A large proportion of the protections sales force is under qualified to sell protection in a market offering huge opportunities, says Richard Verdin.
Times, they are a-changing. Mortgage applications are at their lowest level for five years, unemployment is on the up, yet the protection gap remains, for the fifth consecutive year, at £2.3trn.
Whether the gap is actually £1, £2 or £3trn does not really matter for the entire financial services industry, is both an indictment of past failures and points to one of the biggest opportunities we have. Unlike the pensions gap, people’s individual protection gaps are easily solved and at a much lower cost, if only we knew how.
There is great interest in every new development in our industry. Whether this is a new product, a new way of bundling existing products, an adaptation of a service already provided, a slight extension of the cover provided or a new way of applying. All of which are fascinating but on their own, and even collectively, these enhancements, or amendments, will not impact on a gap that is rounded to the nearest one hundred billion pounds.
The fear is that if all we ever do is ‘tinker around the edges’ then we will leave a bigger problem for those who follow in our footsteps.
There are ideas being kicked around at the moment that could help us to make a change in the right direction. One is a consumer campaign currently being researched, the findings of which will then be reviewed by 22 or so insurers and re-insurers. However, the cynics think the funds and altruism may not be forthcoming in phase two of the project. There are also reservations about the sustainability of such a campaign.
The other idea starts with advisers. A way to truly solve the issue is to take true advantage of an opportunity to develop the many financial and mortgage advisers, who today are substantially less busy than they were, and support them in developing new sides to their business which focus on professionally delivered holistic protection advice.
Certainly advisers are more receptive to opportunities as mortgage and investment advice opportunities are more limited, so traditionally time poor advisers may have greater availability within their diaries to meet with potential clients to discuss protection.
Are advisers satisfactorily equipped for the opportunity? Current sales figures show that most advisers only sell level or decreasing life only cover, and in 80-90% of cases that cover is not even written in trust. FSA research illustrates that customers who have been sold critical illness cover are confused by the benefits it provides. Also, despite recent reports to the contrary, if we read Swiss Re’s report we see the sale of ‘real’ income protection policies still falling and represents a ridiculously small percentage of protection sales.
So – customers are not buying enough of what they need and when they do buy, they buy the product they are statistically least likely to claim on. When they buy more comprehensive cover – CI – surveys show that they do not understand the cover, and the policy which most experts believe should be the foundation of all protection planning is, by a country mile, the least sold.
Raising the game
We have a lot of work to do in raising our game. Even if a consumer campaign did prove to have great success in mobilising customers we have to question the mass-market’s ability to accommodate them appropriately.
What this market needs is an increase in the numbers of advisers who are thoroughly trained, educated and capable through some form of certification process.
If we examine the conditions that allow someone to advise on our range of pure protection contracts it is clear that there are many ICOB advisers, who are not IFAs, but who are perhaps mortgage advisers who have sought approval and been licensed to carry out mortgage and pure protection advice. These advisers have completed an examination primarily focused on mortgages with some coverage on the main protection products and their uses.
The subject of a client’s financial protection is just too important for it to be an add-on to a mortgage advice qualification. No wonder then that the FSA thematic review of CI sales included the observation that… “The level of training specifically on critical illness cover was often superficial”.
Yesterdays sub-prime mortgage broker, authorised under MCOB and ICOB may be tomorrow’s professional protection adviser, but not without an appropriate level of training, which is best served through examination. The 1980s style training sessions which included ‘golden geese’ and ‘money machines’ in the corner of the room do not quite cut the mustard in today’s world.
If we truly believe that protection should form a cornerstone of all financial planning then it is time, we, as an industry, invested in our future and the future of our customers, the demands of which are advice and guidance.
It is necessary to see the development of an ‘Examination in Financial Protection Advice’ (EFPA) for pure protection advisers and for mortgage advisers who want to extend their advice beyond the needs arising out of taking a mortgage, while recognising that advisers operating under COB already cover all aspects of Financial Protection within CF3.
This qualification could be broken down into a core module covering Mortgage & Family Protection planning with additional modules covering Business Protection Planning and Private Medical Insurance Planning (recognising that these areas are more specialised and therefore not relevant to all protection advisers).
The modules would need to cover understanding product structures and features, their application, the underwriting process and outcomes, the use of wills, trusts and tax rules & estate planning.
It is a serious matter and one which the industry needs to get behind if we are indeed to make a difference here. There is no one size fits all solution that will tackle the protection gap in one go and if we do indeed manage to create an appetite with consumers for protection then we need to follow it through. If we want customers to take what we, as an industry, have to say seriously, they will need seriously well trained advisers in serious numbers.
Richard Verdin is director of protection marketing at Aviva
