Geoff Tresman explains why non-standard risk business represents huge untapped potential in the protection market. Angela Faherty reports
Creating a business out of a new idea in the protection market is no mean feat, particularly when it comes to non-standard applications. But Geoff Tresman, managing director of specialist risk company, Risk Placement Services (RPS), has done just that.
In the late 1990s, and with over 25 years' worth of market knowledge, Tresman was ready for a new challenge. He says the delays with placing non-standard business and the fact that multiple applications had been a problem for as long as there has been life assurance, prompted him to come up with a solution. This resulted in Tresman and his colleagues putting together a plan for what he calls 'the bones of an IFA practice that specialised in non-standard risks'.
"After sitting back and looking at the market for some time, my peers and I began to talk about establishing a service whereby non-standard life assurance, income protection and critical illness could be underwritten with more focus. The aim was to also try and come up with a solution to what is still a huge and costly problem today – multiple applications," he says.
The result made Tresman part of the original line up behind the first specialist risk firm brainwave, Special Risks Bureau (SRB). However, external factors such as the buyout of Tresman's IFA firm, Tresman & Partners, by Punter Southall Financial Management, prompted him to sever his ties with SRB. But his eye for a unique business proposition did not die and despite initial hesitation by the buyout company, a competitor to SRB, RPS, was created in-house.
The RPS business model is very precise. It deploys the underwriting skills of Otter Risk Solutions for its own generic applications, which is done in-house and then presented to a host of panel companies including Scottish Equitable, Friends Provident, PAFS, Norwich Union and Standard Life – eliminating the need for the much loathed multiple application process.
Pressurised
Tresman admits that discussions are underway with three other major providers wishing to join its panel of companies, but he is reluctant to reveal any names. And while he knows the business is there for the taking, he remains steadfast in his approach to RPS' growth.
"We are playing the game and gradually building up the company. Until there is critical mass in terms of applications and completions, then we are going to continue to grow as and when necessary," he says.
Currently, RPS employs ten full-time staff and has signed up 1,000 IFAs through the Exchange since April 2004. Commission is split appropriately, with RPS retaining 25% and the IFA submitting the business, 75%. In terms of time however, the savings made by the IFA are far greater. "We take away about 80% of the administration costs from the IFA. There is no need for multiple applications, we do the chasing while the IFA is kept up to speed on where things stand," he says.
Explaining the need for a specialist service dedicated to non-standard risks, Tresman says the complex nature of the application process dictates demand. "Completing a life assurance application nowadays can be horribly complex and enormously time consuming," he says. "And the success of comparative portals such as The Exchange has meant the market is now so purely rate driven that the companies sitting at the top of the tree get thousands of applications a week and their capacity to apply focused underwriting on non-standard cases is hugely pressurised."
With this in mind, Tresman points out the advantages of using RPS' generic application form. He adds that multiple applications cost the industry over £40m a year and while he believes a standardised application form would be the perfect solution to the problem, he admits this is no easy task.
"Although providers have invested millions of pounds in electronic systems, many have been built to only accept their own application forms, which means the Risk Placement Services application form does not fit their model. So while we are saving all this time, money and energy, there is still a need for manual intervention," he says.
Tresman says he is currently working towards developing a system that will involve completing a generic questionnaire online which then pre-populates its panel companies' applications – a service that would make the application process much swifter.
With the face of the protection market continuing to change, Tresman is resolute in his belief that despite the much feared rise of the retail market by the IFA sector, its ever increasing dominance is a good thing for the industry.
"Protection is massively undersold in this country and the introduction of Sainsbury's and Tesco into the sector will open people's eyes. More protection is already being written, but the potential is still enormous.
"I genuinely believe if consumers buy protection, that in itself is the most important thing. It does not matter where they get it from. Consumers who buy from Tesco are not the target audience of the IFA market, so I am not going to be troubled by that flow of business," he says.
Much like all other IFAs in the market, Tresman thinks product development is key to increasing market awareness. He says simple developments such as a smoker's policy, could revolutionise the life industry and they way in which it classifies people as a smoker or non-smoker.
Competition
"We all know people who make a regular habit of having a social cigarette at a party. And while the effect on their mortality, particularly over a term, is negligible, a 35-year old woman who smokes two or three cigarettes a week will be charged exactly the same rate as a 35-year old woman who smokes 35 cigarettes a day. So there has to be an argument for splitting the definition for light , medium and heavy smokers," he says.
Looking ahead, Tresman admits that while the current focus of RPS is special risks, he would jump at the chance to one day promote the service to write ordinary business. "A lot of our business is standard risk anyway. Initially, it looks as if it is non-standard but it comes back with ordinary rates. Going forward, it would be particularly good for large case sums assured where there are additional queries from the outset – we can take some of that pressure away."
And with his old company, SRB, as the only competitor, it could be believed that Tresman is happy to be one of the only two fish in the pond. But that is not the case. He admits he would happily welcome further competition, if only to stimulate understanding and awareness of the market.
"The size of the population is phenomenal; there are 350,000 rated cases a year, and between the two of us, we are not going to write that many. We need more competition. Both companies stand and fall on each other's success. And we have to succeed," he says.
