Choosing a policy for a client can be tricky. Alan Lakey talks over his solution with Paul Robertson
The UK protection market has only a handful of IFAs who specialise in protection. Perhaps surprisingly they are not all from large companies. Alan Lakey is the only adviser in a two-man firm operating out of a shop front in Hemel Hempstead, thus his business base is probably a match for hundreds of IFAs across the country.
Yet he is well known in the industry for his protection focus. Although often quoted, this is not because of any great affinity with the press; he is also commonly consulted by providers for feedback as they design new products.
So how did all this come about? Well, it turns out that Lakey is of the old school. He says: "When I first started in the business it was door to door as an agent for United Friendly. The onus then was on protection, rather than investment or pensions; most of the industry was like that.
"I started learning protection before anything else and it always appealed. When I became an IFA in 1986 I was doing a bit of everything, these were the days before regulation, but there was less of a range - critical illness had only just been invented, for example.
"I specialised because it is important to me. The one thing that never changes is our need to insure against death and illness."
Recently Lakey has revealed a personal method of Critical Illness (CI) policy choice (see COVER April 2010 page 26), based on a database which he began in 1994 but which has grown in recent months. Far from an amateur effort, the database was compiled with help from Reinsurers, particularly RGA, but also Pacific Re, Munich Re and Hannover Re. Lakey adds that Bupa were also particularly helpful.
The concept is an analysis of a client's odds of getting a given illness and then comparison of plans based on a rating of those conditions. Lakey says: "The difference between policies is massive, especially in CI, and to an extent in income protection (IP). I am not prepared to recommend on the basis of "this looks OK" or "this is cheapest", so for the last 16 years I have had my own database tables on CI."
"If a company has different wording to another then one must be better than the other, as a rule. I want to know to what extent, it is important in choosing the right company. I am now able to plot risk. For a rough example I can say things like "the chance of a female at age 25 to 34 getting early stage breast cancer is actually 11% of a 45 to 54 years old's.
Guessing game
"Let's be clear here, I am guessing, but guessing using information, which is better than guessing using none. I now can say one condition is more important than another for a customer. I then need to determine whether that condition would result in a claim for each of the companies."
To make his case, Lakey points to a classic. Early stage prostate cancer has only four companies covering it. Axa and Bupa both require a Gleeson score of between two and six and the client must undergo a prostectomy or beam therapy. PruProtect and Scandia will not pay 100% but neither requires a procedure to take place.
The relevance comes from NICE, who provide treatment guidance for the NHS in most conditions. They advise that a prostate cancer with a Gleeson score of two to six requires only active surveillance. So it is possible that two policies would not result in a payout, although some people would still get the operation, regardless of the advice.
However the PruProtect and Scandia policies are more likely to result in a claim, in this instant.
Lakey adds: "If a 20-year-old came to me for 25-year mortgage cover, the prostate cover is not a big issue, but a 45-year-old is looking for the same cover then that is an issue and I take that on board.
"The degree I give credence to these issues also depends on other factors, such as cost. I often hear people saying that will cover the entire mortgage against death but only 50% against CI, on cost grounds. In these cases firms with no menu plan don't come into it."
Lakey is currently working with a provider aiming to get the tables distributed among the wider IFA community.
But what of the market? Lakey expects a contraction in the number of providers. He says: "If we look at Australia there are now only two companies over there arranging pensions, there has been a massive contraction in that market. Well, in this country it also looks as if certain companies' brands or offerings are unsustainable. I think it comes off of this slightly foolish premium war, where something has to give, one is business levels, the second is the profits - which are massively eroded if you cannot make cost savings or sell in bulk - this is not sustainable though, as there is always someone cheaper around the corner."
"We are seeing a lot of rebroking, even I do it. I think we will see further consolidation, because any insurance boss is asking how they get their product to the market.
"It is firms like Aviva that will survive; they are selling through the likes of me, through their tied agent, through the internet and through the national papers. Providers selling only through advisers have to bear in mind that there may be a massive cull in adviser numbers over the next few years. These will be the small guys like me rather than the Chase De Vere's. So wealth management will remain but the advice to the man in the street will be eroded. This puts providers in a parlous situation. The answer is to combine or pull out of the market.
Possible lack of guidance
This situation worries Lakey: "If we get to the stage where we have only five or six IFA supporting companies, then my job would be less meaningful and the public would get the view that maybe they can do it themselves. This might increase the take up of business, although I don't think it would, but the real problem would be lack of guidance."
Lakey has long been an advocate of fighting the adviser's corner. Last year he was one of the instigators of the Adviser Alliance, set up to fund legal actions, to publish concern or assist in other lobbying, but triggered by the Retail Distribution Review (RDR).
"If the RDR had killed commission that would have been the end of the market. People in the industry initially said to me that there was a need for a focused lobbying group, and that I should start something up. I was unwilling until it started to dawn on me that the RDR could kill my business if it went the wrong way. Also I believe the RDR is intrinsically wrong," says Lakey.
The Alliance campaigns on three issues: two relate to the RDR. First is that commission has its place. Lakey adds: "The point we are making is that the RDR is saying we might be biased because of it. In fact Shelia Nicoll, director of the retail firms division at the FSA said "the perception of bias", so they are going to change my life around and ruin the chances of millions to get advice for a "perception". That's not right."
"The second thing is that if I don't take four more exams before 2012 then I cannot continue with what I do. The FSA needs to accept that there are basic levels of advice we are competent at, and we would pass on other cases. If we are not an honest bunch why have you authorised us?"
The third is a campaign for a 15-year longstop. "We are the only part of society that does not have that, which is wrong."
Although Lakey indicates his involvement in the Alliance will probably last no more than another 18 months, as by then the RDR will be old news, it is clear his work with CI selection is going to keep him busy for the foreseeable future. We will be seeing a lot more of Mr Lakey over the coming months.
