Protection advice firm leaders are at odds over the Financial Conduct Authority’s (FCA) decision to exclude the protection sector from its Advice Guidance Boundary Review.
While LifeSearch CEO Debbie Kennedy (pictured) expressed disappointment at the exclusion and industry veteran Alan Lakey told Health & Protection it was obvious that buying direct leaves the client without protection from the ombudsman, Reassured’s Phil Jeynes called the debate over advice and non-advice “outdated”.
The FCA’s move was confirmed in its Advice Guidance Boundary Review – proposals for closing the advice gap policy paper last week.
Last year LifeSearch published a report in which it strongly criticised broker firms operating a non-advised human sales process as well as those insurers most supporting that process.
The report included independently conducted mystery shopping research and reinsurer data which LifeSearch believed evidences poor customer outcomes from the non-advised sales process and the damage they do to the long-term protection insurance (LTPI) market.
In the report, LifeSearch accused non-advice firms of being able to churn “good policies for worse ones if they are careful to make no specific recommendations”.
And only last month the FCA issued a stark warning to protection insurers about “poor selling practices” and slow restorative action and is demanding better due diligence of new advisers.
The regulator highlighted that commission structures were “a potential driver of poor outcomes” and told insurers to avoid “the unnecessary re-broking of policies”.
Millions could benefit
Responding to the FCA’s decision to exclude protection insurance from the scope of its Review, Debbie Kennedy, CEO at LifeSearch, said the firm was disappointed the regulator intends to exclude protection and private medical insurance from the review.
“Protection products are often long-term insurance contracts and act as the foundations for financial resilience and well-rounded financial planning,” Kennedy continued.
“We believe millions of workers could benefit from a more flexible and responsive adaptation of the current advice/non-advice conduct rules. Evidence indicates that even when people get help, too often they don’t understand what process they’re in, nor what that means for them.
“More work is needed to ensure the line between non-advice and advice is clear and customers know when they are only receiving limited guidance.
“Extending the boundary review to protection would help facilitate greater and wider access to much needed help and support and provide transparency for customers on the decisions they are making,” she added.
But Kennedy did point out that the regulator’s Consumer Duty was driving positive change throughout all sectors and participants in the protection distribution chain.
“Only recently, Lisa Sturley, head of market interventions, insurance supervision at the FCA, publicly indicated their interests in examining current practices of the lines between advice and non-advice,” Kennedy added.
“Rightly, the FCA is asking challenging questions about loaded premiums and support for vulnerable customers – when taking out protection and when making a claim.
“Insurers and intermediaries alike need to re-examine and evidence their positions and their processes, and how they are delivering good outcomes and fair value for all their protection customers.”
Obvious customers not being protected
Alan Lakey, director at CIExpert, maintained it must be “obvious” to anyone, including the FCA, that buying direct, whether from a comparison site or from a non-advised firm left the client without protection from the Financial Ombudsman Service (FOS).
“Plans should be written in trust and while there are not any precise figures available it is clear that the use of trusts is minimal,” Lakey continued.
“Comparison sites also offer dearer premiums than via an advised route, which goes against common-sense.
“Having said that, I am a firm believer that consumers have the right to make their own decisions even if the outcome is negative.
“One answer could be that all non-advised outlets must have clear warnings that consumers are not protected as no advice has been given.”
‘Outdated’ debate
But Phil Jeynes, director of corporate strategy at Reassured, called the advice/non-advice debate in protection “outdated” – with the majority of major insurers dealing with both sides of distribution.
“In reality, quality consumer outcomes are paramount for intermediaries and insurers regardless of the sales mechanism and poor outcomes can arise through poor advice just as easily as through the lack of it,” Jeynes continued.
“Consumer Duty focussed both distributors and insurers on the key metrics and processes which deliver strong customer outcomes.
“My view is the industry is in a very good place in this regard, with increased and productive collaboration between manufacturers and brokers – as we all seek to protect more people and ensure best practice.
“The fact that the regulator’s focus is elsewhere supports this and, while there is no place for complacency, should be seen as positive for our corner of financial services.”