Facing your fears
Lucy Quinton: Is there scope for business protection?
Ron Wheatcroft: I believe there is massive potential for business protection. Two years ago, Swiss Re's Insurance Report calculated that, at a very conservative estimate, there is a shortfall of at least £500bn of sum assured. If you turn that into easier numbers to follow, assuming an average sum assured of about £250,000, we are potentially talking about two million policies. So to answer the question on whether there is scope – I believe the scope is massive.
Lucy Quinton: Mark, coming from a provider's perspective, what do you think?
Mark Meads: I agree with that. And I think it links in with the general protection gap, which does not include business protection. As an adviser community, we are better at selling in the personal protection market. With the business protection market, it is something that has not been commonly talked about within the adviser market. And what we find is it tends to be specialists who pick up on it – it is not widely known among general advisers.
Lucy Quinton: What opportunities are there for IFAs in this market?
Warren Copp: I think the challenge for IFAs is to find the different part of the market to sell the business to. So much of the protection that is written is individual and there are lots of businesses that really need protection cover. And we are not just talking about very large businesses; we are talking about two or three-man operations as well. And that equates to a massive potential.
Lucy Quinton: Adrian, coming from an adviser's perspective, what do you think?
Adrian Swarbrick: There is an obvious correlation between personal protection and what you may call corporate individual protection. Yet 80% of personal protection in the UK is written through group risk products and the high street IFA in particular has not necessarily worked out that if they are talking group corporate risk, there is a natural adjunct of individual corporate risk. The people who are ultimately responsible for providing 80% of the UK population's life insurance are the key individuals within these corporates.
Tony Wickenden: At a client level, there is clearly opportunity for an IFA to have deeper discussions with existing clients who they probably talk to about pensions and other aspects. It makes sense to build on existing relationships.
Rod McKie: You would be surprised to see how many of an IFA's existing clients need business protection.
Lucy Quinton: So are the barriers for advisers the same or do you think they have changed?
Ron Wheatcroft: One of the issues is that there seems to be a part of the business market that is not very well served by intermediaries. Research that we have done around businesses suggests that part of the market just does not get the messages about the products. Now, in some ways, that is surprising because they do have relationships with the insurance industry. As they have cover that they are required to have to allow them to trade, such as employer's liability and public liability. Somehow we seem to work in silos and we do not make the jump towards providing a more holistic service.
Tony Wickenden: Apathy in general works as a barrier. People just do not wake up one morning and want to buy business protection.
Roy McLoughlin: I agree. Business protection still needs to be sold. But there is almost a fear within part of the IFA community about discussing business protection. If you meet IFAs and you mention business protection, it is like "we cannot sell that". I just think it is a misplaced fear because the opportunities are so huge.
Adrian Swarbrick: At the smaller end of the IFA market there is still a tendency to cling on to a certain sort of product sales but the Retail Distribution Review (RDR) is definitely drifting towards advice and that has to drive IFAs to look more at the risks inherent to their clients' businesses. As soon as you start advising on risk, by definition, you have to come on to where the profits are being generated. So we need to give risk advice not just product advice.
Roy McLoughlin: It is also about timing. If there is a perception that business protection takes much longer to sell, certain IFAs would be saying, "well let's shy away from it because if that has taken six months to do and we can sell 10 pensions in a week. Let's carry on with that instead".
Warren Copp: There is definitely a danger that people perceive business cover as large cases that take ages to underwrite and require lots of work. The reality is that a big chunk of business at the moment falls into the small-case category and it is not that difficult to underwrite.
Rod McKie: Do you think there is a perception that it is just for people in the City and that it is multi-million pound stuff?
Roy McLoughlin: There is that problem with the smaller IFAs, who are still in the majority. We all go on personal circumstances. I have just had a payout on a two-man business. I would not say it saved their business but it has made a big difference. It is good sometimes, ironically, for IFAs to have claims that go through, as it reinforces the whole reason why we are in the business.
Tony Wickenden: Most intermediaries will have some kind of business client base. But it is about making people aware and it is about painting a picture of what could happen if they do not have cover in place.
Mark Meads: And that is when we talk about how IFAs get into it. It starts on the sofa in someone's house when they are talking about the mortgage and saying, "well you have your own business, what about that?" You have an existing customer there, rather than going to try and find your next customer for the next mortgage, what about increasing the sale to the people in front of you?
Roy McLoughlin: One of the ways I like to 'disturb' people is by asking the question "do you have a company will?" To which most people would look at you and say "what are you talking about?" So why do we all take wills out to protect ourselves individually and yet we do not take wills out against our companies?
Tony Wickenden: There is an assumption that it is all taken care of.
Lucy Quinton: So what are providers doing to help IFAs sell business protection?
Mark Meads: Talking as a provider, what we have tried to do is to raise the profile of business protection. What we are starting to see now is other providers coming into the market and we welcome this because it helps to raise the overall profile. We think that will help to educate more people about how they can go about it and how they can access it.
Ron Wheatcroft: I agree. I have sensed a real step change over the last 12 months. There is plenty of business out there but I think what we are seeing now is that the reliance on the mortgage market is starting to make a number of providers and distributors feel fairly uncomfortable.
Rod McKie: I think Ron just hit the nail on the head. The time is right with the market being in the state it is in and advisers should take on board the fact that there is a huge opportunity here. It is really for them to decide whether they want to try and boost their revenue when times are hard. And the risk is that if they do not do it, them someone else will come along and do it for them.
Warren Copp: Once you get someone through their first sale, they think "that wasn't too painful".
Adrian Swarbrick: It goes back to a point that Tony made right at the very beginning on whether or not the lower end of the market consider themselves professionals and have relationships with other professionals. A small business will have an accountant and a legal adviser. And it is those relationships that allow you to value and deal with any issues that you may perceive to be complex. We have been working in the business protection market for a very long time and I would argue that at least 90% of our business goes through professional connections.
Lucy Quinton: What are the drawbacks to business protection?
Roy McLoughlin: It can take a lot of time. And if you are a holistic financial planner, which I guess most IFAs still are, there is a risk there.
Lucy Quinton: You said before that some IFAs thought it was too complex a product. Why?
Roy McLoughlin: Because they do not understand it. What they do not realise is that it is not that complex.
Rod McKie: I think the key point is to segment your customer base. There is a natural progression that you can probably ease yourself into it and hopefully with the support of the provider get a bit more confidence. And then you are in a position to handle some of those difficult complicated conversations if they do come up.
Adrian Swarbrick: And that is part of the education process where the providers can assist the smaller IFA quite significantly.
Rod McKie: You need to be clear of what risk you are taking on and the price of underwriting that contract.
Warren Copp: It is interesting because quite often with the really large stuff, the bits of financial evidence that are easy to get are the reports, accounts and business plans, which you just get a photocopy of. Sometimes it is difficult in a large case to get a description of what the cover is required for and how you ended up with a certain amount. And that is almost diagnostic with what the issue is.
Adrian Swarbrick: For those very large cases, the fundamental piece of the jigsaw to make those work is to have an insurer who is comfortable with the reinsurer, so that we can all sit down together, with the client, and do that diagnostic.
Lucy Quinton: Do you not think that there should be some sort of training that IFAs can have so that they can build up confidence in this area?
Mark Meads: Yes. At Aegon, we have done a round of business seminars to reintroduce our business protection proposition. They have gone very well. What we are looking to do next year is to develop and do more training.
Ron Wheatcroft: It is very clear to me that the Financial Services Authority expects that providers will take a greater interest in what distributors are doing. After all, distributors are using the provider brand in many of these cases. So I think there is a very clear interest for providers in being able to do this primarily because it is good business sense.
Lucy Quinton: So what should IFAs consider when looking to advance in this area of the market?
Adrian Swarbrick: All businesses vary. The first thing they have to do is know their business and it is about moving away from selling a product to advising individual clients on the risks that their business is exposed to.
Tony Wickenden: I would reiterate the commercial point that I made earlier whereby if you do not deal with it someone else will. It is important to have the conversation itself. And also to defend yourself potentially against the situation where you have a client who you have not advised, and then something big happens and they find out we could have insured them against this and they say "why didn't you tell me?" So there is a defensive element to it too and a treating the client fairly aspect to it.
Adrian Swarbrick: There is one thing the provider market could do to help IFAs large and small quite considerably. And that is to listen to some of the calls for products that meet the specific requirements of key men protection, rather than where we are today, which is if we take away the legal and technical complexities or non-complexities, we are still using personal protection products to meet a corporate risk. And that is not entirely relevant a lot of the time.
Johanna Gornitzki: Will we be seeing any product developments in the next year?
Adrian Swarbrick: Well I would hazard a guess and say no.
Rod McKie: There are rumours that some existing providers are going to come to the business protection market so it will be interesting to see what products and solutions they are putting in among those business propositions.
Mark Anders: There is a problem for providers in trying to identify what the business case would be for launching business specific products. And we have piggy-backed on the back of our personal products. It is true that, as the RDR starts to bite, providers may see more opportunity to package specific benefits for business protection.Lucy Quinton: So what are the key elements of a comprehensive business protection proposition for advisers?
Roy McLoughlin: One of the potential problems here could be the mess that the group risk market is in. There seems to be utter chaos out there. I wonder if certain IFAs have dipped their toe in that market and are now starting to ask whether it is worth getting involved in the business protection area because certain segments are in absolute chaos. We have situations where reviews are taking 11 and sometimes 12 months, and that is not good. And it is starting to backfire on some IFAs. If you are running a client's group business, the problem could be that, if you think that you are going to have those similar problems, you may be deliberately staying away from that subject matter.
Adrian Swarbrick: There is an undeniable link between group risk and individual risk when it is corporate.
Mark Meads: It is interesting that this is coming back as feedback as a barrier to potential individual business. There are effectively two types of broker, one that deals in the corporate world and would look to go back down from that into individual business. And there is the other side that sees individuals and wants to get into the corporate side. If we are looking at business protection as a whole, then yes, I can see that being a barrier and something that we need to get sorted and get right.
Ron Wheatcroft: We compile data on the group market and we have recently produced a chapter for the insurance report and I would agree with some of Roy's comments about issues around administration in the market because that was a view that was voiced by a number of industry figures that we spoke with. I am a big fan of the employee benefit market but while you have an awful lot of businesses out there that are quite happy to carry on paying premiums into schemes, there is no basic cover for the business as a whole so there is an awful lot of effort going in to just get out a benefit to the staff. But if the business collapses, that is another story.
Roy McLoughlin: If a company has a death in service scheme, it is easier to talk to the owner of the company about business protection.
Adrian Swarbrick: There is a huge move in the UK corporate market. Since last year, and with the gradual removal of defined benefit pension schemes from UK plc, there is a move from trustees controlling purchase of group risk to employers purchasing group risk. This means the link between corporate protection, whether it be on a group basis, and what we roughly refer to as key man, it is now increasingly the same purchaser.
Mark Anders: As a provider of both group risk and business protection, we do still come across significant number of IFAs, particularly small ones, who may be confident to put in place a group risk solution.Ron Wheatcroft: We have talked a lot about communication and when we produced our recent report, we did some research with employers. And we asked the employers who have not arranged death in service and income protection why they had not done so. And we had a few reasons around contractual liabilities that they did not want to have. But the biggest reason given was that either they had never heard of it, or it had just never been mentioned to them by their intermediary. I think we are in the same ball park here as we have talked a lot about communications for the basic corporate cover, key man, shareholder, partnership. And it is right across the whole corporate piece.
Roy McLoughlin: There are circumstances where I have had clients who I have tried to talk to about key man and they have said they have no outstanding loans, so they do not need any. But I think the traditional way was when the banks used to sell it and in that respect they used to have it against the loan. If a business does not think it owes any money it may not perceive that it has a need for key person until an intermediary explains what it means.
Lucy Quinton: Is it a good thing for the industry to focus on business protection?
Mark Anders: It is a very good thing. The industry needs to get away from its focus on price. And if there is one area where distributors and IFAs are going to be able to add value, it is on an area like business protection where you have a lot more complexity.Rod McKie: I think the time is right as well. If you look at the volatility with the credit crunch, now is the time where risks should be at the forefront of people's minds. It should be easier to get people to assess what level of risk they are comfortable taking on board from a business perspective.
Lucy Quinton: What does the future hold for business protection?
Mark Meads: It is about gaining momentum and trying to raise the profile and get more people to understand. The more providers that can get into it and promote it, the better.
Warren Copp: This one does feel like a bit of a snowball where if you get it moving and get it rolling downhill, it gets bigger and bigger quite quickly.
Ron Wheatcroft: I agree with that fully. My only caveat is that we have to sustain the initiative and we need to be looking at constant communication messages because, in the industry, we are just not very good at telling people about what protection actually means.
