As Progress from Royal Liver reaches its five year milestone, Mike Warr discusses a narrowing of the market's focus with Paul Robertson
When a new company comes to market it tends to be the best of breed, to raise the bar for other firms in the market. Eventually as others adopt the innovations they see as being relevant in their markets the new boy finds itself becoming just another market player. So a firm’s adolescence is a good time to take stock.
By lucky coincidence Progress from Royal Liver has just passed its fifth year. The starting point of Progress was Royal Liver looking for new ways to market and search for new propositions. Five years ago Royal Liver was still collecting on the doorstep and still had a direct sales force.
Mike Warr, director of Manufacturing and Operations at Royal Liver also agreed that the firm’s products at that time were not very competitive.
“So Royal Liver looked at the various markets and took the view that protection markets were attractive, although it looked like they were becoming commoditised. We came in with a new angle. Progress from Royal Liver were E-only, which was new at the time, and we also brought in tele-underwriting very early in this market,” says Warr.
However, the market has caught up, so what does Progress see in its future? The firm is still not dealing with the whole of the market; “We are dealing with about half and we are still quite controlled in the way that we build relationships,” he adds.
LITTLE AND BIG T
In addition, over the next three years he expects to see big changes coming through on underwriting, not just little T but big T. “These will become standard but the basic systems will change. In a paper world we have one application but in an E-world we have the ability to be more targeted and segmented. If we have a 24-year-old and we are asking questions about the risk of strokes or heart attacks then we are asking the wrong questions.
“We are working with our reinsurers to see if there is a way of progressing. We are also investing in an underwriting engine which will allow us to react to these changes with the speed that we currently can change a rate. We will be able to rewrite the rules within the system.
“Overall risk profiling and risk assessment will start to emerge more and more in the life markets. When it comes to underwriting questions we are now trying to get behind people’s lifestyle, their sleeping habits etc. We are getting cleverer here and can get a lot of information this way without reverting to doctors reports. Five years ago we looked at 1,000 cases where we had gone for medical evidence. In 850 of those the decision was immaterial.”
When it comes to the perennial question of where the protection markets are heading, when regulatory changes are thrown into the mix alongside marketing, demographics and technology, Warr has a sophisticated view.
One thing he does not see returning is the direct sales force as a result of IFAs leaving the market after the Retail Distribution Review (RDR) ‘goes live.’
REINCARNATION
“The challenge to a direct sales force was the economics. These sales forces struggled to work, they tend to incur overheads, and the IFA model is much more efficient. It is a challenge with the industry to come up with a direct sales force’s model – traditionally sales forces went to people’s homes. If you could get to deal; with people without going to their homes you could perhaps reincarnate in a different guise. However, that gets close to direct business and the best model is still IFAs.
“On one level the RDR will reshape the market. We are expecting a reduction in the number of IFAs in the market but we will also see people drifting into this sphere. Inevitably if IFAs are perceived as having moved into fee based business there is a chance that more people will get left behind. There is a risk that the protection gap will increase in size.
“The personal account for pensions will arrive in 2012. We have looked at the similar Australian model and feel that the group and individual markets might start to blur, as they have there. In addition we see less benefits being provided by employers in this recession, which brings it once again around to the individual. But worksite accounts, if done right, would offer the opportunity to buy some cheap life cover on top of the pension. It may be negligible as an amount but it would close some gaps. It would also get past some of the advice problems.
“If an IFA is clever this cover could be bought through their website. Alternatively, there are other areas that really need advice, and IFAs would have a presence in the mind of the employee already. At the end of the day we have to work with the market.”
It could reasonably be argued that the market does not always work with its customers. A classic example is critical illness, once a great seller and now with falling sales. The protection market’s suppliers have responded by seeking market share through adding illnesses covered and altering clauses, all in a race to differentiate. This has not been successful.
“We have seen the industry playing the old path of trying to get the edge or bring something unique to the product. The danger is that more and more is added and it becomes ever harder for the adviser to choose between products. It introduces issues such as how do advisers manage the risk of recommending one product over another.
“But the nature of the product is still valid, our challenge is to come up with something to give CI longevity and consistency, without this constant one-upmanship. It is the core that we should be looking at for this product, we are in danger of scaring the public away. The issue of total and permanent disability (TPD) is just highlighting this.
“There are a lot of claims that would have been paid under TPD that may not be paid in future as they won’t be addressed by adding the new definitions. We need to act together to find a solution to this.”
Whatever the solution, according to Warr, it should be written in trust. “It is a good way for an IFA to show that they add value to a process. Why wouldn’t you do that? It helps with the speed of payment and simplifies matters all round. You can write in the life of another but still the trust simplifies the legal process and allows you to cut through the legality involved with winding an estate.
“I don’t have chapter and verse on why more is not written in trust but a lot of it would be around the feeling that it was getting involved in a lot of legal process. There is maybe a bit of a fear of getting involved, complicating the process and maybe confusing the client.
Nevertheless, writing in trust is the first place you should be looking to go.
“Should you make it a compulsory part of the sales process to make clients aware that these products can be written in trust? I think so. I certainly hope this is going to become more common,” he adds.
PUBLIC'S LACK OF INTEREST
Naturally this brings the talk around to the public’s lack of interest in buying protection at all. It is rare to find dissent in this issue, and Warr is with the majority. “We just don’t see much in the public sphere in the way of raising awareness of the wisdom of buying. The real reason is that the public don’t know how to put a value on protection. It all comes to the old debate of is insurance bought or sold?
“How do we create perception of the need. Do people have an awareness of these products as they leave school or later in life? People don’t have the basic financial planning building blocks. There is still a feeling that the state will provide, which is less and less the case. There is an opportunity for the industry to play a part here.”
Warr is a sceptic when it comes to the growing trend for bringing slimline products to market, as a means of keeping costs low and in order to get a decent placing on an internet best buy table. He sees products as part of the markets search for a best fit product. “If anyone knew what version of a product would work we would do it and write some volume business. We are going to see a lot more innovation and experimentation going forward as the market sees more segmentation and looks for solutions,” he says.
In summarising, Warr shows he probably is on the right track as far as the average IFA is concerned: “If you are in the IFA market you need a quality product and you need to understand the business IFAs are submitting and you need to help them build that businesS.
The drivers in our business are the same as those that drive the IFAs.
