Supporting Consumers: July Protection Forum Part 3
This is the third post in our series bringing you the great discussions from our July Protection Forum. In this sections, our attendees discussed the new FCA Consumer Duty, and how the protection community better support its consumers.
The question I’ve been asked by some large distribution groups is how long they have to get this to a different place without damaging their profitability.
Robert Sinclair:
And as part of that, I’m quite open about the fact that, a couple of the very senior managers in some very large distribution groups who might still have some form of multi-premiums/dual pricing available to them in the distribution world, have been having conversations with me in the last 10 days because of the fair value consultation together with this duty of care. And it’s not a question.
It’s a question of how long have we got to get this to a different place without materially damaging their profitability? That’s the challenge. How do I grow my business? At the same time as changing the income conundrum around this and make that sustainable. I understand all of that and that’s really important. And the more facetiously that I always like out of all of this is maybe somebody should ask Martin Lewis, how commission-hungry he is at Money Saving Expert still, because that would be something that as the consumer champion, he really should hang his head in shame on. That’s very political as far as I’m concerned.
It’s easy to say the aggregators are commission-hungry but they aren’t different from any other online self-service and the good ones have an advice firm behind them to help customers if they choose—do any insurers provide that choice?
Ian Sawyer:
I just wanted to bring perhaps a little bit of balance because I think it’s very easy to make the aggregators the pariah of the industry when and yes, they are commission-hungry, I can tell you that. But no more than other brokers, no more than large insurance companies desperate for market share who then design products not because– the aggregators don’t go to the insurers and then turn around and say, give us something which is cheap and nasty, it’s often the other way round.
The insurers come with a product. You could look at simplified offerings from several insurers. If you think of a perhaps a Key Three or something like that, which is the cheap version of critical illness meant to simplify. But does it really simplify? I think it complicates because we have so many different variations of critical illness. And so an aggregator is no different to any other online self-service process. So if you think about any insurer direct, they are selling a product without advice and you don’t know how it compares in value. If you look at Dead Happy, you have a product which is fundamentally different to other products and yet it is sold without advice to perhaps an uneducated audience.
It has dangers. Any self-serve has risk. And the other point I’d make is all the good aggregators also have an advice firm sat behind. So customers always have access to advice if they want it. So they have the choice to self-serve and they have the choice to advise. How many providers provide that choice?
There’s no point in trying to change the rules unless the senior people at the organisations actually adjust their value set.
Luke Ashworth:
Most of those who know me, know that I’ve been on an interesting sort of one-man battle on LinkedIn with regards to something that is blatantly, completely uncompliant. And it’s quite interesting because many on this call, if I was sat across a beer, would you want your mum, as Robert said, to see that? Would you want your people to see that? But none of you are speaking out because you either can’t or whatever– I understand everyone needs to earn their money.
And those of you on this call that are sort of senior members of the insurers that are part of this, you know, between you and me here, the tone in my voice just being pretty genuine as far as I’m concerned, you should hang your heads in shame because about 10 percent of the protection sales, I think I estimate, is being sold via that route at the moment in the UK, like one in ten and growing. And fundamentally, if the industry doesn’t change so that the things we’re talking about can be stopped even now, then what does this all achieve? Because ultimately, if those people are still going to be doing those things, all these rule changes are pretty pointless, really, because I think it may have been Stephen’s point, all that will happen is the good people keep trying to do better and the bad people employ some even better people that used to work for the FCA to get around some rules. And the industry will remain the same.
And fundamentally, I think Robert talked about pride as well. It’s all LinkedIn and all that… I’ve been so passionate about protection for so long. I am now not proud to work in protection anymore. People ask me what I do and I just say I run a software business because the amount of people that said to me, “oh, is that is that this stuff? Is that what life insurance is?” And I’m just fed up with trying to say, yeah, but that’s not me. So all I wanted to say towards the end was, there’s no point changing these rules and having these updates unless some of these senior people in the organisations genuinely start to drive with the right value set. If that doesn’t happen, we can’t just wait for a big enforcement team to change things.
Some of us did a draft annual statement some years back to show consumers everything in their policy and value-added services. To me, the primary responsibility of the statements does lie with the providers.
Emma Thomson:
Yes, I mean, there’s probably some of us on this call, Ian probably and definitely Roy, years ago we did put together and Ian is nodding profusely, an example annual statement, which we did draft to not just say, “this is the policy you’ve got,” but also to talk about, for example, the purpose of the policy and also to highlight any added value services that are involved in that so that it actually gave the client far more information about why they should keep those premiums being paid. And yet, we’re still at a point where John is saying, it’s just not happening and it’s absolutely true, it’s just not happening routinely across the board.
There are obviously insurers that do have annual statements. But one, just because there is an annual statement, could it be improved upon? Probably the answer is yes. And then there are some providers that don’t send one out at all. And one thing that does concern me when this does often get raised is that there are certain advisory firms that don’t want providers writing out to their clients, which is fine. If those advisors are in a very good place and they know that they’re going to be doing it themselves and they don’t see the need for the providers to do it.
But then for me, providers are sometimes using that as an excuse to not do something because they feel that advisers don’t want them to do it. Well, there’s so many voices that do need them to do it alongside the work that the advisers themselves might be doing. But we also must remember that clients do buy from advisers that can’t be bothered to do this. They also might have bought from a very good adviser who’s no longer working. So they’ve become an orphan client and then they’ve got a lot of clients who obviously buy policies like we’ve just been talking about through a means that doesn’t mean they’ve got an adviser.
So for me, the primary responsibility for statements does need to sit with the provider and they need to be going out directly from the provider with obviously the advisers supplementing that information as part of their ongoing support for their existing customers. So that’s just my thoughts on it.
My partner is currently trying to claim through her group IP policy and is having a very difficult time, I haven’t been on the receiving end of going through a claim and I’d really like to see the process improved.
Stephen Pickering:
We’ve got a situation at the moment where my partner is actually off work and has claimed through her group IP policy with UNAM and has had the claim declined. She’s got a colleague in the same situation slightly before. And we’re kind of aware already of how long it takes to get a claim initially assessed by them and also how long it takes to sort of challenge them because it’s got to go back to the employer to go through them because they’re technically the policyholder and is then obviously a lot of that, I think, hinges on how keen the employer is to help in terms of how long it took to assess the claim. They were very slow.
And from what I’ve read up on them and speaking to other people, that was a particular provider. Their record is pretty poor to paying claims. And I’m hoping that a lot of the individual providers we work with are a bit better. I’ve not really been in the group space an adviser before, but certainly just to Johnny’s point earlier on how quickly firms deal with that side of things is something I’d like to see improved. Just haven’t been on the receiving end of going through a claim or helping someone go through a claim at least. I don’t know if anyone else has any sort of experience in that sort of thing where providers take a long time to deal with claims.
I’ve spent my career telling people to take these out and now I’m seeing them have their claim declined for exactly what the policy is meant to do.
You know, when you’re in that position, as well as being the person who spends your career sort of advising people to take them out when you have a bad journey of going through one and basically seeing multiple people having their claim declined for something you told them “this is exactly what the policy is, there for,” kind of makes you think, well, what am I what am I doing here?
I worry more about private right of action.
Robert Sinclair:
Yeah, I think there’s an interesting risk here. And I think the pure issues around consumer duty, probably not as significant in that this duty is already effectively on the product rules, giving it in some areas and this consumer duty sits as part of the mortgage world already, actually. So it’s not new for some sectors, but it will be new for others. The way it being rules was the guidance does change the landscape a bit, but I don’t think that’s where the issue is. I worry more about the private right of action because that private right of action could end up in litigation and your insurer will have to cover that.
Now, we’ve been in a firestorm for the last four years of 5000 DSARs coming out of a couple of legal firms on interest-only cases. That has meant that the cost of professional indentations in the mortgage world has escalated significantly to the point where exclusions are significant. Now to defend an action in the courts on its own will cost about 100,000 pounds. So if you’ve not got an insurer behind you, you will fold and fail. And for an insurer to defend that, it’s a significant cost in comparison to annual premium that the firm is probably playing. If they lose that case, then they will have the penalty to pay, plus also the costs of the claimant, which would then be about another £100,000.
So this has significant risk if a private right of action comes in on all firms because they will have to carry PI cover to cover all of that. So I would ask in a voluntary position that we’ve already been for so many years and I accept all the criticisms there are of the ombudsman scheme in its current management and the FSCS in terms of the liabilities. I would always much rather be in those voluntary schemes where we have the FCA force, FOS and FSAs working together of the industry on a fair and balanced basis, as soon as we’re back to the courts, the cost of running those is so prohibitive that legal action is something that worries me to death.
So that’s how I feel about that. Having been at the sharp end of that for the last year in some intensity and that we’ve been running specialist groups to help firms defend these cases for the last 18 months.
There’s more that needs to be done at a firm level when it comes to helping clients make a claim—that’s part of the value proposition. It’s also taking insurers much too long to process cases right now. We need a compensation scheme that works fairly and sustainably. Enforcement that improves conduct is what’s going to produce long-term change, and insurers can no longer simply accept poor processes and fines as the cost of doing business.
Johnny Timpson:
I think we have to recognise that the minute you know that there’s more needs to be done, at firm level to improve claimed process. By the way, that includes advisers and non advisers as well. That’s part of the value proposition is helping your client make that claim. And some advisers do that really well right now. But maybe there’s more that we can hold to make sure that happens at firm level. But then, I think we as Stephen alluded to, I think the firms themselves, insurers need to step up, too. The equally, it’s taking far too long for FOS to get to process cases right now. And they’re that are already reducing headcount and and being restructured. But we need FOS to work. We need a compensation scheme to work fairly for everybody and be on a sustainable basis.
So, these are the things we need to fix. I think in terms of the the action itself, that’s borne through frustration I think of years of lots of talk about and lots of policy initiatives and regulation, not a great deal of effective enforcement. That needs to change. I think we need less regulation, but we need more enforcement that improves conduct for everybody. That’s, I think, what will bring about long-term improvements, because the truth of it is actually the cost of bringing action is such that it’s not going to be it won’t be normal consumers that will do that. This I think is really directed at big stuff.
And as I say, I think the frustration that a number of institutions basically seem to accept poor process and a level of complaint and the fines, that result as just a cost doing business– that’s no longer acceptable. It needs to be adjusted because frankly, the people who end up paying for it are the policyholders, are the shareholders and in mutuals are the members.
I think the regulator would be appalled to find out that annual statements weren’t being sent out by all insurers. Why is no one talking about inflation of protection and putting those effects on annual statements?
Roy McLoughlin:
Firstly, Robert, thank you very much. There’s a phrase you came out with which I think all the decent advisers, which is everyone knows called I’m sure will relate to, which is “only discuss a policy that you would sell to your family, friends, mum, et cetera, et cetera, and also explain in such a way that your mum, family, friends would understand.” And I think that’s something that many of us are taught years ago and it’s as relevant today as it ever was. Thanks for that.
But just quickly on annual statements, I suspect the regulator would be appalled if they found that the annual statements aren’t sent out by some of the insurance companies. Why is it I’m made to do it with my pension clients and ISA clients and yet we don’t do it on protection. But also, we’re missing the trick. The last few weeks has been dominated by people talking about inflation. Inflation’s all around us, everyone is talking about inflation to do with all sorts of different things. What about inflation of protection? And I think the trick we’re missing is that if we put the effects of inflation on these annual statements, that would get around that situation where there’s lots of people out there that have got 20 grand to have a CIC or 50 grand of a life or 500 pounds of IP, and they took the thing out donkey’s years ago.
And it’s just not relevant anymore, guys. And I think, you know, to insurers, my plea would be, please start publishing these things. The advisory community wants it. But also, if you point out the effects of inflation, like your counterparts do in pensions and ISAs and compound growth, etc, etc, actually you get more business out of this. And I think most of advisers would agree with that.
