The very essence of advice is that you sit down with a client, talk to them face-to-face and hold their hand through some of the most important decisions of their lives: buying a house, writing a will, saving for children’s educations, saving and investing to fund their retirements.
Protecting the financial integrity of each of those decisions is critically important.
But most advisers would agree that the client’s motivation to buy term life assurance, income protection or critical illness cover is lower than to buy their dream home or cruise when they retire.
For that reason the old adage, protection is sold, not bought, has stood at the centre of the protection debate for years.
It is also the reason for that tension – if you have to sell protection, how can you possibly do that without looking the client in the eye and having a frank discussion about the worst that could happen?
A list of homogenised life cover products ranked by monthly premium cannot, many would argue, cut the mustard when planning for inheritance tax bills, or expected costs of winding up a business.
Yet in late May, FCA chief executive Martin Wheatley threw down a gauntlet to the advice community.
He revealed the regulator believes advisers are failing to engage with technology as innovatively or effectively as they might, and for that reason the FCA plans to launch a consultation later this summer to work out why there is a technology gap and how to fill it with “automated advice”.
How do advisers already use technology?
Katie McMahon, Chartered financial planner and financial product manager at YourWealth, is convinced technology will play a bigger and “vital role” in protection advice and guidance in the near future.
She says: “You need to understand your whole financial picture before you can understand what type of protection product you need and also what level of cover.
“Technology can help people to better visualise the impact of their decisions in partnership with their advisers.”
But she warns, until the FCA draws a more definitive line between guidance and advice, putting this into practice will be hard.
Currently, most customers use price comparison websites to search for cover and compare based on price – and according to Ms McMahon, the number of people then buying is steadily increasing.
She says: “The problem is the rise of price driven comparison services has laid out the temptation to consumers to take out an insurance policy based on price alone and can encourage people to forget about the all important details. Advice can be vital to getting the right level and type of protection for clients’ needs.”
She believes the market needs innovation to develop technology tools that help people understand the complexity of the various products on the market.
But Tom Conner, director at Drewberry Insurance, says this is already available – the problem is that underlying product complexity is a barrier to clients’ direct use of tools.
“To be able to provide decent, well-rounded protection advice any tool would probably have a list of around 100 questions for the client to complete,” he says.
“Who’s going to fill that form out? And even if people were willing to do so, are we able to accurately model someone’s circumstances and match them to a set of products and insurers with any degree of consistent accuracy?”
His view is that technology can help to build an initial level of engagement through providing prices or basic guidance but the ultimate transaction still needs to be executed by people.
Where are the gaps?
Alan Lakey, director of Hertfordshire-based Highclere Financial Services, has identified two key areas where technology could help advisers serve clients better: the time-saving capacity for technology to remove mundane or otherwise time-consuming tasks; and, the ability of insurers’ systems to speed up the application stage – most importantly the interaction with GP surgeries.
He says: “Technology can assist with streamlining all the separate processes however what it cannot do is persuade an apathetic or disinterested majority from protecting themselves and their families.”
Many insurers have already gone to some lengths to try to address just such problems for advisers.
Mike Farrell, head of protection sales at LV=, is of the view that technology shouldn’t replace advice, but “enhance it”.
He says: “Innovation in underwriting has improved providers’ processing rates meaning that a greater number of clients are being put on risk more quickly, reducing the number of clients lost during the application process.
“Along with improving the application process providers are creating online tools to help support advisers demonstrate the need for protection to their clients.”
However Martin Werth, chief executive of protection technology specialist UnderwriteMe, says there is much further to go with the protection industry still failing to “find its digital voice”.
He adds: “Advisers are still expected to contact individual insurers to get more realistic pricing information and familiarise themselves with the many different insurer application processes, which is not a rewarding experience.
“It is not a surprise therefore that new business has almost halved in a decade.
“That said, we expect the digital future to have a single buying process that seamlessly connects the adviser or consumer to the underwriting engines of all insurers, to show personalised comparisons, including ‘buy now’ prices, product features, exclusions and completion speed, with no loss of insurer control.
“Digital has transformed almost every part of our lives, it is inconceivable it won’t happen in protection.”
Kevin Carr, chief executive of professional body the Protection Review, says the technology gap has partly been driven by the onslaught of other regulatory priorities given to providers, adding: “When it comes to technology it is a case of when, rather than if.
“The UK protection industry has so far been slow to implement new technology but insurers always seem to have something to keep them busy including RDR, Solvency II, Mifid, gender neutrality and more.
“At the same time this is a market where sales are falling and in truth I’m not sure if anyone really knows exactly how and where to invest to reverse the trend. There are lots of good ideas, in particular around underwriting, but they require significant investment.”
Phil Jeynes, head of account development at PruProtect, says if the industry is to solve any of these problems, it must stop trying to divorce online buying and technology from advice.
He adds: “Most other sectors have long since accepted that many clients prefer to deal with some aspects of the sourcing and buying process online, but with the option to talk to someone or see them face to face should they need it.
“Successful IFAs already work in this way; offering their customers a variety of ways to interact with them to suit their needs. Face to face versus online or telephonic really is a debate from the last century.”
