year, but even more must be done. There should be further improvements in customer service at the point of claim.
The Financial Services Authority (FSA) will have consulted on reviewing Insurance Conduct of Business and moving to a less prescriptive regime, and early indications are that private medical insurance may benefit from deregulation.
More generally, any moves towards increased regulation for protection products would be detrimental. A much better alternative would be to recognise and support the role of the ABI Best Practice Guidance. This would fit with the FSA's support for principles-based regulation and industry guidance.
Finally, the principles of fair risk assessment will come under scrutiny. Age discrimination legislation will extend to goods and services, the new Commission for Equality and Human Rights will begin its overarching review of all the discrimination legislation, and the genetics moratorium, up for review in 2008, may be a subject of comment.
The insurance industry must redouble its efforts to explain why, for protection insurance products to remain affordable by all, it must be allowed to set premiums and levels of cover according to relative risk - the fundamental tenet on which insurance is based.Fay Goddard, AIFAThis is probably what many in the industry do not want to hear, but 2007 will bring more regulatory changes for intermediaries. The Financial Services Authority (FSA) is in 'review mode'. Although its Review of Retail Distribution focuses on investment business, any changes that are made to the regulatory system as a consequence are likely to have a wider impact.
Remuneration has been highlighted as an area of concern that the Review will examine. Any changes made in this area will obviously have far-reaching implications.
Another FSA initiative is the move from a rule-based regime to one based on principles. In theory this should give firms more flexibility in the way they are able to run their businesses. But how it will work for small intermediary firms in practice may only become clear over time.
Treating Customers Fairly is the first area being given the 'principles treatment'. Firms will have until the end of March this year to show they are implementing it. This does appear to be a rather superficial approach to what should be a cultural and evolutionary process.
No discussion of regulatory changes would be complete without a reference to the EU - the main driver behind the FSA's need to rewrite 75% of its rulebook and introduce NEWCOB, which will replace the existing Conduct of Business rules in November this year.
The Market in Financial Instruments Directive (MiFID) will, to a certain extent, impact on all IFAs and will extend further than the investment market. For example, the implementation of MiFID affects all intermediaries through changes to the complaint handling rules and the training and competence requirements.
And if that was not enough, the outcome of the FSA's 'effectiveness review' of the mortgage and general insurance markets is likely to lead to changes to Insurance Conduct Of Business and Mortgage Conduct Of Business rules. So ring in the new year - and be ready for change.
Dan Waters, FSAThe year ahead looks set to be a busy one at the Financial Services Authority (FSA). Indeed, the move towards a more principles-based Handbook will not end with NEWCOB as the FSA intends to extend this to other sourcebooks. One piece of work that will be of particular interest here is a review of its general insurance rules in the Insurance Conduct of Business sourcebook.
It expects to go out to consult on this in the middle of 2007. As the FSA made clear in June 2006, it is following a different approach in this review. In those general insurance markets where the risks of consumers losing out from unsuitable purchases are relatively limited, it is looking to rely even more so on the principles for good business, always subject to the substantial directive constraints on removing detailed rules. In markets where risks to consumers are greater, it will consult on any additional obligations it thinks necessary to achieve certain standards, while still simplifying the handbook wherever possible.
This approach will deliver a more risk-based and proportionate set of conduct of business rules for general insurance, and one which is based firmly on principles.Stephen Walker, AMIIRaised consumer expectations following increased spending on the NHS are not being realised. The concern over funding problems expected beyond 2008 may well result in more people looking to private medical insurance (PMI) to provide access to private facilities and help them avoid the 'postcode lottery'.
The year ahead will see further advancement with the introduction of more new products that continue to address the affordability factor by utilising the modular approach together with no-claims discount systems. These, together with products launched over the last two years, are making private treatment more accessible to more people at a time when a PMI policy is more of a necessity than ever before. But the industry needs to educate the consumer on the benefits of PMI. The Association of Medical Insurance Intermediaries will continue to project a positive message to consumers through its PR campaign.
PruHealth will continue to grow market share on the back of its Vitality concept and consolidation of the market will continue, with smaller providers merging with larger organisations.
Smaller intermediaries will continue to be the lifeblood of the industry, writing business across a wide range of providers and products, as well as providing an invaluable service to consumers. However, the impacting cost of regulation together with the retirement factor affecting an ageing population of intermediaries, will result in continuing consolidation with smaller intermediary firms being acquired by the larger operators. Consolidation across the industry will continue for the next two to three years.
Put all these factors together and all the signs are that the market is ready to grow significantly over the next few years.Peter Hinchliffe, FOSLooking ahead, we can see that there are new things on the horizon that will affect the Financial Ombudsman Service (FOS), the insurance sector and its consumers.
Overall, the volume of disputes reaching the FOS - against both insurers and intermediaries - seems likely to continue to increase. Last financial year there was an increase in the number of payment protection insurance complaints that were referred to the Ombudsman.
And, in future, the volume of these complaints could increase significantly. Consumer confidence in this area seems to have taken quite a knock and it is important that firms deal with complaints thoroughly and promptly so that any lost confidence can be rebuilt.
Elsewhere, the Financial Services Authority's review of Insurance Conduct of Business; the sector's response to principles-based regulation and the Treating Customers Fairly initiative; as well as the Law Commission's work on insurance contract law reform, unfair contract terms and the Treasury's review of insurance regulation, will continue to create much discussion and will hopefully lead to greater opportunities for raising standards while encouraging innovation.
We hope the new year will bring some positive outcomes from the good work the sector has already done to improve both the public's understanding of health protection products and the way in which these products work.
This will give the average consumer greater confidence and will help protect the sector from further damage to its reputation.
For the FOS, hopefully 2007 will allow it to start looking beyond mortgage endowments and to begin focusing its attention on ensuring that its approach to insurance disputes is more visible and better understood by both the insurance sector and its customers.
