It is no secret that protection is on the minds of most - if not all - existing retail investment platforms. And the first to come to the fore was Nucleus, with its new investment-linked life assurance proposition.
While many advisers are in favour of the innovation, some have questioned the value of bringing protection onto platforms. It has also opened up a wider debate; will the tired and paper-based protection industry ever truly make it into the evolving digital world? And what shape will it take?
Nucleus is an online wrap-based business platform. It is adviser-owned with primary focus on adviser-client investment portfolios offering access to 4,000 funds. Last December it piloted an investment-linked life assurance proposition with start-up third party Integrated Protection Solutions (IPS).
In very basic terms the product is a bog-standard term assurance product. It is underwritten against client medical history by reinsurer Swiss Re and ElipsLife is the product provider.
The only difference is, IPS projects a prediction of how the client's portfolio will perform over the term agreed and embeds that risk into the premium. IPS will assess the performance of the assets daily - using information from Nucleus - and adjust predicted premiums accordingly. The policy will pay-out on death any gap between an established end-target sum and drop in the market.
Steve Mendel, chief executive of IPS, said: "We are planning to expand beyond death cover. We could develop the same set up for critical illness and income protection.
"This is about enabling financial advisers to be proper wealth managers and joining up investment advice with protection. We would like to think by the end of this year we will use other types of policy. It has taken two and a half years to get to this stage."
While the proposition seems solid, there have been no others coming forward with similar propositions yet. But rumour has it a major reinsurer has been testing the water among UK retail adviser platforms for demand for investment-linked protection products in view of offering its own proposition. But it reportedly pulled back after receiving little call for such developments.
DELAYED PAPER
Some say the long-awaited FSA platform paper - to clear up significant grey areas around investment rebates - is the primary and crucial focus and that protection-on-platform propositions will bloom once that has been resolved.
But implementation date of the platform paper rules could be as late as 2014. The FSA's platform paper has been consistently delayed since first announcement in 2010 and its publication is still hugely anticipated.
But Mendel said perceptions of the protection industry would be the real barrier to integrating protection into wealth management propositions.
He said: "Wealth managers do not really get hugely involved. The advised protection industry is seen as paper-based and antiquated and the adviser has little control of lengthy processes and laborious administration."
Dominic Ventham, head of marketing at platform Ascentric, said protection was "certainly" on the agenda but development remained to be seen.
He said: "For us it will most likely take the form of investment-linked protection as opposed to the stand
alone market. The question has to be whether it is worth processing this. It would be quite a complex innovation and would likely need third party administration.
"The key consideration is - are advisers asking for this? At the moment we are not hearing that loud and clear. Advisers are tied up looking for other things on platforms like greater functionality on client reporting for investment portfolios."
He said the argument for bringing protection onto platforms was that it should be core to pure holistic financial planning, but predicted one to two years before it really kicked off.
Chris Daems, director of IFA Principal Financial Planning, said he welcomed innovation on platforms but had concerns about the impact of a protection element on the overall cost, especially for older clients. He said there would be key considerations as to client suitability of an investment-linked protection proposition as to whether the client felt the reassurance in the event of death was worth the price.
Daems added that instead, he actually liked the alternative idea of including conventional protection policies on platforms.
"One of the innovations I'm excited about is the potential for greater transparency both for adviser and consumers that platforms have the opportunity to provide and the ability to include a wider range of products ‘in one place' allows advisers to do this," he explained.
"However, I also believe that if platforms do provide conventional protection products they need to ensure adviser, and in turn the consumer, access to a similarly wide range of providers available on the open market."
FEASIBILITY
But just how feasible would a non-investment linked pure protection proposition, with straight through underwriting, be on platforms? Many have argued that while bringing protection in line with other digitally-developing advice areas was vital, there could be little benefit from holding say, a bog-standard term assurance policy on a platform.
However, as a bolt-on to a core proposition, as with the Nucleus investment-linked concept, protection has more scope for real digital development. This is evident in other developing areas. Group protection provider Ellipse is pioneering the link-up between protection and the evolving auto-enrolment pensions scene. It is adapting its systems to connect its flex platform to SME middleware provider Jargonfree Benefits.
In simple terms, Jargonfree Benefits is the pipeline system between employer management information and employee benefits packages, including pension and protection schemes.
It has been developed by Paradigm Pensions using Staffcare capability to help smaller employers implement the auto-enrolment pension reforms and optional workplace benefits.
Ellipse's adapted systems mean protection schemes can be set up at the click of a button with no paper trail at all.
John Ritchie, chief executive of Ellipse, said: "The Nucleus proposition is the individual wealth management platform. We are very much about employee benefit platforms when it comes to protection on platforms.
"The whole of financial services is rapidly becoming a platform world. If you have a good platform every traditional way of doing business can be better and quicker.
"The protection players that invest in platform capability and the digital world are taking a significant business risk but the bigger risk is not moving forward fast enough on this."
He added there was "massive potential" for protection through platforms to operate in different ways to the traditional protection plan and scheme processes. Old slow processes, like individual underwriting, can be made a lot faster digitally, Ritchie stressed.
"Tele-interviewing does answer some of that but the traditional stand-alone market can come as an option on platforms. I can absolutely see the whole protection industry going digital," he said.
But some are more sceptical about the movement. Derek Melia, partner principal at advice firm The Melia Partnership, said protection on platforms already existed - in terms of quicker technology-driven processes - and adviser back office software was all that was needed.
He said: "The developing capability of platforms with investments is a completely different thing to how it could fit with protection sales. With investments all sorts of things go on in the platform capability, like assessing the cheapest most effective ways to invest and all the set up with fund managers and charges and how those portfolios will be monitored.
"Protection is only about quality and price. There is no need for reviewing by the providers like there is with investment asset allocation. So the question really is - what is the point in protection on platforms?"
Others have pointed out that the protection industry is already moving to a digital world, but in a different way; the rise of the aggregators. Many believe the FSA's retail distribution review (RDR) will drive significant growth in D2C protection platforms.
Howard Finnegan, head of sales at technology and consultancy firm to the major intermediary platforms Altus, said: "There will be a massive growth in D2C platforms. RDR will leave a lot of people without advice.
"Most established retail platforms are interested in linking protection to investment because it is what the IFA channel wants. But D2C may also potentially offer protection in standalone individual terms. But you could argue the rise of the aggregator is on the way to offering this already."
One way or another, paper-based protection may need to catch up to the digitally-developing advice world sooner or later.
Nicola Culley is senior reporter at COVER
