Protect Association Annual Dinner and Conference 24 Sep Over Coming Customer Perceptions of Protection

Transcription

1 Protect Association Annual Dinner and Conference 24 Sep 2015 Over Coming Customer Perceptions of Protection Roger Edwards My Website: Marketing Protection and Finance Podcast: Do you think we should start paying double the amount of commission we currently pay on protection products? Would that kick-start the protection market in the UK? Would that cure the stagnation? What do you think? You may think that s a bit of a strange way to open a session about changing customer perceptions of protection. Please bear with me. I first heard someone asked this question at the Protection Review Conference back in July. Should say that I thought that the Protection Review conference was about as upbeat as I have seen it in the last 5 years. There was a genuine feeling that we are turning a corner and that change might be coming. But there was still acknowledgement that the market is currently stagnant. I was sat on one of the panels in the middle of the morning and the subject we were covering was how to kick-start the protection market. As usual I was rabbiting on about how the future of the protection market depended upon advisers embracing Digital technology to get more positive stories out there to encourage clients to talk to them about protection products. Actually that's what I talked about here at this meeting last year. I still believe that this is the case and I still champion that approach. However I have been saying this for quite a long time and my comments were probably just as predictable as those of the other people who were sat on the panel. Some were saying we needed more product innovation.

2 Others were saying that we needed to do more advertising. Others added to the advertising bandwagon by saying that we should all club together and do more generic advertising. There were those who were saying that we need to simplify the underwriting process (something which I also agree with). Mike Ward from payingtoomuch.com stood up and said "I think we should double the amount of commission we pay on protection products." It created deafening silence within the room. Silence apart from the frantic scribblings of many journalist pens as they desperately tried to record the speaker s thoughts. Of course there was silence. Many people believe we already pay too much commission on protection products. Certainly true of the financial accountants. And actuaries. Probably the regulators. Although the regulators probably think we should stop paying commission at all. However Mike was pretty adamant that we should pay double. His arguments were that protection was far too complicated and far too much work for most advisers to bother with. The current proposition is not worth the adviser s time, he said. Even for relatively small premium rates the underwriting process can take anything up to 3 or four months and many hours of the advisers time is taken up trying to get cases on the books. Mike thought that advisers should be properly compensated for this vast amount of time that it takes to process protection products. I can't help but agree with this argument. As an industry we have made protection products far too complicated. We need to use complex comparison services (like CIExpert) to compare products to come up with the best recommendation. All of this takes time. And if it s far too complicated for most advisers to engage with then it s difficult to encourage them to help change customer perceptions. Interestingly enough a few days later there was an article in Money Marketing magazine by Tessa Norman which suggested we should actually cap the amount of commission paid on protection products. They suggested that we should look to Australia where a similar cap has recently been introduced. The article suggested even banning commission might be a way forward.

3 I don't want to have the debate here as to who is correct but we knew in the run-up to RDR that banning commission would not help protection sales. Indeed I still believe that no one will pay a fee to be told to buy a cheap term assurance. I think we need to sort out a hell of a lot of issues with protection products before we can even contemplate messing with commission. But Mike's comments and Tessa's article did make me wonder WHO is actually going to make the changes we need. Let's look at the advisers first. I stood up here 12 months ago and my speech was all about how the future of the protection market depended upon the social financial adviser. By social I meant an adviser who uses social media and digital marketing to promote positive stories into their communities to encourage more people to buy protection. I believe this is still very important. Nowadays the ability to get positive stories out there is so much simpler than it was even five years ago. Social media is powerful. We seen developments of live streaming video which could be an extremely important game changer for the UK protection market as long as someone adopts it and use it to contact and target customers. Please have a look at Blab.Im. We need to get more positive stories out there. It's all very well the ABI sending out a press release which says that 98% of claims are paid. That's fantastic news we should all be proud of that. But the public still think that only 38% of claims are paid. So the message isn't getting out beyond the trade press. We need to see more positive stories out in the mainstream media. The problem is the mainstream media do not want to publish positive stories. So we need to saturate the Internet With blogs with the videos With Podcasts With e-books and webinars To put the positive stories across. Every claimant is a potential case study. Every person who s had a critical illness claim paid out and has the financial existence saved is a potential case study. They are a potential video. They are a potential audio podcast. They are a potential written article. Every single adviser needs to use Digital technology to push these positive stories out there. Every single one of us carries a portable TV studio in our pockets now.

4 Should we go a step further and suggest that advisers take over the proposition development? Another phrase I hear quite frequently these days is distributor led protection. In fact a recent guest on my Podcast made an argument for this. Many people commented that quite rightly that distributor is the wrong terminology. I think that the terminology distributor can be quite insulting to the financial adviser. So let's call it adviser led protection instead. The idea is that instead of simply using the products of major providers or even using a panel selection to a subset of major providers, that adviser firms or networks actually become the people who design the products. This requires cutting out the mainstream providers and probably teaming up with in a reinsurance company and also a smaller more nimble provider who can develop products quite quickly. We all know that Scottish Widows have taken over five years to bring their protection product to market and they re not there yet. I know from my own experience that trying to develop products within a large corporate environment can take up to a minimum of 18 months. Smaller and more nimble companies do have systems flexible enough to develop products within a six week timescale. So it is possible for an adviser firm to work with a collection of reinsurers and one of these more nimble companies to design a product maybe targeted at specific niche customers and develop and launch it within a very quick timescale. Is this the way forward for the protection market? Is this the only way that we'll see innovation in the future? And actually would the adviser actually be able to produce something completely different? Or would something different be harder to give advice on than something similar that can be compared to everything else? Is change going to come from the mainstream product providers? They ve collaborated on 7 families. Good. Stories. But we need 7000 stories. Good marketing from Vitality. Hoping that AIG will invest massively in their purchase of Ageas. Well I think most mainstream product providers have locked themselves into a never ending Cycle of Impotence. They might want to change. And indeed I ve met with contemporaries from product providers either at conferences like this all at award ceremony dinners I get the feeling that everyone would like to see change.

5 But we have created a never ending Cycle of Impotency. They either can't change the market. Or they are happy to let the market stay as it is. So let's just look at those who can't change the market. In reality there are very few leavers the companies can pull these days to get competitive advantage in the protection market. There is price There is adding new conditions and features And there is tweaking the customer service process The price war has arguably led us into the position we are in today. Constant pressure from all sides to cut rates means that most companies have to renegotiate reinsurance treaties constantly in order to appear in the top three on IRess and ipipeline. In order to get those knockdown rates companies have to tighten their underwriting stance. The tighter the underwriting stance the fewer people actually get the rate for which they were quoted. So actually cheaper rates in the protection market are largely an illusion. One in four or even one in three people nowadays do not get the rate for which they were quoted. I find this situation to be unacceptable. What we have really done is created a preferred lives scenario similar to that that exists in the United States of America. However in the United States of America they make it clear up front that they run a preferred lies operation and the only specifically healthy people get the cheapest rate. In the UK we tell everyone that they can have the cheapest rate and then we disappoint one in three of our applicants. But the price war continues the downward pressure on price continues and so this practice will also continue. How long will it be before 50% of people are disappointed by the rate they are ultimately end up with. The other lever the companies try to pull is to add features to their policies predominantly in the critical illness space. We now have over 80 main conditions, we have up to 40 partial payment conditions we have ABI plus definitions the list goes on. This is one of those areas where advisers have to spend a lot of time and a lot of money making sure that they are up-to-date with all the different complexity that is on offer. In fact they feel obliged to subscribe to big comparison services such as Alan Lakey s CI expert in order to stay ahead of the game.

6 Alan has been particularly successful with his comparison engine. And the industry needs such a comparison service. However I find it disappointing that in an industry has become so complicated that a financial adviser has had to take the initiative to create a system which effectively allows people to do their job. Finally companies will try to tweak the customer service process to gain competitive advantage. However this is very difficult given the massively long underwriting process as previously mentioned. Then there are companies that don't want to change. I think it's interesting to look at Underwriteme. Underwriteme have created a potential solution to the problem where people are quoted and then disappointed. Underwriteme tries to give everyone the correct quote upfront by effectively doing the underwriting in the background before the actual figure is produced. Underwriteme is a great idea. I think it solves one of the major problems we have in the protection market. I would've preferred to have seen different propositions develop as a solution to the problem however what Underwriteme are doing is effectively hiding that horribly long and complex process. I think that those companies that feel they can't change the market are happy to sign up to Underwriteme so that they feel that they are on a level playing field. Those companies that don't want to change are the ones who are avoiding joining the Underwriteme bandwagon and continue to quote the cheapest rate and continue to disappoint large percentage of their customers. It tends to be the larger companies that are sticking to the status quo. Because they are the experts of the illusionary low price. It suits their business model can to continue in this way. So price competition will continue illness and feature competition will continue and ultimately I don't believe that this creates innovation. No one can do a simplified product. No one can do a product with less illnesses. No one can do a product with cut down underwriting because that would increase the price. Where is the iphone life insurance App? An Apple Watch somebody can buy two or 3 pounds worth of life cover which we pay for through itunes which is on risk as long as the app is on the phone. So most providers are effectively stuck in the Cycle of Impotence. I hear stories of many companies buying in major consultancy firms to analyse their protection product strategy. The strategic reviews tend to result in the phrases like thought leadership being banded about or focus on added value. Effectively this just means more of the same. More complexity. More focus on price. It doesn't seem to create change.

7 I was brainstorming the future of the protection market with a couple of colleagues recently and we thought that the future of the protection market requires companies to adopt certain ways forward. And here are four protection product models that I believe would be very successful going forward and my question today is whether any providers have the guts all the money or the desire to for the one of these routes. Insurance of Everything for the Internet of Things Making insurance an add-on to anything. In the past we ve been successful with protection recommended as an add-on to mortgages. Digital technology and Big Data gives you the opportunity to make protection an add-on to anything. The Risk Taker This approach needs you to take on risks that others shirk from, containing them through proactive management. The Hugger of Knowledgeable Consumers Consumers are more knowledgeable than ever. This provider will become a trusted partner to knowledgeable consumers; offering them more appropriate and cheaper products in return for them openly sharing their data. The Loved and Trusted Provider Insurers generally are neither trusted nor loved. It makes sense to aim to become the first that truly becomes loved and trusted. This provider will put service first, second and third. It will not just provide cash at point of need, but people to provide care and advice. It will not compete on price, but on customer satisfaction and advocacy. I don't see too much evidence of any of this happening. Therefore I still think the immediate task of growing the marketing and overcoming consumer perceptions rests with the adviser. So perhaps doubling commission would create the impetus we need.