Protection group urges insurers to ditch loaded premiums

The Protection Distributors' Group, a group of members who want to work with insurers and intermediaries to deliver better consumer outcomes, has warned that too much consumer detriment is being caused by what one PDG member has called "unclear pricing".

Speaking to FT Adviser, PDG member Roy McLoughlin, who was a founding member of the Income Protection Taskforce and is associate director at Cavendish Ware, said: "The insurance industry is not being clear about the pricing of premiums.

"As advisers, we need to be upfront about what we are recommending and the commissions and value need to be justified, especially in the light of consumer duty.

The PDG would therefore like all loaded premiums to be abolished by the insurers who currently offer them.PDG statement

"We all need to be profitable to keep the industry doing what it does, but not all of us apply loaded premiums, and insurers must take steps to address poor practice."

McLoughlin added: "We have got to a good place where people are starting to understand the value of insurance. So what we do not want is for people to start losing their trust in the protection industry over a lack of clarity."

His comments came as the PDG issued a statement, urging all UK life and protection market firms to address three key concerns outlined by the Financial Conduct Authority: 

• Loaded Premiums
• Claims administration
• Non-advised tele-sales. 

In the statement, the PDG said it would be shortly writing to the chief executives of all the insurers with whom their members trade, to ask how they will "stop the consumer detriment" caused by those three concerns, as well as how they will ensure that vulnerable customers are properly supported.

The letter is expected to hit the CEOs' doormats within the new year, FT Adviser has learned.

The statement said: "To fulfil fair value obligations, insurers should offer a common premium to all intermediaries. If they wish to pay more commission to some, they should do so from their own profits, rather than allow some distributors to inflict loaded premium levels on unwitting customers, simply to earn more.

"Consistent with our purpose to improve what our market does for consumers, the PDG would therefore like all loaded premiums to be abolished by the insurers who currently offer them."

Response

Responding to the PDG's comments, Phil Jeynes, director of corporate strategy for Reassured, agreed that communication and transparency are essential for the customer, but said he thinks the debates are not as simple as just ditching "loaded premiums" or dismissing non-advised, telephony-based services. 

He also said the term "loaded premiums" has been outdated for some time. Insurers, like any other retailers, are at liberty to price differently depending on the market they’re selling in.

"This could be due to the cost to serve a market, including marketing costs and staffing requirements, quality of business as measured by persistency and claims experience or any other of a number of factors.

"On the other side, distributors are at liberty to ask for a level of commission which fairly represents their cost to serve the market; it is not in their gift to determine what effect that may have on pricing."

He added that, of course, they must work closely with insurers to be certain fair value to the consumer is achieved and that, in line with consumer duty, any additional commission is justifiable.

Distributors are at liberty to ask for a level of commission which fairly represents their cost to serve the market.Phil Jeynes, Reassured

Jeynes added: "As with all things, clarity and communication is key to customer understanding. People understand that, in all areas, products and prices differ and it isn’t unusual or unexpected for, say, digital purchases to offer savings versus face to face or telephony sales.

"Moreover, the advised/non-advised, telephony/non-telephony debate should be consigned to decades past and is a red herring.

"Modern insurers understand that within either camp there is high and low quality and varying degrees of customer outcome. This is where the focus should be, not on the method delivery."

Change to charter

The comments came after Lisa Sturley, Head of Market Interventions, Insurance Supervision at the FCA, gave a stirring keynote speech at a recent industry conference. 

At the conference, from the consumer protection title Cover, Sturley said there were areas where the protection market could be failing consumers and causing detriment.

She urged manufacturing insurers to “monitor your distribution channels…and ensure fair value”, asking: "How well do you know your distributors? Are they aligned to your principles?

"And what are they doing to maintain your reputation and the consumer duty that you have worked so hard to implement?” 

The time to assess claims has worsened.PDG statement

The PDG statement welcomed her comments, and added: "The PDG has long held the view that loaded premiums are unfair to consumers. 

"The PDG through our Claims Charter, which almost all insurers have signed, has sought to improve the way insurers help those most in need of it.

"While payout rates remain strong, our members have been highlighting that particularly since the pandemic, the time to assess claims has worsened leaving already vulnerable claimants in an even more vulnerable position."

As a result, the PDG announced that this charter will evolve next year to include an analysis of assessment times.

simoney.kyriakou@ft.com