The simple financial products initiative is already proving contentious in the protection market. Carol Sergeant, the leader of the steering group, tells Owain Thomas the industry needs to think differently if it is to succeed.
“I’m not excluding the IFA network at all. It’s just a question of where do you start,” she added.
Once advisers are involved in the project, other questions will need to be addressed, such as the input of regulators and the threat of remedial action should claims be declined that may have been covered by ‘fuller’ versions.
Regulator’s Role
The regulator’s role proved one of the most compelling subjects at the launch, with several questions posed by industry representatives.
While Sergeant is hopeful that all the regulatory bodies, both present and future, will get on board with the scheme, she acknowledged that they probably will not be able to relinquish their grip.
“Another reason for starting without advice was so you don’t get into this problem, frankly,” she continued.
“I don’t see the FSA changing its rules because if you are giving advice, you have to ensure the person knows what they are buying and that the product is right for them. I just don’t think we can get away from that.
“But with a simple product, the advice should be easier because you can say ‘It only covers you for this and nothing else, and if you want extra cover, then buy this’.
“That’s why I think with some of the protection products, a building block approach might be quite good, instead of having this big complicated thing where some exclusions apply to you and others don’t. I mean, it’s a nightmare.”
That “nightmare” complexity of underwriting and exclusions for consumers is very apparent to Sergeant and she is well prepared for the difficulties that follow with this sector.
While much of the savings simplicity may well be a branding and signposting exercise, which also goes for the protection market, much of the discussion within this industry has been around reducing complexity for consumers.
Whether this is employed in a new range of simple products, a branding and proposition exercise, product signposting or any other factors has yet to be decided.
Any, and all of these, along with many more, are on the table. If the project is successful in significantly growing sales and reaching a wider audience, just about everyone in the market should benefit along with those consumers enjoying greater financial protection.
But for that to happen, Sergeant is certain the industry must change. “It will just take a very different way of thinking about it,” she said. “It’s important, but I think it’s going to be quite challenging.
“Less than 10% of the population has income protection and that is an incredibly low proportion of the population. But there’s a reason for that – it’s not a particularly easy thing to design and build.
“One of the things we have to look at is how you actually define the products to make them simple, clear and straightforward in the hands of the customer, but also underwritable – and that’s a big challenge which I don’t underestimate.
“That’s why we might need to have a whole different way of thinking about it,” she added.
The intricacies around insurance, such as the risk of anti-selection and ensuring a large enough pool of lives are covered to spread the risk, are not lost on Sergeant. But she freely admits to not being an expert in designing products.
This is where the expert working parties will step in and provide further depth to the discussion.
However, one hope is that any simple products will prove attractive and successful enough to a sufficiently wide range of the population to mitigate the risk of anti-selection and small pool size.
Sergeant also suspects that people engaging with financial services for the first time, the main target audience for the initiative, will be reluctant to pay for advice as they are unaware of the value of what they will be receiving. Another valid reason for taking the non-advised step first.
She then believes once people have been exposed to the simple side of the market, many will be willing to pay for advice as their situations become more complex and needs more diverse.
There is also likely to be a role for the Money Advice Service in this model – perhaps with a signposting to the simple products range once someone has completed their enquiry on the website. But that has yet to be agreed and must be discussed more deeply over the coming months.
And while IFAs may not be utilised in the initial phase of this project, Sergeant is adamant they should submit their views while it is in this formative stage.
“Even if we start with a non-advised product, just understanding what the advice issues are will be very helpful so we do not inadvertently do something that is going to be more difficult,” she said.
“I genuinely believe that getting more people engaged and aware of this has got to be good for everybody. Whether you’re in the advised or non-advised sector, people are going to move though, and as they understand more they are going to understand better that they could do with advice at certain points,” she concluded.
There surely is a simple statement that everyone can agree with.
