Steve Casey explains how wrap platforms taking advantage of advances in technology can help advisers sell more protection
If you follow Darwin's theory of evolution, you could argue the protection industry will be a survivor given the changes it has had to contend with. Over the years it has seen many new products and lots of variations, new distribution channels, various regulatory and tax changes, and the birth of the internet and digital technology.
These are just some of the innovations encountered by an industry that started a few hundred years ago. A lot has changed since the 17th century when businesstechnmen sat in coffeehouses trading insurance policies and the Man from the Pru stopped knocking on doors to collect the weekly life insurance premium.
The internet and mobile devices are changing the face of distribution, while advances in technology have transformed the way we live and do business - and these changes are happening rapidly. The recent unveiling of Google Glass sparked a huge debate across all media, as has speculation from technology gurus that wearable tech will change how we manage our lives and interact with our insurers.
The number of people wearing technology that tracks daily activity is growing exponentially, supported by the emergence of online communities where users can compete against each other and track progress against goals.
In light of these developments, some commentators are speculating that this type of technology could change the way insurance risk is assessed and underwritten, although this remains some way off at present.
However, even now there are examples of technology in financial services changing our lives - just take a look at wrap platforms. Can these help advisers to provide a flexible protection solution for their clients?
Let's start with a short history lesson: a wrap account (or wrap service) is a means of consolidating and managing a client's investment portfolio and financial plans.
Wrap services originated in Australia and New Zealand and came to the UK around 2000. Transact was the first wrap service to be authorised in the UK. According to PlatForum, there are more than 40 wrap platforms in the UK, with some designed for use by an intermediary and some direct for consumer use. It has never been easier to purchase an ISA, move funds or build up capital in a cash account for investing when you feel the time is right.
As the amount of assets under management increases and the number of services to manage these grows, can 21st century platforms help advisers sell more protection? All too often it has been said that investments, pensions and protection all come from different stables.
Evolving industry
It has been talked about for several years now, but once again the protection industry is evolving - and now a flexible protection solution is available that sits alongside the investment accounts of the consumer. At the moment there are two offerings in the market, creating a divergence of products.
For example, Zurich Life offers a proposition called Investment Life Cover (ILC). It is designed specifically for advisers' clients who require a simple protection solution for their platform investments.
The life cover, based over a five-year period, will protect the policyholder's eligible platform investments so that, in the event of their death, Zurich will pay the beneficiaries the difference between the original investment (less any withdrawals) and the value at the point of death.
For example, if someone invests £150,000 worth of eligible assets onto the platform and the value of those assets fell to £120,000 at the time of the policyholder's death, the beneficiaries would receive the £30,000 difference under the terms of the policy.
Another offering is from Nucleus Financial Services. Via a very neat piece of kit provided by Integrated Protection Solutions, the firm offers a different type of proposition and was actually the first to come to market in December 2012. It looks towards the long-term goals of the client and offers a product that protects the aims of the investor. If a client has an expectation that their initial portfolio of, say, £100,000 will grow to £250,000 by the time they wish to retire, then the additional £150,000 will be covered from the outset.
This concept is about setting a target amount the client wishes to achieve for themselves or having the capability to pass onto loved ones should they pass away. The product will track the asset pricing on a daily basis and adjust the sum assured accordingly. Monthly premiums will then be paid by the customer in the normal way. The obvious advantages to the customer are that they have all their financial products in one place, giving ease of access, they only pay for the cover that they need and have regular contact with their intermediary to discuss their requirements. Policies can be placed in trust in the normal manner.
How the premium is collected can be changed as well. Rather than have a direct debit that is applied to the customer's bank account, there is no reason the protection cannot be funded by money from the cash account held on the platform. Yet again it will bring together all the financial elements for a customer on a half-yearly statement, thus making it easier for advisers to maintain regular contact with their clients.
So there are two products and two different ways to approach linking protection cover to investment assets, which advisers can review to help clients to achieve their wealth objectives by seamlessly integrating these with their protection needs. Other providers in the market, especially if they own a platform, have hinted that they are looking at offering protection alongside the investments. It is fair to expect that there will be several options on the market in the not too distant future.
These new services, which have been designed for advisers, give advisers another opportunity to contact their clients, can form part of ongoing service commitment and link well with the overall wealth strategy to either protect a future outcome or to help clients to preserve the value of the portfolio they have already built up. Additionally, they could produce a new revenue stream for advisers and could also provide another reason for clients to consider moving their assets onto a platform.
From a client's perspective, the Nucleus product directly links to their wealth strategy and they are only paying for the protection that they need. The life insurance provided is the same as any other life insurance product, with the exception of the way the price is calculated and the way the sum assured is calculated. The beauty of the product is this very aspect - the customer only pays for the cover they need.
Wider implications
This is, of course, just the start. You only have to consider the implications of the radical pension reforms the government announced in the Budget earlier this year around access to pension pots to start seeing the possibilities for wrapping protection around a client's investments decisions. While the changes announced mean the need to purchase an annuity is declining, the opportunity to take advantage of income drawdown is increasing.
Although there was widespread talk in the media of pensioners rushing out to buy a Lamborghini, in reality the average pension pot probably wouldn't cover the cost of a wheel. But it will mean more people will have access to larger lump sums than the old regime of 25% taken in cash if your plan allowed.
And what does the future hold for the prospect of fully integrated protection offerings to help people with inheritance tax planning? Of course it won't stop there - for example, a client might set up an investment plan to pay for their children's school fees, and then a protection product could be wrapped around this, so that in the event of the client's early death, their children could still have the education that was originally planned.
All this new technology provides us with new ways to do things, different ways to manage our savings and reach our goals, and changes how we interact with people and plan our lives. Just as connectivity via mobile technology is considered the norm (have you heard anybody talking on a mobile on a train recently?) and these developments become part of our everyday lives, the protection industry will continue to evolve.
Personally, I'm waiting for the day the transporter from Star Trek becomes a reality - "Beam me up, Scotty". Watch this space!
Steve Casey is head of marketing and propositions at Ageas Protect
