2015 Star Ratings. Life Assurance. Discussion paper

Transcription

1 2015 Star Ratings Life Assurance Discussion paper Defaqto Limited All rights reserved. No parts of this publication may be reproduced in any form by any means, whether electronic, mechanical, optical or any other, or be stored in a retrieval system without the express written permission of the publisher. The publisher has taken all reasonable measures to ensure the accuracy of the information and Ratings in this document and cannot accept responsibility or liability for errors in or omission from any information given 1 and for any consequences arising.

2 About this document This document outlines the key developments and trends that will inform the criteria we use for the 2015 Star Ratings for Life Assurance (Direct), Life Assurance (Advised) covering decreasing and level term, Whole of Life Assurance and Over 50s Life Assurance and, based on these, sets out the areas where we would like to consult the industry as part of ensuring that our Ratings process remains robust and transparent. 2

3 Key developments and trends The market Post-RDR, we anticipate that providers will be looking seriously at the distribution of simplified protection products either direct to consumers or via light touch advice channels. Indeed, dialogue and feedback we have received from some providers so far indicates that more products are emerging now and more are planned for launch in the future. This may involve aggregator sites or the collaboration with strategic partners/tied sellers. This is a broad topic and no clear definition of a simplified product currently exists, yet it is a concept which is generating interest in the market. Advisers wishing to avoid adviser charging may, post-rdr, move into protection advice but it is unclear how marked that effect will be and it is natural for providers to want to maximise their distribution. In recent months the HMT Simple Products Initiative has also gained momentum. Legislation and regulation RDR Uncertainty existed about how exactly RDR would affect protection volumes. On the one hand, some commentators predicted that it would be a boon to protection as advisers, not wishing to engage with the provision of RDR, moved to giving protection advice; on the other hand, many forecast that the adviser sector would be generally decimated and there would be fewer advisers and therefore fewer protection sales. There has been a drop in the number of firms with investment permissions (1.2%) since the implementation of RDR but this doesn t mean there are more advisers giving protection advice. Judging by the fall in protection sales volumes over the last year, they have probably left the industry altogether. There has also been a slow but growing trend away from independent advice firms to restricted advisers. It was reported in May 2014 that the number of independent financial advisers had shrunk, with 5% fewer independent advisers than 12 months ago and 15% of advisers are now reported to be offering restricted advice, up from 10% in March Against this background providers are seeking to widen distribution by pursuing direct to consumer type models. It is too early to tell where ultimately the balance between independent and restrictive advice may end up but some are predicting an equal split in about three to five years hence. HMT Simple Products Initiative In December 2010, a consultation set out the government s initial suggestions for how a range of simple products could be developed. The aims for simple products are: To help consumers benchmark and compare products on the market To be understandable and accessible to the mass market Not to be tailored to meet individual needs, but provide consumers with confidence that a simple product will meet their basic needs and offer them a fair deal To be a viable commercial proposition for providers Templates for simple savings accounts, a simple term assurance product and a simple group income replacement product have been agreed. 3

4 In our view, however, there remains an opportunity for providers and distributors in the individual protection market. Apart from the accredited simple products, which will compete primarily on price and service, there is an appetite for providers to market simpler products direct to consumers via strategic partners and using digital marketing techniques. These may not conform to the simple products accreditation standard but nevertheless will be simpler product offerings designed with specific customer groups in mind. Providers The industry delivers life assurance to its customers primarily through term assurance products (level or decreasing). According to Swiss Re s Term & Health Watch 2014, almost 1.5 million life assurance policies were sold in 2013; approximately one in five of these were whole of life assurance policies. Currently, over three fifths of sales are via intermediated channels and just short of two fifths are what could be described as direct sales (bancassurance, tied and internet sales). In view of the generally accepted premise that the populous is underinsured, it comes as little surprise that the majority of suppliers are at least looking at increasing direct-to-customer (D2C) delivery models. When Defaqto examined this recently, of the 15 major protection brands, only four said that they were not contemplating introducing simpler products D2C; the remainder either had some simple products in place already or were seriously looking at them. Products/propositions According to Defaqto s database of financial products, there are 126 term products (73 level term assurance products and 53 decreasing term assurance products) that can be purchased on their own from 34 providers; 11 of these white label other providers products. Seven of the products are relevant life plans and 14 are designed for business protection purposes. Just 38% of these are standalone life assurance products, the remaining 62% can be purchased along with other covers either having a critical illness cover option or by being part of a menu plan. In terms of distribution, almost half of the products are already direct-only products and over a quarter are available direct or through advisers. This indicates that the market is already geared up for direct-toconsumer distribution although, relatively, sales in this channel remain fewer than via advisers. 4

5 In considering our approach to this emerging market we considered defining simpler products as those that were non-adviser products. However, it was soon identified that there was no good correlation between products that were being sold direct and those that conformed to any notion of simple; really quite complex products are being sold by strategic partners via a pseudo-direct distribution channel. We have therefore avoided using the terms simple and simpler in our Ratings plumping instead for the term direct. Whole of life assurance Whole of life assurance remains a relatively small part of individual protection and the majority of whole of life sales are attributed to guaranteed acceptance plans marketed direct to the over 50s. In recent years the traditional unit linked product has disappeared and of the 15 underwritten whole of life assurance products that remain, only one of them is unit linked and that no longer accrues a maturity or surrender value. 11 products are non-profit and the remaining three are with-profit or low cost products. Whole of life assurance has the potential to become the new lifestyle protection product of choice. With people working longer and their protection needs extending into what was once the retirement phase, non-profit whole of life can be a suitable recommendation. As well as tax planning, it also has application in wealth preservation and wealth creation. It is an advised product and in our view presents an opportunity for advisers to differentiate themselves with the higher net worth sector and those clients looking for a true lifetime financial plan. In the direct space guaranteed acceptance whole of life has proved very successful. According to Defaqto s database, there are 29 products from 24 providers. However, there is a certain amount of white labelling in this market and there are just 13 underlying insurers. The majority of sales in this area are direct to consumer and there are just four products that are designed for advisers, however, some providers report that there is increasing interest in the product from advisers particularly as they explore light touch and simplified advice models for lower net worth clients. 5

6 Key implications for the 2015 Ratings process During the course of the last year we have launched Life Assurance Star Ratings for Level Term and Decreasing Term, and a Whole of Life Assurance Star Rating, all of which have utilised the existing product features methodology. Additionally, we have developed a Rating for direct life assurance based less on the product features and more on service and the ease of the customer journey. For this Rating it has been necessary to collect additional information about the propositions direct from the insurers/distributors. The Over 50s Plans Star Rating has focused on value for money and fairness. It is Defaqto s view that the move to simpler products marketed via direct distribution models will gain importance in the future and that this will also have an effect on the intermediary market to the end that insurance will be less about product in future and more about service and the client journey. In time all our Ratings may ultimately reflect this change and therefore become less features based and more proposition based. Whilst Session 1 of the 2014 Roundtables event will look at existing, established Ratings, Session 2 will take the form of a review of the new Star Ratings launched this year with an opportunity to discuss the criteria and the wider issues around the move to direct distribution. 6

7 Areas for discussion Based on the material in the preceding sections, the following will form the basis of our discussion at the forthcoming Roundtable event. Is the move towards simpler (direct) products a trend that will continue and will such products become the norm, while the intermediated sector becomes less significant? Specifically, what are the anticipated timescales for this move? Over 50s whole of life is tremendously successful. Will this market continue to grow and are there lessons to be learned for other protection products? Whole of life assurance was traditionally a tax planning product. With people having protection needs into later life and its application as a wealth preservation and wealth generation vehicle, does it now represent a way for advisers to differentiate themselves in the protection market, particularly in the face of the move to direct? 7

8 Appendix: Proposed 2015 criteria Based on the above analysis, we propose including the following criteria in our assessment process for the 2015 Ratings (core criteria are in bold text). Proposed criteria Life Assurance (Advised) Decreasing Term Underwriting Process Option to Vary Term Maximum Age at Expiry - Life Option to Vary Sum Assured Maximum Interest Rate Mortgage/Loan Maximum Increase Mortgage Guarantee Joint Life Separation Life Cover Rates Guaranteed Second Medical Opinion Reviewable Rates Claims Support Services Waiver of Premium Health and Wellbeing Services Default WOP Definition Term Illness Limit (months) Replacement Cover Proposed criteria Life Assurance (Advised) Level Term Underwriting Process Conversion Option Maximum Age at Expiry - Life Option to Vary Term Life Cover Rates Guaranteed Option to Vary Sum Assured Reviewable Rates Guaranteed Insurability Renewable Rates Second Medical Opinion Sum Assured Indexation Claims Support Services Waiver of Premium Health and Wellbeing Services Default WOP Definition Term Illness Limit (Months) Replacement Cover 8

9 Proposed criteria Life Assurance (Direct) AKG Financial Strength Grey Claims Panel Annual Statement Issued Immediate Claims Point of Sale Decision Given % Life Immediate Guaranteed Rates % Life 24 Hours Option to Vary Term NPS Acquisition Option to Vary Sum Assured Accessibility Option to Vary Sum Assured Online Application Assistance Free Cover During Underwriting Decision Tree Maximum Free Cover Period Calculator Helplines Available Online Changes Life Claims Paid % 2012 Trusts Flagged Net Promoter Score (Claims) Trust Guidance Given Emergency Claims Wills Flagged Average Life Claims (Days) Wills Signposted Typical Life Claims (Days) Proposed criteria Whole of Life Assurance AKG Financial Strength Option to Increase Sum Assured Limited Payment Term Option to Decrease Sum Assured Underwriting Process Option to Change Life Assurance Maximum Age Attained Guaranteed Insurability Maximum Sum Assured Guaranteed Premium Rates Sum Assured Indexation Reviewable Premium Rates Key Person Plan Available Critical Illness Option Partnership/Shareholder Claims Support Services Waiver of Premium Health and Wellbeing Services Option to Increase Premium Terminal Illness Option to Decrease Premium Proposed criteria Over 50s Life Assurance AKG Financial Strength Benefit Moratorium Period Online Terms and Conditions Premium Refund Basis Online Quotation Accidental Death Benefit Online Application Counselling Service 9

10 Maximum Age Attained Helpline Available Minimum Monthly Premium Sum Assured Age 50 20pm Premium Cessation Age Sum Assured Age 60 20pm Maximum Premium Guarantee Sum Assured Age 70 20pm Increasing Cover Sum Assured Age 80 20pm 10