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Protection seems to be a taboo word of the industry at the moment.

As providers are at loggerheads over the future of income protection in the service versus price divide and the sector remains split in the simplification of the underwriting process, there is definitely more bubbling under the protection umbrella than meets the eye.

So, as advisers, providers and industry pundits gather at the Financial Adviser’s protection roundtable, the debate over why protection is in a Catch 22 situation and has been swept to one side continues.

For Andy Couchman, director of financial services consultancy Bank-

house Communications, protection has almost become unfashionable, and is least of all, not sexy.

He said: “When I started in this industry 30 years ago it was one that was essentially just a life insurance industry. We have moved on and become much more sophisticated and become financial advisers. The downside to that is that there has been a move away from protection, as it is not seen as a ‘sexy’ product, such as investments and pensions.”

Mr Couchman pointed out that the industry as a whole has not helped its situation, by making it much harder to sell protection business, where products are very complex so it is not easy for customers to buy.

He said: “The whole impression of the industry is that it does not want to do business other than with people it wants to do business with. To counter that is the short-term issue, where we are now possibly going into a recession, where we are seeing a very difficult time in the mortgage market. What is happening in the economy is the big driver, as we sit here today.”

Kevin Carr, outgoing head of protection strategy for LifeSearch, said: “Indeed it is not particularly exciting and the industry has an issue with trust. Any insurance industry needs claims to be paid, and that is where our industry struggles as there are not enough claims. We have made the process too daunting, and 30-page application forms do not help the process.

“Also, sadly we do not engage with the government, in that the protection gap is fundamentally more important than savings gap, whether it be for its own good and the good of the economy. It seems that protection is not profitable for business these days.”

But is it all doom and gloom? Apparently not, continued Mr Carr as he said: “Lifesearch has seen the income protection sector go up in the last couple of weeks, in spite of everything that is going on in the economy. About one in four people has got income protection – that is not brilliant, but it is not disastrous either.”

In getting down to business, David Barnett, principal for DPB Independent Financial Services, felt that protection had been too intellectualised and that this is one of the factors fuelling the the service versus price debate.

Mr Barnett said: “The products that are available, there really is nothing wrong with them. It is a question of who is interested and concerned enough about doing something about life insurance. As far as the process is concerned, it is miles too long. One of the innovations is tele-underwriting and it is a great idea to help IFAs and insurance companies.”

Mr Barnett went on to criticise the FSA, by saying it was doing everything it could not to promote independent advice. He said: “It is about time that the FSA got off the fence and started promoting independent advice and making it easier for IFAs to do their job, than it does at the moment.”

Here, the question of whether protection should be advised on was one which many providers insisted on and which needed intervention.

Max Blackburn, mortgage adviser and property finance specialist for 20Twenty Independent, backed this notion. He said: “For example, in France, if you want a mortgage, the government insists that you have life insurance with it. No life insurance, no mortgage.

“A few years ago, life insurance was pretty much compulsory when taking out certain mortgages, as most providers insisted on an endowment or a decrease term assurance that was assignable. No cover equalled no mortgage. What it comes down to is a risk-reward balance.”

Dennis Smith, head of insurance propositions for HSBC, felt there had been a trend to promote a competitive drive to reduce prices.

He said: “From a provider’s perspective, we have focused on the right sector, but have made it very difficult to do business with the mass market of our customer base.

“Compared to 10 to 15 years ago, there have been massive reductions in premium rates. Product providers as a whole have tended to compete on price, they have driven the price of insurance down. The reality of the situation is, product providers have tended to concentrate on the product features rather than the benefits they offer.”

For Shanti Duggal, operations director for Fortis Life UK, however, the crisis over the price is driven by the distribution side.

He said: “If you look at the sales process, as soon as you start to get comparison quotes, the only mechanism you have is the price. The price has been going down and the process complexity has crept in. As long as the sales process relies on the comparison then there will be lower prices from the providers and more and more complex processing. That is governing the providers. If you want to get out of this circle, you have to get away from the comparison price.”

Meanwhile, Vijay Desai, director for PSD Financial Services, believes it is down to the advisers’ and providers’ judgement over whether to pitch for price. He said: “What it comes down to, is that different companies are targeting their products at different age groups.

“The judgement of us in the industry is to select companies not just on the price, but where it will be more effective on individual clients. It is a pure commoditisation, but it is a professional judgement.”

With all this talk over increased costs in exchange for simplicity, Andrew Oliver, director of IFA Andrew Oliver, believed that the industry had become obsessed with price.

Mr Oliver said: “Even the worst life insurance policies are better than none, as no protection at all is the worst. The industry has a part to play, even with 20 years’ regulation, we are still producing products the client cannot understand where wording is not clear.

“The industry as a whole has a responsibility, we are still tripping up over the same things and revisiting the same issues. I think it is a product that should receive advice.”

Moving on, the roundtable asked the question: If people cannot save, how can they be encouraged to get protection?

Mr Oliver believes that with all the anxiety of recession, it was expected that the floodgates would open with people buying unemployment and sickness cover – but it is just not happening.

Mr Carr noted that the more the FTSE falls, the more protection sales rise, so it is an inverse relationship.

To combat this, he felt that it was all about ‘informed’ consumer choice through an adviser. He said: “Most banks and most internet sites do not tell people the whole truth. If they are not making an informed choice it is about mis-buying, not mis-selling. It is deliberate mis-buying.

“It does not matter who buys it, people will make a far better purchase if they are given advice. With our two research reports we have found that six in every 10 protection policies are now sold on a non-advice basis. So the non-advice market is not small, it dominates the market.”

Mr Couchman believed this was true and backed this sentiment. He said: “Advertisements are targeting people at low-cost, low-sum assured, underwriting and people are buying it.”

Jas Phugura, independent wealth manager for HSBC, believes that the consumer does not appreciate the art of advice or how protection is written and is one of the reasons why the non-advice market is thriving at the moment.

Mr Desai, put more emphasis on the reliance of the welfare state, where people are becoming more dependent on its existing benefits.

He said: “Perhaps the problem is that you have a generation which is maturing which knows nothing else but the welfare state. As long as we have a welfare state, there is less incentive for a mass of people taking any responsibility.

“If something goes wrong, there is always the state to look after you and perhaps that has some bearing on the attitude of the consumer for protection products. Those who want to keep their lifestyle may have a desire to buy protection products, but for others, they do not see the need.”

So as the consumer is the obvious centre of focus, Nick Kirwan, assistant director health and protection for the Association of British Insurers, is seeking to find out how to address the public, particularly in the light of the changing economic climate.

He said: “How do we persuade consumers not to cancel policies they have got, especially with the rising prices of fuel and food. It seems to me that we will be facing a challenging 12 to 18 months, not just in selling, but in keeping those with existing policies.”

However, it is not just reaching out to new consumers, the problem also lies in keeping current protection customers.

Mr Kirwan pointed out that the decision ultimately lies with the individual. He said: “Customers very rarely ring up directly or their adviser to cancel. They may have made that decision earlier and by the time you pick up that missed payment months later – when it comes through the internal system – they have made up their minds. It is about getting the message across that protection is important to keep.”

For Mr Oliver, this should be pointed out in the contract to benefit both the adviser and the consumer. He said: “If they cancel direct debit, the broker should be notified to see if this is cover they can do without or have adjusted.

“It gives us the opportunity to write to the client and see if it is a good time to have a meeting. Sometimes it involves reselling the benefits or seeing whether they need anything else.”

As advisers remain in a flap over swotting up, costing up and figuring out what is best for the consumer in the pending retail distribution review, Clive Waller, chairman of Investment Net-Work, thinks the protection industry has been given the cold shoulder. He said: “The RDR has ignored protection like it does not exist and unless we address the distribution issue, we are sunk.”

Mr Barnett added: “Why is it that the regulator has complicated things that are so simple and straight forward? It has been intellectualised and the people who we are trying to attract are not intellectually capable of being able to go for the guidance.

“You cannot do all things for all people and there will be a sway of the population who do not think they need advice. There will always be a section of the population who will be a burden on the state. In spite of regulation, we should still try to close the gap for them on their behalf.”

However, Mr Kirwan remains optimistic. He said: “I think guidelines will make a difference and there has been more positive perceptions, but it will take a long time to change.”

But by looking to close in on the protection margin, the root of the problem that needs to be resolved is the industry’s obsession with price, according to Mr Oliver. He said: “Before the regulators got obsessed with price and charges, a lot of the people who have not got protection now would have done. It is easy to make assumptions about what somebody can afford.

“This obsession with price and cost and charges is the root cause of the protection gap. It is regulation that has caused this.”

However, Mr Couchman believes the solution was down to innovation. He said: “We have to look at innovative ways to mind the gap. The only way we can get out of the gap is innovation and by having an environment that encourages rather than discourages. One of the sad things that has come about in the last few years is that price has become more important.

“One of the issues is whether we reward – or run away – from innovation. We need to see how to create an environment that goes towards rewarding innovation.”

However, Mr Kirwan believes that the fault lay with distribution and consumer awareness.

He said: “New product launches are very welcome, but I do not think the protection gap is anything to do with innovation. I think it is all about distribution and consumer awareness. We have to have distribution mechanism, there just are not enough people in this chain to raise its profile.”

Mr Carr pointed out that if there was a measurement of perfection, there will always be a gap.

Harvey Knight, head of financial services regulation for City law firm Bevan Brittan, and a former FSA lawyer, stated there was also the issue of financial capability that has come into play.

He said: “Is there not an issue here about how are you going to reach out to those people who are not willing to pay fees or commission? The best form of advice is through IFAs and I am sure that is right, but there is an issue about distribution, of can you meet that challenge?

“Yes there is a safety net, but do you realise how low it is. There is only a basic minimum and that is a challenge for the industry. Rather than focus on the regulator, it is about pointing out the issue of financial capability.”

With the competition of cheaper but more complex products against expensive but simpler ones there seems to be a Catch 22 situation. The panic over price versus service is one that has been marked for its pros and cons on each side. Call it an obsession, said one adviser – and that is exactly what it seems to be.

Deciding what price tag to put on quality is a consistent worry, and whether to place five or 50 questions in the underwriting stage is another.

In addition, while the current turbulent economic market has apparently had no effect on increasing the spotlight on protection, and with the challenge for the industry to keep those with existing policies, whether protection is sexy or not, it continues to draw attention from all corners of the financial circuit.

Girlie Garduce is a features writer for Financial Adviser

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The Panel:

Kevin Carr, former(?) head of protection strategy at Lifesearch.

Andy Couchman, director for Bankhouse Communications Ltd.

Nick Kirwan, assistant director health and protection for the ABI.

Clive Waller, chairman for the Investment Network.

Dennis Smith, head of insurance propositions for HSBC.

The Roundtable:

Shanti Duggal, operations director, for Fortis Life UK.

Vijay Desai, director for PSD Financial Services.

Max Blackburn, mortgage adviser and property finance specialist for 20Twenty Independent Ltd.

Andrew Zamorski, director for HPZ.

David Goldring, financial adviser and mortgage specialist, for CBW Financial Planning.

Daniel Sharpe, sales and marketing manager for the Insurance Surgery Ltd.

David Barnett, principal for DPB Independent Financial Services.

Don Green, principal for Aark Green Financial Planning.

David Bryce, product manager for Bright Grey.

Andrew Gething, managing director for Morgan Ash.

Jas Phugura, independent wealth manager for HSBC.

Andrew Oliver, director for IFA Andrew Oliver and Co Ltd.

Harvey Knight, head of financial services regulation for Bevan Brittan.