Roger Edwards talks to Paul Robertson about the current concern providers have over the lack of advice requested since the latest CI product was introduced.
Roger Edwards, proposition director at Bright Grey, is keen to dispel a worry that the adviser community may have: that the provider's new, cut-down CI product may cause a reduction in demand for proper, intermediated advice given by a professional.
"Well, it's not straight to consumers, per se," he says. "It is available via internet intermediaries, albeit ones that don't give specific advice. It is not Bright Grey saying that it is putting this product directly on to Money Supermarket or the like. What we've done is team up with an internet intermediary called theidol.com, and they're placing the product where they think it will be most attractive. Now, actually theidol.com has been putting our full menu product, and the products of other companies into those spaces ever since we've been launched. But the menu product, because it has all the flexibility, is quite expensive compared to very basic term assurance: it has got the Red Arc helping hands service, the guaranteed insurability options, and all of that sort of thing. So although it is probably only a matter of pounds more expensive in the internet space, that matters quite a lot."
Stripping down
Edwards adds: "The whole development has been to create a cut-down product, shave off some of these options which customers admittedly need someone to talk them through and give advice. The whole thing is about stripping the product down to the basic benefit, which reduces the price quite considerably, then offer it to theidol.com for them to then place into the comparison websites. There is still an intermediary with a commission but what they do is then rebate most of it to further reduce the premium.
"We did some research and found that 50% of the UK's population are not talking to financial advisers. The ideal utopian scenario would be that everyone speaks to the financial adviser but the fact is that half don't. I would rather that those who don't have some cover instead of none at all because the world still turns and things still happen. If we give those people that entry into the market with a cut-down product, it might then prompt them to start thinking about widening that cover out. Hopefully, we'll have planted that seed in their mind, and they'll go and see an adviser."
Edwards believes the type of customers that buy online are not the same customers that would buy their protection products through an IFA. While he does not rule out that some IFAs may lose customers to the new proposition, he says that research Bright Grey did into the potential market indicates different segments of customers: "There is always a bit of an overlap but we felt confident about launching this product because we didn't feel that we were effectively cutting off our nose to spite our face, or cannibalising our own business. That is the message we're putting out to the IFA community: ‘This is not a product that's taking business away from you. It is a completely different market segment, intermediated in a different way and, ultimately, it is going to help to grow the market and stimulate more debate about protection."
There may, he says, be other directions that this approach can be taken in: he points out that when the original menu product was developed at Scottish Provident, most IFAs worked in a similar way - they were selling pensions and investments, they were into the ‘complexity', but there are protection specialists like LifeSearch and Direct Life & Pensions, mortgage brokers, high net worth IFAs, employee benefits consultants, etc...
Cheap-as-chips
"The market's completely different now," he says. "What we find when we speak to different segments is that the protection specialist, the mortgage players and some others still sell and are comfortable with the menu product. But there are those who are not selling it because they feel that it is too complicated. What they would prefer is something a little easier to apply for, a little simpler, so that suggests that there is probably something between the cheap-as-chips internet people who would not go to advisers, and the full menu at the other extreme. Maybe there is something in the middle that could provide a third segment and that is an area we are going to look at in the future, so that will be a different intermediary proposition."
Away from Bright Grey's recent launch, the news in the protection industry is of the generic protection campaign, currently being researched for feasability. Edwards confirms Bright Grey is signed up and committed to the first part of the campaign, and like every other provider is awaiting the results of the research.
Proof of the pudding
However, he expresses some reservations about how it may turn out: "It is great that this generic advertising campaign is off the ground because the industry has been talking about it for years. I guess the proof of the pudding will be when the research comes back and tells us what we are going to have to do, and how much is going to have to be spent. That is going to be the difficult conversation.
"Personally, you could argue that in the past there have been a lot of very successful generic campaigns. But would a generic protection campaign on TV actually work? The aim of this research is to come back with some quite innovative ideas to get a good reach and penetration for a reasonable cost. From that point of view, one of the arguments you have around these things is, ‘Well, it's not going to be fair, is it? Because Norwich Union will get more business than Bright Grey because they've got more consultants and they should now pay a proportionally higher amount of the overall bill.' That is where these things have fallen down in the past. But the fact remains that we have a protection gap of £2.3 trillion. We have to find a way of raising awareness and I'm totally subscribed to the view of finding a way of making that work."
He adds: "TV advertising is expensive and now we have so many channels it is a lot harder to reach your audience."
There is also the issue of the retail distribution review (RDR) which, while not affecting protection now, is widely expected to encroach on the market in the future. "The RDR to me seems to be very much like removing commission because it is being seen as ‘evil'," says Edwards. "You can see that in the context of the pension plan or the investment product because the commission is eating into the investment returns.
Therefore, I can see why there is an argument of negotiating a fee with the IFA instead of having commission taken out. Although if the client is entirely clear about what the implications are, if a commission is the only way that they can afford the fee, maybe there should be an option for them to have it paid that way.
"What I am a little bit concerned about is whether someone will pay a fee to be given advice to buy a £10 per month term assurance (TA) policy. Let's face it - a forty year old can buy £250k life cover for about £10 a month. So what IFA is going to turn around and ask for £400 for giving advice on buying a £10 policy? I just don't think any consumer is going to agree with that, so how is an IFA going to make money out of a product like that if it does not pay him commission because they will not be able to charge a fee. So if they say to the client, ‘There's usually a fee but because the commission doesn't work the same way as it would in an investment, you can effectively pay me by allowing the product to pay me, either in a commission or flat fee.' If that's an option, then I think that would be satisfactory.
"The danger is that the RDR is not looking at protection at all - it is just saying that it is going to work on investments and pensions - and my fear is that it will suddenly be applied to protection without consideration that protection is a different ball game."
The recent new product launch aside, it is interesting that all the issues on Edwards' mind are future ones. He cannot be alone in wondering over these threats and opportunities and, like the rest of us, he will have to wait and see. He is going to have an interesting year.
