In an exclusive interview, Legal & General Retail managing director for distribution Ali Crossley speaks to Health & Protection about the insurer’s position on loaded premiums, sharing data with distributors, non-advised sales processes and how diversity informs product design.
Legal & General is the largest protection insurer in the UK market in terms of new business.
According to data from Health & Protection’s Individual and Business Protection Report, in 2021 it claimed 40% of all term life sales, 29% of critical illness sales, and 28% of income protection sales.
And in its annual results for 2022 published last week, L&G said that using Association of British Insurers (ABI) data it had taken 23% of all new business last year, despite a slide in sales and a shrinking market.
Either way, it has a significant effect on the UK protection market and how the insurer responds to issues can start to set the tone for the market.
The subject of loaded premiums has been a high profile one for the sector over the last year with many calls for the practice to be banned outright.
However, last summer the Financial Conduct Authority (FCA) confirmed to Health & Protection that its Consumer Duty does not explicitly prohibit the controversial practice, where premium rates are inflated to pay distributors and advisers higher commission.
In the wake of this confirmation St James’s Place divisional director Tony Müdd, argued that while the incoming duty did not explicitly ban loaded premiums, it may as well have done.
When asked if L&G had told any firms they must reduce or end their loaded premiums, Crossley said the insurer had not gone that far, but it had taken action in the area.
“We carefully consider the level of commission in relation to the services and effort the distributor is undertaking and customer value,” Crossley said.
“We have not told any firm that they must reduce, or end loaded premiums.
“However, we do not support deals where we think the commission level is too high and have declined deals for this reason in the past.”
Crossley added that the insurer had not felt the need to stop working with firms yet based on their use of loaded premiums.
‘Only work with firms that can demonstrate fair value’
On the overall approach to loaded premiums, Crossley noted that differential premiums are acceptable but subject to some key considerations, most importantly, they must represent fair value to customers.
How that is decided and who is judging the price and value relationship is a key element of the Consumer Duty and fair value rules introduced by the FCA, with demands throughout the chain.
Explaining L&G’s position, Crossley continued: “Internally, we have robust governance in place to ensure that value for money can be achieved.
“Ultimately, it is for each intermediary firm to determine, justify and demonstrate how its service differentiates from others – including how they go above and beyond – to warrant a higher commission level.
“We will only consider working with firms that can demonstrate fair value to customers.
“We also consider the effort and costs in attaining the business, for example marketing spend and how they source customers.
“It’s also important to note that the adviser is obligated to consider fair value from their perspective too,” she added.
Sharing data with distributors
Staying on the subject of value for money for customers, Crossley also addressed a key issue highlighted by the FCA as part of the Consumer Duty of how insurers are sharing data with distributors.
Crossley pointed out that in terms of protection products, value for money is already a requirement that is governed by the changes made almost two years ago.
“The details we have already published online or made available to intermediaries via other routes should meet these expectations already,” Crossley continued.
In particular, advisers and the FCA are looking for insurers to share data with distributors on target consumer markets. For protection products this could potentially address those for people with or without existing health conditions.
In this regard, Crossley noted that the website data and access to underwriters was available to help advisers.
“We are committed to helping firms attract and retain more customers. Specifically, we help firms to look at underserved customer segments,” she said.
“We publish target market data for each product on our adviser site and provide advisers with access to underwriters who can offer bespoke support on more complex cases that involve pre-existing conditions.”
Another bone of contention across the industry in recent years has been around non-advised sales processes and whether customers going through these channels are being correctly informed about their regulatory rights and the difference between advice and guidance.
When asked whether the insurer shares these concerns, Crossley did not address processes at intermediary firms, speaking only about how the insurer serves its direct customers.
“We support customers through both an advised and a non-advised journey, which is wholly dependent upon the individual customers requirements, or the products required,” she said.
“If a customer begins a non-advised journey and it becomes apparent that advice is required, we have processes in place to hand over into an advised journey.”
Diversity informing product design
The surge of interest and desire to improve diversity and inclusivity within the industry has been a key influence over the last year, reflecting the rising awareness within the population at large.
When asked about the importance of having diverse groups represented among teams designing products – in particular, in light of campaigns such as the one to provide sickle cell coverage – Crossley acknowledged that diverse businesses have better outcomes and performance.
“Product design teams are no exception to this,” she continued.
“We are always keen to work with our partners to cover as many individuals as possible and we also look at groups of customers whose needs are harder to serve, while always keeping customer vulnerabilities and good customer outcomes, through our product developments and general management, core to what we do,” Crossley concluded.