The changing face of ASU market throws up opportunities for IFAs, says Alastair Hardie
Often viewed as poor relations in the suite of protection products, standalone Accident, Sickness and Unemployment policies now provide significant opportunities for advisers, particularly in light of the current economic backdrop and changing market dynamics.
The Office of Fair Trading, the Competition Commission and the FSA have all been keeping a close eye on the Payment Protection Insurance sector for a number of years. Their efforts have driven wholesale changes in PPI, Mortgage Payment Protection Insurance, and standalone ASU.
In recent months many traditional distributors have scaled down activities and are now operating at a fraction of the volume of previous years. Banks and building societies, traditionally big sellers of these products, have put a stop to much of their activity and the same is true in the secondary market where the likes of motor dealerships, who had historically written big books of business on the back of the finance they offered, have all but ceased selling. The general availability of standalone ASU and PPI products has also dropped like a stone.
Risky Times
The regulatory scrutiny has also come at a time when unemployment is rising. Figures from the Office of National Statistics show that there are now 2.26 million people out of work. In the three months to April, 302,000 people were made redundant, up 36,000 on the previous quarter and the highest figure since such records began back in 1995.
Redundancy is clearly a massive threat in today’s uncertain world and, in the face of the deteriorating labour market, traditional standalone ASU providers have become a lot less enthusiastic about covering the unemployment risk. This has led to a reduction in the number of products available and the availability of short term protection is at its lowest ebb since the mid 1990s, if not earlier.
Unfortunately consumers cannot take confidence in the fact that all of the products that are left on the market will offer them the best value and the widest level of cover possible. There is still a significant differential between the best and worst covers being sold and this has created opportunities for advisers to add value for their clients in this sector and steer them towards the insurance they need at a price they can afford.
Advisers and distributors who can offer professional advice and high quality products have the chance to make a real difference for customers and help them effectively meet the financial risks they are currently facing. The Competition Commission has insisted that where a short term protection product is sold on the back of credit, the credit provider has to wait for seven days before making an approach to sell the associated protection.
This again should work to the advantage of IFAs who have an opportunity to speak to clients before the credit provider does, if they know their client has taken on the extra borrowing in the first place. It should also mean that they have better access to potential new clients during this week long hiatus and those well geared up to offer protection advice should be able to benefit.
Changing Attitudes
More importantly, alongside these practical factors, there is a changing attitude among consumers, which could potentially help advisers. The regulatory overhaul that the market has gone through and the bigger threat of redundancy in today’s shaky economy has meant that there is no longer a focus on having individual protection policies to cover individual debts.
Instead, there has been a move to protect the lifestyles consumers have become accustomed to and a desire for the freedom and flexibility to use a protection product in the way that consumers feel will be most appropriate for their own particular circumstances.
This is where standalone ASU is beginning to shine and increasingly there is a realisation that, as part of an overall protection strategy, standalone ASU can play a pivotal role in creating an effective, and malleable safety net for policyholders. However, not only is there an opening in the market for advisers to be stepping in with well-placed expert advice, but there is also a need for an increased number of high quality, good value, flexible products.
Where intermediaries are not completely happy with the products available in the market, and feel that they could sell reasonable volumes of standalone ASU to clients, there is a growing willingness to investigate white-labelled products, which can be designed, priced and serviced to the exact requirements of each scheme.
This approach will help create products that have the exact facets required by their target customers and in turn help them take on protection that specifically meets their own needs, rather than trying to shoe horn themselves into an ill fitting policy, as was an unfortunate and unwelcome feature of the market historically
New Providers
Although the standalone ASU and PPI markets have been through a torrid time, there is no doubt that there is a growing breed of providers, distributors and products that are emerging to meet the changing market conditions.
The process has been painful for many, but it has also delivered many benefits that consumers can now take advantage of. The media interest around the changes that have taken place, alongside the coverage of the recession and the growing threat to people’s jobs, has also created a very heavy focus on people’s lifestyles and made them think about how to protect them should they find themselves at the back of a lengthening labour queue.
Standalone ASU may not always be the answer, but it has the potential to play a very much larger role in the solution that IFAs offer clients.
Alastair Hardie is managing director, speciality insurance, at FirstAssist Insurance Services
