Edmund Tirbutt reports on the challenges facing brokers in 2011
The Retail Distribution Review (RDR), though far from being an overwhelming obsession within the private medical insurance (PMI) community, is the phrase currently foremost on most people’s lips on the protection side. Most commentators seem quietly confident that, because protection products sit outside the scope of RDR, it will attract more IFAs to deal in them. But opinions differ noticeably with regard to exactly how big a boost this is likely to provide and as to how permanent it will prove. Some intermediaries who also deal in investment business have also not entirely given up hope of a government U-turn.
Alan Lakey, senior partner at Highclere Financial Services, an IFA based in Hemel Hempstead in Hertfordshire, is also founder of Adviser Alliance, an IFA lobbying group that aims to restore balance in financial services. It has been trying to get across the message that the cost and impact of regulation shouldn’t have to be thrown at advisers when in the main they are not the ones responsible for malpractices. It argues that RDR is unfair on consumers, and therefore by definition on intermediaries, and the group has been instrumental in getting MPs to look at the matter – instigating two House of Commons debates.
Lakey says: “There are still two ways in which RDR could be scrapped. The government could simply realise that the downsides outweigh the upsides or it could allow it to go ahead but change its mind after five years after a number of things have become apparent. The current adviser population will have shrunk by 40% and there will be less purchasing of products as less people engage with advisers. But the intermediary landscape will undoubtedly change if RDR does go ahead.
“Health insurers will still retain commission and therefore some intermediaries who have clients who prefer to work on commission will focus more on protection. But it may increase health insurance business only in the short term simply because people who haven’t passed investment exams may try and diversify but they could then quite possibly go back to investment when they have eventually passed those exams. RDR will also speed up consolidation in the provider sector as a whole, which is very price driven, and we could end up with around five main protection providers, together with a spattering of niche players. This would therefore give the perception of the intermediary being less necessary.”
Not everyone agrees with Lakey’s forecast of a 40% reduction in the number of IFAs generally. Mark Noble, sales and marketing director at Aviva UK Health, feels the shrinkage will be more like 25% and Mike Farrell, head of protection sales at LV=, is talking more in terms of 10% to 15%. Nor do they feel that the positive knock-on effects to health insurance business will necessarily be temporary.