With benefits such as providing real-time information to clients, insurers must no longer overlook electronic communications, writes Kirsty Tanner
How many insurers are failing advisers and their clients with inadequate communications?
From bank accounts to utility bills, consumers now have a legal right to receive all of the information that companies know about them in a format that can be easily consumed digitally.
This is increasingly being used to enable comparison services to find better financial products. This became law under the Enterprise & Regulatory Reform Act 2013.
The legislation gives the Information Commissioner the ability to impose significant fines on organisations that cannot meet such obligations. It requires only a statutory instrument to extend this obligation to insurers.
Speeding up the process
Against this background, are insurers doing enough to facilitate communication of information about a client, their policy or changes in their circumstances between themselves, the adviser and the client digitally?
Too much information is still being sent by post. This is costly, environmentally unfriendly and inefficient.
One problem associated with slow communication is direct debit cancellations. Currently it can take weeks for advisers to be notified that a direct debit has been cancelled or bounced.
By then the policy is, or on the verge of being, in arrears. Rather than pay backdated premiums for cover that has passed, if the client's health is unchanged, a new plan is more likely to be written: frequently, with a different provider.
Changes of address represent new advice opportunities. Outgoings and liabilities will almost certainly have changed, and consequently protection needs. This could result in new business for the adviser and provider, especially if guaranteed insurability options are offered.
With identity substitution fraud becoming a major problem for the whole financial services industry, establishing a secure electronic communication infrastructure between clients, advisers and insurers can be a valuable protection for all involved.
Address substitution plays a significant role in identity fraud. Secure messaging is far less vulnerable to fraud than either post or traditional email.
As advisers increasingly develop their own online client portals that can reduce this risk and build deeper relationships with customers, they need an effective way to be sure that a policy is in force and up to date if they are going to include protection policies in such summaries.
Not providing a mechanism by which advisers can electronically validate that policies are in force leaves advisers vulnerable to serious professional indemnity risks, should they include protection plans in such services.
If an adviser delivers an electronic service saying a contract is on risk when unbeknown to them it is not, it is fairly clear what the outcome of any complaint would be.
The investment industry addressed this issue more than a decade ago, perhaps not perfectly, but it can provide both real-time and bulk communication with advisers. By comparison, most life insurers' offerings fall miles short of what is needed.
A big part of the problem is that many insurers are failing to invest in upgrading their systems to be fit for purpose in the digital age.
There is also a compelling case and significant adviser demand for annual electronic protection statements. This would present a further advice opportunity, and might be an ideal way to encourage modest increases in cover, generating new premium income to offset the cost of building such a service.
Benefits to clients
Upgrading systems to facilitate digital communications on all aspects of a policy lifecycle would deliver major benefits to consumers, advisers and providers.
Reduced spending on postage and paper, reduced administration costs through automation, improved persistency by reducing direct debit cancellations and more advice opportunities are just a few of the benefits.
Historically, advisers have focused on features and benefits for clients when assessing the benefits of life companies. Under the Financial Advice Market Review (FAMR), the FCA and Treasury are taking a very real interest in how technology can reduce the cost of advice to consumers.
If some insurers continue to fail to invest, does it make sense to send new business to companies whose technology is not fit for purpose in the digital era?
The F&TRC view is that there is now a compelling case for including the extent to which insures are enabling advisers to reduce the cost of providing ongoing advice as part of the selection process.
In early 2016 we will be publishing benchmarking, which will identify which insurers are making progress in these areas, and who needs to get their act together.
Kirsty Tanner is a research consultant at F&TRC
