The New Year did not start auspiciously for the Treasury simple products initiative and income protection insurance.
Despite comments last year about this being a priority it appears the Association Of British Insurers (ABI) has thrown in the towel for a simple IP product sold to individuals, given a statement in January.
As we know, one of the requirements of the simple products initiative is that products must be able to be sold without advice – although there can be signposts for potential customers requiring more sophisticated products to obtain advice and buy them through that route.
However the ABI claims that the complexity of State benefits – particularly with changes in legislation – means that individuals can only make a decision about whether a product is suitable for them after advice.
So what would this advice be? How many advisers are currently well versed in all the implications of the upcoming unified benefit changes? And even those who are still face uncertainty about how these changes will actually pan out and what future governments might do instead.
Income protection is bought for a long duration (even if it has a limited payout period). You might buy it in your 30s and not claim until your 50s. Actually, it is not that hard to see who might benefit most at the moment – those on dual incomes for example, as partner’s incomes will be taken into account after a certain period. So why the cop out?
By a leap of logic the ABI then said it looked at another ‘ethical’ version of PPI that would be underwritten at the point of application. Here the State benefit and advice issue does not arise – maybe because they only pay out for a year and it takes a year for dual income issues to kick in?
Actually, MPPI products often pay out for more than a year. But, But, no, that is not the issue here – instead they say that such products would cost more because of the underwriting process.
Well maybe they would but by how much? We are left guessing and this relates to my previous articles on term life and the cost of add-ons like terminal illness benefit.
So far we have a lot of muddled thinking, but the cavalry is on the horizon – ‘the answer’ the ABI says is group IP. Apparently an employer “is a trusted person who will already have put filters in place, such as choice of provider, waiting period and ceasing age... overcoming the advice and regulatory issues... and these products could also be offered through trade unions and affinity groups to individual employees and the self employed”.
I am a strong supporter of group IP, but I think the ABI might find that the product is indeed offered via intermediaries who advise on providers, coverage and costs etc.
It might also find that sales to individual employees via trade unions and affinity groups involve intermediaries. Finally, the self-employed are one of the biggest markets for friendly societies – sold though advice.
The recommendation to the simple product steering group is to be that only group IP can fit the bill. People cannot buy it online. Only through their employer and only if their employer offers it.
So that is sorted then. If that is the answer what was the question? Unless they rethink others will take their ball away.
Richard Walsh is a director and fellow of SAMI Consulting, www.samiconsulting.co.
