For the past six months, I’ve been looking at how the insurance industry has been adapting to the new rules from the Financial Conduct Authority on price walking – the practice whereby insurers subsidise new home and car cover business by charging loyal customers a loyalty premium. In other words, the loyal subsidise newcomers.
The new rules, effective from the start of this year, are meant to eliminate price walking. I’m not convinced they’re biting as hard as they should be (regular readers of The Mail on Sunday will have seen my reports on the issue).
But what is obvious is that the home and car insurance markets have become heavily commoditised. Price is the overwhelming driver of business, be it new or renewal business. And in order to compete on price, insurers are increasingly hollowing out products.
There are segments of the insurance industry that seem to be resisting this temptation to compete on price and price alone.Cheaper cover, but less effective for consumers. And often cover that can only be bought online, and where any claims or queries must be made online – no cheery person on the end of a phone to help you.
All rather depressing. Yet there are segments of the insurance industry that seem to be resisting this temptation to compete on price and price alone. Protection insurance is a case in point.
Last week, I made a rare outing from my newspaper’s office in west London to acknowledge the 10th anniversary of CIExpert, a business that compares the cover of hundreds of critical illness policies, old and new.
The event, held in a rather trendy member’s club within spitting distance of Shoreditch, was well attended and it seemed everyone was having a marvellous time as the champagne flowed – I arrived late, one of my annoying traits – and corks popped with abundance.
I stood by the door as various people from the insurance industry said their bit about the value of CI cover. Not just at the point of claim but in terms of the related services that often come with such cover, for example, second medical opinions. And of course, cover for children.
But it was Alan Lakey’s speech that really caught my ear. Lakey, the co-driver behind CIExpert’s success along with Clive Mayne, eats and sleeps CI cover. What he doesn’t know about these policies can be put on the back of a postage stamp.
What Lakey and CIExpert have done is help revolutionise the way cover is recommended by financial advisers, and slowly but surely how companies construct their policies.
He has helped build an amazing computer system that is able to assess the quality of CI policies. It has been a labour of love and a wonderful addition to the protection insurance industry. It explains why the turnout at the Eight Club Moorgate was so splendid.
As a result of CIExpert, no longer do most financial advisers recommend policies on price, but on the quality of product.
It’s just a crying shame that protection insurance policy sales are being impacted by the difficult times we currently live in.It makes for better advice, and of course better outcomes. Claims get paid (more than 90 per cent), which is what a consumer is really buying when they take out a plan.
And when a claim is successfully paid, it is job well done for the financial adviser. Some 40 per cent of protection advisers now use CIExpert’s services.
And through Lakey’s promptings, better CI policies are being created all the time.
It’s just a crying shame that protection insurance policy sales are being impacted by the difficult times we currently live in.
According to the latest data from reinsurance giant Gen Re, sales of all protection plans in the first quarter of this year (income protection and term assurance as well as CI) were nearly 12 per cent down on the same quarter last year.
Yes, it’s a sign of financial uncertainty among many households up and down the country. But it’s also a reflection of the fact that protection insurance still remains an unsexy purchase.
Maybe it’s time for the industry to look at doing a 2022 version of the 2014 Seven Families campaign, which did much to raise consumer awareness of protection insurance. A quality idea, I say.
Jeff Prestridge is personal finance and wealth editor of the Mail on Sunday
