Protection News May 2011
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Protection News
MAY 2011
Could Income Protection replace PPI?
Speaking at a conference in London market analyst Defaqto has said it believes short term income protection (STIP) products could become the replacement for payment protection insurance (PPI).
At the Protect trade body meeting, Ben Heffer, market analyst at Defaqto, revealed that insurers and distributors had jumped ship from most PPI products, with a growth in short term IP taking place.
"The point of sale prohibition for PPI could be an impetus to create a standalone market for these short term IP products, to cover not only payments but people's life expenses too."
In 2009 there were around 20 short term IP products available, and according to Defaqto, that number has already doubled, while at the same time the number of PPI products has reduced significantly.
Heffer also feels the ‘PPI’ brand is now so damaged that change is necessary.
"PPI is a toxic name, a toxic brand and we definitely need a new name for this. Short term IP appears to be where is this going, but unfortunately that probably confuses and blurs the lines between short term IP and long term IP.”
There has been a lack of innovation in the PPI market over the last year or so, which has probably been driven by growing concerns from distributors about the future of the product based on the Competition Commission ruling. Many distributors and probably providers alike have taken a ‘wait and see’ stance until legislation is finalised.
Compared to proper Income Protection PPI is often a very poor value for money product for most consumers. Guaranteed rates, fixed terms and conditions, own occupation cover, no automatic exclusions, claim payments until retirement and so on were, and still are, very strong arguments in the defence of IP over PPI.
So the opportunity for something that sits in the middle between PPI and long term IP is clearly the future.
Heffer also added a warning that the continued price cutting trend could harm the industry and its reputation with consumers.
"The down pressure on price should be a concern to all of us. If cheaper products mean poorer products, that's bad for the consumer."
More protection providers to develop online trust forms?
Protection intermediary LifeSearch has called for more protection providers to follow the example set by Friends Life and Ageas Protect in allowing life policies to be written in trust electronically.
Matt Morris, senior policy adviser at the firm, says it is vital that intermediaries discuss the benefits of writing a policy in trust with customers whenever it is relevant and argues that more providers should facilitate the process online to make it easier and quicker.
“The industry recognises that not enough consumers put their policies into trust, yet the process is cumbersome for the adviser,” he said. “At LifeSearch we’ve gone to the lengths of setting up a specialist team but most IFAs won’t be able to do this. We want to see all providers making the process easier with a quick and simple online system. Friends Life and Ageas do it so there’s no reason why the rest can’t.”
Online trust options can save both time and money for intermediaries as well as ensuring more policies are written under trust, which has various benefits for the consumer including speeding up the payment in the event of a claim and potentially avoiding unnecessary inheritance tax. More importantly, it’s often the right thing to do for many clients, including mortgage related protection.
Ageas recently saw a 60% increase in the number of policies written in trust through the new online facility after feedback from IFAs confirmed that many of them, as well as customers, are put off writing policies in trust because of the laborious and complex paperwork that is typically required.
Round up
• Aviva has developed a new short-term Income Protection policy aimed at competing in the PPI market
• A new specialist protection intermediary Life Cover for All has launched to help people with pre-existing medical conditions find cover
• Dame Carol Black has been confirmed as the after dinner speaker at this year’s Protection Review conference
• Friends Life total new business rose 52% in Q1 compared to a year earlier
• Cirencester friendly has increased both premium income and membership in the last year with the friendly society growing net earned premiums by 6.6% to £12.1m in 2010 with membership growing by 5%
• More than half a million people are claiming incapacity benefit (IB) or employment support allowance (ESA) for depression, according to figures released by the Government
• Royal London's members have approved the acquisition of Royal Liver's closed book of protection business
Kevin Carr is Chief Executive of Protection Review and MD of Kevin Carr Consulting
This column first appeared in Mortgage Introducer
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