Protection  

Trading idealism for pragmatism

One of the problems that you have as a consultant is credibility if you are always telling people that to be successful you need to hire people who by coincidence are -.exactly like the very firm you represent. Anyway I think there is also an important consideration that unless you are actually involved in the nitty-gritty of the industry day to day you may become a bit impractical in your thinking.

But there is something else as well. Innovation does not sit easily with our regulatory/legal environment. Lawyers have far too much influence on the way we do things because the primary motivation of most companies is avoiding being sued rather than bringing new types of previously undreamed of customer value. Sadly while I would consider myself an ardent consumerist it has to be appreciated that the flipside of consumerism often becomes tightening of market practice because the compensation culture brings with it a degree of toxicity itself. I am sure I am not the only person who is heartily sick of being told they are entitled to significant amounts of compensation for being sold PPI despite the fact they have never been near a product. Eventually a potential solution seems as toxic as the original problem. But fear of reprisal stifles imagination.

We have to focus on the big problems that people face and the biggest problem I see around me is debt. I pointed out to someone the other day a rate of APR attached to a loan company’s advertisement. The rate shown was 2700 per cen a year. I am not sure if we think that displaying these obscene rates is sufficient to alert people to the problem of getting locked into a debt spiral that they can never recover from but I would like to see some serious attention paid by the people who regulate our financial affairs to this.

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The message for our industry is that we need to do what we can do to cover debts. Our existing products like income protection are generally too complicated. We should be focussing on covering regular outgoings rather than percentages of salary. Similarly outstanding liabilities are the priority for arranging life cover. If we can do this we can achieve the double whammy of ensuring that we tailor cover to the most essential expenses that we generate and also take care of the debts and overheads that keep us awake at night.

If we do this we can look at ways of reducing the amount of information we try to obtain and simplifying the application process significantly. I think this is the way ahead for simple products as the key is in making products easier to buy but I also think we need to think about behavioural economics as well.

I am far from an expert in this very important area of study but I would commend anyone who cares about the industry to think about behavioural economic concepts like prospect theory and heuristics in developing and more particularly, presenting protection products. If you consider I am getting into psychobabble and jargon I think you need to wise up to some of the debates that are going on about how to understand the way customers behave rather than trying to impose on them an idealised way of thinking that they can never buy into. This might be pragmatic but I also believe it is professional. It is about understanding why people make the buying decisions that they do and how we can give them the sort of options they can appreciate most readily. I do hope we can make this a major facet of what we do in 2013.