Jeff PrestridgeFeb 20 2019

Defending client wealth

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Defending client wealth
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Let us be honest. Financial protection insurance is not a particularly sexy sell.

Speaking to many financial advisers, as I do on a regular basis, I get the distinct impression that on any given day they would rather be managing a client’s wealth on an online platform than arranging insurance cover for them.

In fact they would rather do anything – filling in yet more forms for the Financial Conduct Authority – than set up financial protection cover, which can often be time consuming and sometimes messy to arrange.

Of course, there are some such as Alan Lakey, director at Highclere Financial Services (and CIExpert), that thrive on it and have made a successful career from it.

Mr Lakey eats, sleeps and breathes financial protection; a living insurance encyclopaedia if ever there was one.

Given there is greater economic uncertainty in the air, you would think that more households would be minded to ensure they have protections in place if something upsets the apple cart.

I have yet to catch him out on an illness and whether it is covered or not by an insurance policy. I fear I never will. He is the insurance industry’s answer to Thunderbirds’ Brains.

Not far behind are Roger Edwards, marketing director at Protection Review; Johnny Timpson, financial protection specialist at Scottish Widows; and the marvellous crew that make up LifeSearch – a company that modestly bills itself as the country’s leading insurance provider. Drewberry and London & Country also do their bit to fly the protection insurance flag.

But these are the exceptions and not the norm. Most financial planners prefer to help clients build wealth rather than defend it. And even when in client defensive mode, it is usually more about protecting wealth from the taxman – now or beyond the grave.

There are also a whole array of other distracting issues to keep advisers away from protection – pension freedoms looming larger than most.

Yet, maybe, just maybe, the tide is beginning to turn a little. Although up-to-date statistics are desperately hard to find, sales of term assurance, whole of life, critical illness and income protection policies appear to be moving in the right direction, albeit from a low base.

According to Swiss Re’s definitive Term and Health Watch report issued last May, almost 2m financial protection policies were sold in 2017 – an increase of nearly 12 per cent on the year before.

Encouragingly, CI sales were up a fifth. Greater ‘customer-centricity’, more choice and greater product flexibility were all contributory factors.

It will be interesting to see what Swiss Re reveals about the market when it publishes its 2018 report in the spring.

Given there is greater economic uncertainty in the air, you would think that more households would be minded to ensure they have protections in place if something upsets the apple cart.

Conversely, you could argue that uncertainty causes households to batten down the hatches and spend less, even if that spending reduction results in a protection policy rather than a gym membership being abandoned.

In recent weeks, two developments in the financial protection market have particularly caught my eye. The first relates to the soft launch of a protection calculator by none other than the Association of British Insurers, a trade body not renowned for its consumer-facing work.

The idea of ‘Percy’ – please do not ask why it is called this – is to give people an idea of the income drop they would experience if they were unable to work due to long-term illness or serious injury.

In other words, it is a shock tactic, aimed at encouraging people either to save more or to consider IP insurance. To become more financially resilient.

It is effective. I put some numbers into Percy and I nearly had a heart attack.

I am not sure that would be in the best interest of the insurance industry (more claims to pay) – and the ABI has said Percy needs some refining in the months ahead – but at least it will get users thinking.

Give it a go at https://www.abi.org.uk/percy/ – the association has said that no data input will be stored. Maybe take a paracetamol beforehand.

The other significant development is Scottish Widows’ launch of three ‘plan and protect’ plans that will be available through the shrinking number of Halifax and Lloyds branches.

Simple plans backed by an undaunting brochure and a truncated key facts document – and very much aimed at the mortgage market: life only, life and CI cover, and CI only.

As you would expect, Scottish Widows says the products are the “first step” in its journey “to transform the protection market”. 

Of course, banks have a horrible record when it comes to selling financial products – mis-selling comes to mind – but Mr Lakey (AKA Mr Protection) believes this new product range could be a win-win-win.

A win for Lloyds and Halifax customers, a win for the bank and a boost to the protection market as more people are encouraged to step on the protection insurance ladder.

Let us hope Mr Lakey is right. Would it not be lovely if for once a bank sparked something good?

A booming protection market; a horrible protection insurance black hole no more.

Jeff Prestridge is personal finance editor of the Mail on Sunday