Five key threats to your business… and what to do about them

The news from the recent Protection Review that almost 85% of industry commentators believe that the number of intermediaries selling protection will be lower in 2020 than today was the latest in a string of somewhat dispiriting reports from the frontline. From consumer surveys flagging up a lack of consumer engagement with products to the seemingly intractable protection gap, Health Insurance readers could be forgiven for taking to their bunkers. But are the oft-mentioned threats to the adviser channel really critical or can canny advisers protect and even grow their businesses in 2010?

The internet is the biggest threat of them all, according to IFA firm CBK Colchester’s Peter Chadborn, who points to the decline in motor insurance broking firms since the advent of online sales and the emergence of a younger generation for whom the internet is the default channel for transactions. However, he believes that there will “always” be a market for face to face protection advice, provided that advisers “make their services saleable” and accept that “people will want to jump on and off the advice train for different things”.

Roger Edwards, proposition director at Bright Grey (the life assurance provider which sells both through IFAs and online intermediary theidol.com)

“I would love everybody to be able to go to an IFA and get advice and get an absolute cast iron product fitted to their individual circumstances but we know that there aren’t enough IFAs to go round and even if there were there is always going to be a breed of consumer who is not going to go to an IFA.

“The generation in their 20s and early 30s have never known life without the internet and to them the natural route to purchase will be some sort of online engagement. Unless the advice process finds a way into that in future there are going to be a load who become excluded from advice because of the channel.

“Advisers need to think about what they are doing to justify their position as an adviser. Just focusing on price does not differentiate them from an internet site.”

Chadborn, whose firm writes 40% of protection business on a non-indemnity basis, believes that there is a “very obvious” link between remuneration and behaviour, and a danger that indemnity commission is seen as a reward rather than remuneration. CBK Colchester’s persistency rates are “very high”, according to Chadborn, who said the firm had only been able to gradually move in the direction of non-indemnity based commission because protection is only part its business.

“It’s de-risking for us,” he said. “Not just in terms of principles but also from a cash flow point of view. What is needed is a bit of foresight from advisers; to think of a way of building in more recurring income but also willingness from life offices to offer some alternatives.”

Alan Lakey of IFA firm Highclere Financial Services praised the service offered by income protection provider Cirencester Friendly, which allows advisers to choose how commission is broken-down. He also argued that linking commission to lapse rates – a model that the industry has considered – “could inhibit people from doing the correct thing and re-broking as appropriate.” There can be “very good” reasons for moving clients in the first few years of a term, he believes, for example, if providers entered the market or made product improvements.

Mick James, business development manager at Reinsurance Group of America (RGA)

“It is absolutely vital for life offices to get business to stay on their books in the early years (see box out); a lapse in the first year is an absolute disaster. I actually think that a lot of the market is strongly aligned here.

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