CIExpert: Would customers benefit from non advice?

Over the past few years, a persisting theme has been whether the RDR experiment would be eventually extended to protection products. Certainly, there is a form of logic which suggests that a consistency of regulation would make sense.

After all, one of the mooted RDR themes was an improvement to consumer confidence, and using a dual approach with commission banned on investments but allowed on protection products must surely create confusion.

Equally, unlike investments where consumers do approach advisers (admittedly in unimpressive numbers) protection is usually arranged at the suggestion of the adviser, often when a mortgage is being arranged.

The removal of the marketing allowance (commission) will unquestionably result in far lower levels of protection and an even greater financial burden for surviving families and the state.

That protection is sold and not bought is proven by statistics supplied by Swiss Re in its 2012 Term & Health Watch. Sales of critical illness policies rose by 3.1% in 2011, with Scottish Widows taking nearly 29% of market share. A figure almost identical to that of Aviva and Legal & General combined (see Table 1, right below).

Users of CIExpert may be aware that the Scottish Widows plan could show as below average both in terms of the numbers of conditions included and its use of less claims-friendly wordings. In fact, unlike all adviser supporting providers, the Scottish Widows plan has not been upgraded since 2007.

Protection racket

If CI plans were advised on and arranged solely by intermediaries it is highly improbable that Scottish Widows would have anything like this level of new business.

The fact that it does could be explained by its use of Lloyds and Halifax branches to shift volume product. As the PPI shambles has shown, bank staff have historically sold all forms of protection, whether needed or not, when agreeing loans, overdrafts and mortgages.