With price comparison websites growing in number, advisers should take advantage of their own IT systems, despite greater regulation, Andy Valvona explains.
This review found significant failings by firms concerning disclosure in the sales of protection products – in particular, critical illness cover. The FSA even went on to say in this letter that their findings were “disappointing”. It had commissioned two large-scale consumer research projects which examined the consumer experience of purchasing critical illness cover.
The FSA concluded from these projects that, in a significant number of sales, the explanation of product features was poor, firms did not provide sufficient information about all the policy’s main characteristics to enable the customer to take an informed decision, and – perhaps most importantly – communication of policy exclusions was not sufficiently clear. As a result, the regulator asked all firms to:
■ Review their sales policies and procedures for compliance with the rules in ICOBS
■ Provide written confirmation, within six months from the date of the letter, that the firm had completed the review, and that its sales policies and procedures (for sales of non-investment protection products) were sufficient to ensure compliance with all the relevant rules in ICOBS
■ Or, if this confirmation could not be provided within six months, the firm was to provide a written plan and timetable as soon as possible, but no later than six months from the date of the Dear Compliance Officer letter, to ensure such compliance.
So, 29 May 2011 has come and gone, and we can be sure that the FSA is currently assessing all the resulting reports from the many thousands of advisers who sell non-investment insurance products.
It is clear that the regulator is concerned that non-investment insurance is too often sold on price rather than on features, and that it is determined to ensure this practice is eliminated.
Most, if not all, protection advisers will use one of the few quotation portals in order to compare and apply for their clients’ protection plans. Webline, Avelo and Assureweb all offer quotation capabilities to streamline the comparison and application process (particularly by eliminating the need to re-enter client information time and time again).
The quotation portals can now support client-facing (B2C) functionality through enabling quotations to be generated on advisers’ websites. This is a good way of creating enquiries as clients can enter information to obtain comparative quotes, but would need to contact the adviser to arrange for the business to be executed.
Portals provide a number of extra benefits to advisers, including the ability to create product panels and adjust commission sacrifice levels to improve terms for clients.
Some networks and support service providers have partnered with these software suppliers to offer their members and clients bespoke systems to quote and apply for protection. Such examples include the recent development of a new version of Simply Protect (SimplyBiz’s protection panel system) by Capita Financial Software.
PUTTING IT ALL TOGETHER
In order to comply with ICOBS rules, advisers need to combine quotations with compliant feature-based research so they can demonstrate to clients and the regulator that individual circumstances have been taken into account to reach a suitable and affordable recommendation.
If we take critical illness cover as an example, in Synaptic Protection Research (SPR), there are more than 190 product features to filter on, including ABI-defined illnesses. Out of the critical illness (term CIC rider) area of SPR, only four contracts cover diabetes and only 33% of plans cover rheumatoid arthritis.
In order for an adviser to manually compare the products available sufficiently, they would need to set aside a week and prepare themselves to stare at product literature and Excel for significant periods of each day. Research systems have evolved in line with the changing needs of advisers.
They now offer a number of value-added benefits for advisers recommending protection products. In addition to facilitating quick and easy whole-of-market comparison, the ability to combine quotes and feature-based research is a massive advantage.
This aligns directly with the regulator’s concerns that recommending protection products solely on price can often lead to client detriment and even cases of mis-selling.
It is unlikely that an adviser will need to consider every policy feature for critical illness or income protection. But by utilising a structured approach to the selection process, an adviser can show that client specific criteria has been applied to reach each recommendation. When selecting a system, advisers should consider some key questions:
■ Is whole-of-market comparison facilitated?
■ Which product types are available?
■ Which providers are available for comparison?
■ Can the system compare protection features and price?
■ Is the data supplied by the protection providers?
Each advisory firm will take a different approach to selecting a system based upon size, strategy and client types. However, it is important to ensure that systems in place fully meet their requirements.
Protection providers also offer a number of useful resources such as sales aids, portals and calculators. Such tools can offer real benefits to advisers. But it is important to be mindful that these are marketing efforts designed to stimulate new business.
Such resources are, however, undoubtedly valuable – often at point of sale – in order to demonstrate the effects of not having protection cover in place.
They can be used to add a personal touch to the advice process by highlighting case studies and protection shortfalls in a visual way. In addition, providers offer advisers with ideas and opportunities for marketing their own services to potential clients.
As always, the FSA will not stipulate how an adviser should go about meeting these regulatory obligations. Instead, guidance is based around pointing advisers in the right direction. Some advisers may read this article and wonder why they would need to implement a system to aid the research and selection process – that is fine.
Technology providers are not looking to replace advisers’ experience, but rather to harness it in order to improve business efficiency and compliance. With the emergence of new technologies within the financial services industry, these efficiencies are likely to be improved further. Not least of all for the protection industry.
Andy Valvona is relationship manager at Capita Financial Software
