So, income protection has been left out in the simple product cold. John Bridge assesses whether it will ever join the gang.
Principles
The report stipulates the following high-level principles to which simple products should comply. But what are the possibility and implications of a simple IP product fitting these principles?
• Principle 1: Essential product features that are:
(a) simply explained;
(b) useful for the consumer; and
(c) meet the needs of the target market.
Income protection could not be more simple. In return for a monthly premium the customer receives a monthly benefit when his or her income ceases through ill health.
In its simplest form the product meets the (a) simple explanation criterion and is (b) useful for the customer at the very time the customer is most vulnerable.
The needs of the target market however differ and this inevitably complicates the product. Employed customers require the benefit to start when their employer ceases to provide sick pay. Self employed clients may wish day one benefit or a longer period depending on their circumstances.
So in order to comply with the principle of (c) meeting the needs of the customer some flexibility must be part of the product specification.
An IP product based on the inability to perform the clients own occupation with a choice of deferred periods meets (a), (b) and (c). Such products are today freely available from a range of providers from large multi-product providers to smaller mutual Friendly Societies.
• Principle 2: Clear, straightforward and standardised language and presentation so that all firms are using the same language and presentation for product information to enable consumers to understand and compare products.
This principle asks the impossible.
It appears to require all providers to standardise their marketing with common language and product titles. An important skill of marketing is the ability to differentiate similar offerings and this will inevitably continue in the race for market share whatever the product. Everyone supports clarity and straightforward language.
Standard terminology in term assurance and IP should be used to describe those products so that they are understood by the public. However standard presentation of the product has no place in today’s market where providers remain in aggressive competition however simple the product.
It is in the best interest of the providers to make sure that customers understand the details of the product and that they are able to compare with competitors. Indeed this clarity and detail is often the catalyst that selects against the competition.
