LifeSearch, a UK protection intermediary, has warned against the poor industry selling practices of other distributors and the “laissez faire approach to the quality of distribution” by some product providers.
Speaking at its annual awards event in London, Tom Baigrie, CEO of the Baigrie Davies LifeSearch group, said: “At LifeSearch we fear that, with RDR approaching and premiums set to rise, our market may well attract many new start-ups, some of low quality.
“We also fear that provider eagerness for market share will accelerate the already endemic granting of agencies to dodgy distributors, who are allowed to flog great brands and good products awfully. A client ripped off by one of these will hate our industry forever, and so you must stop the laissez-faire approach to the quality of your distribution.”
Concerns over quality
Advisers have expressed concerns over the years that life offices grant agency terms to easily, without properly measuring the sales process and the quality of business being written.
While some providers have implemented more robust methods of doing so, it is claimed that others remain primarily interested in quantity over quality.
The FSA has also warned of what the regulator refers to as the “migration” of advisers and sellers who typically have not specialised in the protection field in particular, as protection remains outside of the Retail Distribution Review (RDR) which means commission also remains.
In a bid to rectify the situation, the firm is seeking feedback on a new code of conduct for protection sellers, which would in theory apply to all forms of distribution:
- Those selling critical illness cover must explain its limitations in line with the FSA’s requirements.
- Those who choose to highlight terminal illness benefit as a product feature must explicitly state its limitations and ensure it is not confused with CI cover.
- Those choosing to discuss total and permanent disability cover and income protection must explain the definition of disability on which the policy will pay out, such as, own occupation or activities of daily life.
- Those selling PPI/MMPI/ASU must make the standard exclusions clear to customers and must mention longer-term IP as a viable alternative at some point in the sales process whether they offer it or not
- Sellers must clearly state at the outset whether they provide regulated advice.
- All sellers must demonstrate they have properly provided for the repayment of indemnity commissions on lapsing policies.
The aim is to cover both non-advised and online sales too, without going so far as to create a whole new rulebook for advisers, and the advisory firm says its provisions can easily be met on websites, face to face or in telephone conversations, whether they are deemed by the FSA to be advised or not.
Baigrie added: “I hope to get insurers to agree that it is sensible to set minimum standards and that they ask all their agents to sign up to and honour in practice a final version. That is basic self-regulation and that is the very best way of avoiding the destruction the regulator has already inflicted elsewhere.
Or to put it simply, so long as we stop dodgy distributors from jumping on it, protection has a great future.”
Should insurance companies agree to implement the code, how it is monitored will be crucial to its success.
Most insurers already claim to have checks in place to monitor the quality of business being sold through individual distributors.
However, advisers are often keen to quote their own experiences of customers not always being treated brilliantly by competitors who just want to flog cheap cover with little regard for quality or suitability.
There is no doubt that the market has seen an increase in sellers of protection whose
model is based primarily on price, be it advised or non-advised.
Nevertheless, with prices set to rise at the end of the year due to gender neutrality and a
range of other changes (I-E, RDR etc) switching policies to save money could become a
thing of the past, which makes the timing interesting.
With the possible advent of simple protection products, driven by the regulator and likely to be sold without advice, perhaps now is the time for the industry to draw a line and agree a set of basic standards.
Protection Review was established to provide expert independent commentary on the
life and health protection markets