Treasury group proposes ‘simple’ life and IP products

Income Protection

Simple products task force reveals initial proposals

An industry group tasked by the Treasury to develop ‘simple’ financial products has today proposed that a life cover product should be one of the first three to be launched, with an income protection (IP) product the next priority.

The Simple Products Steering Group – led by former FSA director and Lloyds Banking Group chief risk officer Carol Sergeant – was set up by the Government in October 2011 with the purpose of developing simple products that will better enable consumers to navigate the financial services market.

In its initial recommendations published today, the group is proposing that the first three simple products to be launched should be: an easy access savings account, a 30-day notice savings account, and life cover.

In addition, it is inviting comment on a proposal for an IP product, which it says it would like to include in the suite “as soon as possible” given the “significant benefits to society” it sees in this type of offering being made available to consumers.

The group’s proposal for a life cover product is one which purely pays out a lump sum in the event of death – rather than having additional features such as terminal illness cover – and has uniform terms and conditions across all providers.

It is also recommended that the product has only one exclusion, that of suicide within the first 12 months of the policy.

For income protection, the group proposed a short-term product with a choice of one, three and five-year pay out periods.

It said premiums should be set at the outset and guaranteed for the life of the policy, and that consumers should be offered four deferred periods to choose from – but that the term ‘deferred period’ should be renamed to something similar to ‘excess period’.

The report says the aim is for simple products to be sold without advice, but it notes that regulated advisers could also be an important distribution channel.

The simple products debate has proved a lively point of discussion in the protection industry in recent months and years, with some arguing that simple products provide a huge opportunity to engage with consumers – particularly in the wake of the payment protection insurance scandal – but others raising concerns that a simple product could come to substitute the most suitable product for the consumer.

Marco Forato, chief marketing officer at Unum UK, said the insurer welcomes today’s proposals, but notes that it is not only product design, but communication too, which impacts on consumer understanding.

He said: "We welcome the review of simple financial products, as creating clarity and simplicity in the financial industry will be key to enabling consumers to make informed decisions about their protection needs.

“However, our research shows that it is not just the complexity of the products, but also the way in which these are communicated to consumers that creates confusion.”

Mark Hoban, financial secretary to the Treasury, said: “The Government is committed to putting the consumer back at the heart of the financial system, but we understand that restoring public trust in financial products is not an easy task at the moment.

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