As the Health & Protection Individual and Business Protection Report 2024 confirmed, 2023 was a particularly difficult one for the sector with overall like-for-like new business and retention figures down.
However, the panel at the House of Lords roundtable in association with Royal London noted there were positive views from last year of reversing the trend and bringing new customers into the market, which have continued into 2024.
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Reassured director of corporate strategy Phil Jeynes was one who said the intermediary firm was very optimistic.
“Part of the reason for that is we’ve done a lot of research with our new customers in terms of where they’re coming from and why they’re entering the market,” he said.
“Over two thirds at present are telling us they don’t have any existing cover.
“That was quite surprising, but also reassuring because clearly there’s a bunch of people that are resonating with our marketing and coming in to the market for the first time, so that gives us huge cause for optimism.”
LifeSearch chief marketing officer Justin Harper agreed the market had been through challenging times but the firm had been building on interest in private medical insurance (PMI).
“We tend to work more with partners so we are seeing a greater degree of interest, particularly around health insurance,” he said.
“That’s where they may start that conversation or interest and we focus them into more protection.
“So we’re, positive and optimistic; people need protection that’s for sure.”
Soaring inflation squeezing household incomes and expenditure was perhaps the biggest reason for the drop off in protection sales in 2023, as noted by the whole panel.
As Royal London proposition specialist for protection Jennifer Gilchrist acknowledged, the falling inflation rates and rising pay had eased the situation for many.
“I think we are coming out of the cost-of-living crisis, people are feeling a bit more positive and things are looking a bit better,” she said.
“We’ve certainly seen that from our provider perspective as 2024 has seen things uptick again. So it’ll be interesting to see how that factors on through the rest of this year and into 2025.”
Consumer Duty letdown
However, there was also significant dissatisfaction with the story the data told and how advisers had responded to the situation, in particular the full implementation of the Financial Conduct Authority’s (FCA) Consumer Duty rules in July 2023.
It was envisaged this regime would not only encourage but force intermediaries to dedicate more time and energy to their clients’ protection needs, but this does not appear to be the case – much to the frustration of some attendees.
“For me the figures were really quite disappointing because we had Consumer Duty last year, which should have been a huge shake up to get advisers who weren’t talking regularly about protection to do so,” said Women in Protection chairperson Emma Thomson.
“Those numbers should have seen a really big increase given Consumer Duty was being implemented properly by the adviser community, but there are lots of advisers that, despite Consumer Duty, still aren’t having those conversations and they’re still not referring to specialists.
“So we have got a huge opportunity, but we’re massively missing a trick.
“Everyone keeps talking about how advisers must be talking and thinking about foreseeable harm for their customers and it’s just not happening.
“I don’t know how we fix it really, when you think Consumer Duty really should have been the thing that actually did make advisers change their behaviours and a lot of them haven’t.”
Working with the wealth community
It was noted that among a population of around 30,000 financial advisers and intermediaries, only around 5,000 were regularly writing protection business.
This meant the vast majority were likely doing nothing or perhaps just completing a few cases each year, and more than likely they would not have the experience for more detailed or complex solutions.
“So the question is, why aren’t they doing that, because they know they should,” enquired Future Proof founder David Mead.
“When you talk to wealth advisers, they generally know they should do more protection and want to, but executing that and taking it from one or two cases to doing it regularly is a different thing altogether.
“There’s a lot of pressure on the wealth community in terms of getting their house in order generally around reviews and such, there’s a lot of noise and distraction, and it’s also what’s on the client’s agenda, what has the adviser got time to get through? So it’s clearly a challenge and we’ve all got to help them.”
Protection Distributors Group chairman Neil McCarthy agreed, noting that the referral process had not really moved forward much in the last 20 years.
However, he was hopeful that by supporting wealth advisers to broach these conversations with the children of long-time clients they could help protect the next generation.
“It’s one of those things where if these young adults thought they could trust the adviser that their parents used, then I think there’s an obvious route to go,” he said.
“But there isn’t at the moment, just it’s online, which might be the right solution for them if they’re comfortable, but they don’t understand what they don’t know.
“So I think we’ll probably see more business written now in the critical illness and income protection market because the advisers that are having those conversations are better at it and are able to understand the value of critical illness and the value of income protection.”
Hanbury Wealth Management protection adviser Katy Davies also wondered if protection market complexity was harming adviser engagement, but she was hopeful that standards were improving.
“I’d like to think that people coming to the market are getting a higher standard of service because of Consumer Duty,” she said.
“And when they are having a conversation, it’s a stronger conversation and it’s more educated, because the conversations that were too vague and dismissive before, hopefully now are being improved.
“Is that good enough? We should be mentioning protection and actively ticking that box every time, and not just saying it’s not applicable.
“But then I wonder if, because advisers have thought that regulatory bar has been lifted, if it’s then possibly had a negative effect.”
Mortgage market chaos
Another reason for the protection market slump in 2023 was a significant downturn in the mortgage market.
The climbing interest rates used to combat rising inflation affected those people remortgaging from much lower rates, straining their spare income.
Meanwhile for those looking to buy, higher interest rates pushed up the cost of borrowing sharply almost overnight, either cutting their affordability for protection or even preventing them from purchasing property altogether.
All this then combined with increasing difficulty and time in completing and securing loans from lenders.
Vita is one protection advice firm that works with a significant number of mortgage advisers and broker firms.
Its director and co-owner Paul Reed agreed the data coincided a lot with considerable chaos in the mortgage market due to the high volatility of the base rate.
“We tend to see that a lot of new entrants into the protection space are mortgage-related clients,” he said.
“Where arguably you might have had something like 60% purchase clients and 40% remortgage, that swing has probably gone more like 70% remortgage and 30% purchase in the last couple of years.
“So arguably there’s less drive from some mortgage advisers to have that productive protection conversation because they might have written it a year or two before, and there’s not going to be huge amounts of changes in that customer situation.
“That could contribute to some of why the market might feel a little bit deflated, because there’s not those new entrants on the property market that warrant the protection running alongside it.”
However, there were also strong feelings that mortgage brokers should not be let off too easily from doing the best for their customers and have more frequent and better protection conversations.
Brokers can be better
As Nina Brown, protection adviser at Pam Brown Mortgages, explained: “I think the problem is that you’re talking about people who have worked in this industry for a long time, and they get set in their ways.
“Some people have been doing mortgages for the last ten or 15 years without selling protection, so to suddenly click your fingers and think that they’re going to sell protection, it doesn’t work unfortunately.”
Furthermore, Emergenzz Financial Services managing partner and CEO Sheun Oke argued that mortgage advisers should be prioritising different protection needs when they are talking to clients.
And she believes the protection market should be educating them to do this and simplifying the language it uses for brokers and consumers.
“The first conversation when you’re even considering a mortgage is the stability of the income, which means protection should come first,” she emphasised.
“I’m going to take on a large debt and because all my savings are now going to a deposit for the property, suddenly I have nothing to fall back on if something happens.
“So the education of mortgage advisers needs to come in and say, why don’t you safeguard where the income is coming from? Or why don’t you transfer the risk of not being able to pay the bank?”
Trust is critical
There was one further point which the panel agreed was stunting the growth of the market and engagement from other firms despite the demands of Consumer Duty – trust.
This was highlighted as one of the biggest barriers to referrals with advisers not trusting the protection intermediaries and insurers to look after their clients.
The proliferation of self-employed advisers working for some firms was also cited as a key concern, with some principals reluctant to enforce their rules and guidelines on these self-employed personnel, despite operating under their brands.
Ultimately, it was noted that the regulator may end-up telling many of these firms what to do, but in the meantime there is onus on the protection industry to make partnerships much easier.
“There’s no doubt about that word trust when you’re running referrals for others; it’s absolutely about trust and all we can do in their eyes is mess up the relationship,” said Future Proof’s Mead.
“That, frankly, is what it’s about, and it takes a long time to prove you’re not going to do that.
“In fact, you’ll enhance their relationship and if the claim comes in, they’ll be really grateful.”
Download the roundtable supplement for the discussion by following this link.
