One thing you can say about the recent Review of Simple Financial Products is that Carol Sergeant and her team have done their homework. If nothing else, it breaks down and builds up a clear target market for a simple income replacement concept.
The steering group report showed the income protection gap in the UK sings to the tune of 24.9m people.
A little birdy told me that as the report was coming together there was a great deal of interest from providers in the simple income protection-style proposals. But it was not to champion the idea, rather to ditch it and bring critical illness on board in its place.
I believe this report will do a lot of good in giving income protection the stage. At the very least the initiative will force providers to look at the less profitable product area and kick start some innovation.
I also heard that some of the thinking behind the report was to develop a common application form. But a handful of the bigger life offices said no. Perhaps this will be something to come out of the consultation process. If it is really aiming to simplify processes, then this could be just the ticket.
Where I think the report falls short, firstly, is its focus on the individual. What about the workplace? It mentions it - kind of. But wouldn't this be a real area to explore? Especially for the simple income replacement idea? This could well be an area we see built on throughout the consultation.
Instead there is a heavy reference to using the Money Advice Service. Even if you take broker and adviser contempt for the MAS out of the equation, it is not exactly a body that has been covering itself in glory lately - what with the Treasury Select Committee criticisms. Is this the right direction for the products to be channelled?
I think there needs to be much more thought on how someone will arrive at these products. The report details a lot about technical aspects and includes a lot of thorough background research- but it will be vital to clearly establish what will lead consumers here.
Secondly, as for the product itself, the report states that oversimplification of underwriting for the income replacement product will make for an unattractive and expensive creation.
The report's principles will instruct providers to design the product on a basic set of features. But it also stipulates that competition will be crucial, meaning providers will need to put their own spin on things.
If underwriting cannot be simplified, and providers are creating their own take on these simple products, it begs the question - what will be the difference between these simple products, and the simple "more complex" products we already have?
If however the steering group is successful in its pledge - to strip all the complexity out of terms and conditions, cost and language - it could go a decent way to unravelling own occupation versus work task definitions.
And finally, let's talk about the badge of trust. If these products are kite-marked, by way of comparison will existing similar products be perceived as complicated and less trustworthy? This will especially be the case for the life cover proposals given its black and white nature. How will it act against creating more confusion?
And unlike general insurance, these products will be guaranteed with locked in terms and conditions. That means no tweaking if something isn't quite right. It is absolutely imperative that these products do not, on any level, create inappropriate provision and a false sense of security. How will the steering group try and test them?
All these thoughts lead me to think that the marketing will be just as, if not more, crucial than the products themselves. Isn't the true test of simplicity how these products can be digested and understood?
But despite all these questions and potential doubts if you break the report down, what it is aiming to do is go some way to restoring faith in the industry through the means of these simple products. And for that you can't really knock it.
