In a somewhat turbulent year for the protection market as a whole, VitalityLife managing director Justin Taurog is content with how the business has performed in a difficult economic environment and is optimistic for the near future.
However, he recognises there are challenges for the sector ahead and the insurer has taken action on advice firms which have not met its demands and those of regulators.
And while additional services are increasingly common in insurer propositions and valuable for identifying wider health issues, he does not believe they have taken over protection’s key utility yet.
In business activity terms the protection market over the last 18 months has been dominated by a greater desire from people to protect themselves and their families in the wake of the pandemic and competing pressure from the cost of living and inflation crisis.
“From our point of view, our business volumes are holding up very robustly,” Taurog (pictured) tells Health & Protection.
“You can see the value customers are seeing in protecting their families and there definitely has been some boost to the industry off the back of this.
“And what we see which is really very compelling, is despite the pressures with inflation, where clearly you would expect people to be looking at where can they save money, our persistency is as good as it’s ever been, our lapse rates are very low.
“As an industry I think there’s definitely a demand from consumers and a desire to keep cover in place, which is a positive.”
When looking forward Taurog is generally optimistic, believing the value people hold on protecting themselves and their family from the last four years will continue.
He acknowledges there are some pressures coming, particularly now with interest rates rising and impacting affordability in the mortgage market, but there should be more to drive growth.
“For protection I still think it should be a positive, just the coming together of Consumer Duty and consumer recognition of the value that we’re not immortal,” he adds.
Work with brokers on Consumer Duty
That introduction of the Consumer Duty and other wider regulatory intervention has been one of the biggest elements affecting the dynamics of the market over the last year.
The new regime going live in July prompted significant work by advisers and insurers alike to meet the deadline and the ongoing demands to continue meeting its requirements.
“I think it’s a brilliant thing, and I do think the industry has had a massive focus on consumers over the years,” Taurog says.
For its part, Taurog notes the key focus at VitalityLife was mostly around clarity of consumer communications and ensuring clear consumer understanding.
“We haven’t found much that has caused any issue there,” he continues.
“We also did a lot of work with advisers around driving engagement and identifying opportunities for them to help grow their business.”
Much of that dialogue has been with mortgage brokers on helping them understand the increasing importance of making sure customers are aware of the need to protect their mortgage payments.
“A lot of work we’ve been doing with advisers is just highlighting from a Consumer Duty perspective, is their business set up to help identify needs, identify protection gaps,” Taurog adds.
“I think that will be a positive from the Consumer Duty; rather than being a transactional cell, the consumer is now becoming the key element with advisers.”
Reducing loaded commission
Another part of the regulatory work encapsulated by the Consumer Duty has been the Fair Value rules and how they are being applied to intermediaries, particularly around loaded commission.
There have been strong calls from many within the sector to end the practice and questioning its compliance with the new regime.
Taurog reveals that VitalityLife has acted in this regard bringing loaded commission down at some of the distributors it works with.
“We’ve always had limits in terms of what could be applied, it’s just evidencing what is there – additional advice or compliance training that supports that,” he says.
“Is there still sufficient value in terms of expectation, that the payouts are relative to the premium being paid and there’s clarity to the consumer in terms of what the what the payment is. So it’s really just been evidencing in that whole value chain to the consumer.
“We’ve actually seen some of these [firms] in collaboration, reducing some of the loadings,” he adds.
Monitoring advice quality
The Financial Conduct Authority (FCA) has also been particularly vocal over the last year about how insurers control their distribution partners.
The protection market has generally been seen as one of the lower risk sectors the regulator oversees, but it made clear in September that all was not well in its view, particularly around sales practices and the churning of policies.
Taurog agrees this is an “absolutely critical” issue and notes that the insurer launched its distribution quality management programme as a key as a key tool in the business more than a year ago.
This works with advisers to monitor complaints, lapse ratios, non-disclosure or other issues which may arise.
“That is something we use to try to support the commission or whatever else it might be,” Taurog explains, also noting the insurer’s strong retention rates.
“And we have taken a number of actions where lapse rates complaints have just not been evidencing quality sales processes where we have reduced commission closed some agencies to new business.”
But he emphasises the insurer wants to work with advisers where there are issues, whether it might be an individual in a firm or a wider issue, to get better customer outcomes and improve persistency and quality.
“There will be instances where you may have a rogue adviser or whatever, but generally if you look at the industry, I think both intermediaries and providers are generally hear to make a real difference to society,” he continues.
“To grow the industry, to improve and give good customer outcomes and if you look at the claims paid statistics across the industry, they generally are high.”
Terminal illness claims
Indeed, claims paid amounts have been soaring as the Covid pandemic has been felt while many insurers, including VitalityLife, regularly pay more than 99% of life insurance claims.
For critical illness (CI) and income protection (IP) new claims most providers pay in excess of 92%, VitalityLife is at 92.5% from CI and 93.2% for IP.
However, in October after a whole market review the FCA raised serious concerns for those wishing to claim the terminal illness benefit available on their life insurance.
Taurog agrees this is a key area of focus and having worked through the FCA’s guidance says the insurer did not spot any gaps in its process against what the regulator was suggesting.
“Our ethos is whatever claim it is, looking to get that clarity to the customer that this is what’s covered and clarity to the doctor looking after the customer of what’s covered,” he says.
“Our whole ethos has always been around let’s pay out; pay out a payment that is clear, relevant and reduce any potential negative customer impact, whether it’s terminal illness or anything else.”
Without wanting to break competition rules, this is an area where the Association of British Insurers (ABI) could provide valuable support and Taurog notes this has been discussed by the body.
“I think there has been progress in terms of getting more consistency around definitions and expectations around the time from a terminal illness perspective, rather than getting back towards the 12-month time,” he continues.
Proposition development and insight
Product and proposition development has in many respects over the last few years been driven by the increasing availability of additional services offered to members.
But while important, Taurog does not believe these benefits are driving engagement in the market instead of the basic need to cover a financial risk.
“You’ve got to make sure the fundamental need from the consumer is foremost. I do think there is a place for added value benefits, but it shouldn’t be at the cost of what the core cover is,” he says.
“From our point of view, using discounted health checks as an example, what we’ve tried to do is make it connected to helping get healthier customers and identify issues earlier.
“To me, that’s the most important element – we’ve had many examples where people have gone for a health check to get Vitality points and picked up prostate cancer, blood pressure issues or high cholesterol.
“In a number of cases we actually ended up, we believe, saving people’s lives by getting conditions picked up earlier.”
And the data coming through from the Vitality programme is starting to show significant results.
“The insights we see are incredible, the improvements to mortality and morbidity are immense,” Taurog continues.
“Our most engaged groups are actually the over-50s, which is quite interesting, and that’s the group where the impact on mortality is also highest.
“It’s not from them running a marathon, it’s not from going to gym ten times a day, but just by getting out and walking and being active.”
He also notes that survival rates from Covid were higher in people who were active, and that activity means lower mortality from cancer and heart disease.