Relax red tape to encourage insurance innovation: providers

This is according to Ron Wheatcroft, technical manager for Swiss Re. Providers such as Swiss Re and Cirencester Friendly have called for the FCA to enable more protection products, which might otherwise be written under the investment rules, to be offered by all protection advisers.

Mr Wheatcroft considered this particularly important in the light of the pension freedoms and the incoming Care Act.

He said: “Regulation needs to draw a clear distinction betwen a person going into care, maybe using single-premium investment bonds or immediate-needs annuities, and somebody thinking about pre-funding the cost of a potential care need, perhaps in their 40s or 50s.

“People may want a form of income protection policy that could be extended on retirement into a later life or critical illness policy, but at the moment such a product might get caught by the rules. I would like to see the rules relaxed, as the same issues about vulnerable customers going into care do not apply.”

Holloway policies, sold by some friendly societies, provide income protection insurance for low-income workers and have a small investment element. They are exempt from the RDR, despite some being comparable to with profits savings plans.

This means insurance brokers do not need to be level 4 qualified to sell them, or adhere to the RDR’s commission ban on investment products.

A similar carve-out could be created for new product development, Mr Wheatcroft said, adding: “In terms of having a broader proposition, it would be sensible to have a consultation process on this with the FCA ahead of the new funding rules in April 2016.”

Paul Hudson, chief executive of Cirencester Friendly, said regulation needed to be adequate to protect consumers but not so restrictive as to dissuade people from buying financial products.

He said: “When I started working in financial services in 1974, regulation was not as complex or comprehensive as it is now. The problem with regulation is that it is designed to protect the consumer against bad practice and bad companies, but does little for those who always seek to do right by their customers.”

However, he added: “I would not lay all the blame at the feet of the regulator in terms of product innovation, but I do think regulation needs to recognise the consumer in the process. I believe that the regulator is beginning to understand this better than it had previously.”

At the time of going to press, the FCA was unable to comment.

Adviser view

John Stewart, director at Essex-based PMI Independent Financial Advisers, said: “The wider the market and the more people offering diverse products, the better. But whether there is a market for such insurance-based products for people with very small pension pots, I am not sure.

“If there are simple, insurance-based products available, I have no problem with insurance brokers who are not level 4 qualified selling these.”

Email: simoney.kyriakou@ft.com