This discussion took place before the Financial Conduct Authority published its critical review of how insurers are managing the life claims process.
Health & Protection’s latest Individual & Business Protection Report found almost all insurers paid 97% or more of their life insurance claims, with several paying in excess of this.
However ensuring the funds avoid going through the probate process, which can cause significant delays and stress in a crucial period for bereaved families, is still a key concern.
Trusts or other processes can avoid this risk but these are under-utilised.
For the first time the Health & Protection report asked insurers about their policies using trusts or other processes, and the results provoked a strong reaction from the panel at the House of Lords roundtable in association with Royal London.
Shocking figures
“One of the biggest statistics that shocked me in this report was how little life insurance was actually put into trust,” exclaimed Emergenzz Financial Services managing partner and CEO Sheun Oke.
“Because I don’t understand why you why you wouldn’t put it in a trust? It’s free and from most providers takes 2.5 seconds and it’s done.”
Hanbury Wealth Management protection adviser Katy Davies agreed the results, which showed in general only between a third and a fifth of in-force policies had been put into trust or similar arrangement, were “shocking”, although there were more positive results based on 2023 figures.
Guardian was the one insurer to stand out with 75% of policies in an arrangement and its online system drew credit from the panel.
“That system is definitely making it easy to do, because requiring paper trusts is such a sticking point,” Davies continued.
“I had a weird game with one insurer recently where they wanted one version of the form and then a different version of the form, then another version, and it felt like they were winding me up.”
Do it ourselves
There was understanding from the panel that insurers needed to be legally compliant around trusts, but also a frustration that the process was so seemingly needlessly complicated.
And with a general acceptance that a better trust process was unlikely to be a real competitive advantage, attendees appealed to the Association of British Insurers (ABI) to bring its members together and agree a common approach.
The beneficiary nomination process introduced by some insurers was widely welcomed and the effects of simplifying the process can be shown through the report.
Reassured director of corporate strategy Phil Jeynes revealed the firm had been so exasperated by the various trust processes across the insurer body that it had developed its own trust document and process.
“Every insurer’s legal department has a different view on how trusts have to be done; post-sale pre-sale, paper form, online signature, wet signature and so on, so we built our own,” Jeynes said.
“It’s digital, it’s signature free, it doesn’t need to be printed at all, it can be done pre-sale or post-sale at any point and every major insurer we work with has signed it off and said that trust works.
“Uptake is up by 33% because it’s simple to do and because our agents don’t have to spend another half hour on the phone to the customer and then worry about whether it’s going to get left on the mantelpiece for a week.”
Adviser responsibilities
But it was also emphasised that the responsibility was not solely down to insurers, with the panel agreeing that some advisers needed to take greater responsibility for the process too.
Some on the panel noted they had heard advisers saying they did not consider implementing trusts or other arrangements as they were not paid to do them or that it was too much hassle.
And Vita director and co-owner Paul Reed stressed that advisers should ensure they have the trustee information before beginning the application process.
“Too many firms just take the approach of ‘we’ll just tag it onto the end’, well that doesn’t particularly help because the horse has bolted to some extent,” he said.
“The customer has already gone through the application, they’ve got the cover they require and they almost feel like their being sold to again, rather than understanding the trust is for their benefit.
“They feel they’ve got what they came for so, if you can eek that part of the conversation back in the process a little bit its really helpful.”
Women in Protection chairperson Emma Thomson also highlighted that lots of clients do not go through the advice process so they are unlikely to even understand the importance of trusts.
“I was on an aggregator site recently and they do have a little bit of a blurb about trusts, but there’s no call to action as to why a trust is important,” she said.
“It felt like a tick-box exercise and so most customers who would go through that non-advised journey would never, ever put their policy in trust.
“Which is why for me, beneficiary nomination would absolutely be serving those customers really well because it’s then part of the application and they just do it then.
“So for those insurers that are on aggregator sites or have got a direct to consumer offering, they really should be adopting beneficiary nomination because those customers are missing out.”
Benefits of beneficiary nomination
Royal London was one such provider which has a beneficiary nomination process and as it declared in the report, this is pushing up the take-up.
Indeed for new policies taken in 2023 a total of 37% enacted either a trust or beneficiary nomination.
“We have got quite high uptake, more than 25% on beneficiary nomination, which is in the application form,” said Royal London proposition specialist for protection Jennifer Gilchrist (pictured).
“So you do put it in front of a client as an adviser as you’re taking your client through the application form.
“It probably could be made simpler, but it is actually working and we get some really good feedback. We’ve also tried to put all the trusts online as well and simplify those, and that work is ongoing.”
And Gilchrist added that there was more to do in this area to help address the back book of existing customers.
“Because we’re doing more new business-wise, we’re having many more advisers getting in touch and talking about their existing customers and how they can change existing policies and add trust on their own,” she continued.
“So it is a really big area where we’re seeing lots of communication from advisers that is making us ask what do we do now to simplify that,” she concluded.
Download the roundtable supplement for the discussion by following this link.