Advice firm LifeSearch has published a report which strongly criticises broker firms operating a non-advised human sales process and those insurers most supporting that process.
The report includes independently conducted mystery shopping research and reinsurer data which LifeSearch believes evidences poor customer outcomes from the non-advised sales process and the damage it is doing to the long-term protection insurance (LTPI) market.
In the report, LifeSearch accuses non-advice firms of being able to churn “good policies for worse ones if they are careful to make no specific recommendations”.
“This is their routine work and [is] highly damaging to the reputation of LTPI,” it said.
It noted that “insurers have been unable to resist the sales volumes on offer and have focussed on managing the situation to avoid regulatory action, rather than seek to genuinely improve consumer outcomes.”
The firm added: “The situation in LTPI is now reminiscent of previous scandals in financial services.
“We fear it is most likely that in LTPI the new [consumer] duty will have no effect and non-advising telesellers will continue to operate as hard-sell boiler rooms, tolerated by insurers who give them agency in return for new business volumes.”
Poor customer outcomes, LifeSearch said, were highlighted by unhelpful disclosures with little clarity about the effect on the customer’s right to redress through the Financial Ombudsman Service (FOS), guidance processes that appeared to be very similar to advice processes, and vulnerable customers being told they would not qualify for cover and not being signposted elsewhere when they be helped.
Meanwhile, data from one reinsurer cited a 38% first year cancellation and lapse rate for customers through non-advised telesales channels, compared to around 14% for advised customers.
Ultimately, LifeSearch said it wanted the Financial Conduct Authority (FCA) to remove the non-advised guidance route and instead make all human interactions advised.
However, initially it is making three main requests of insurers in the industry to improve practices and consumer outcomes. They are:
- Insurers to start compiling and monitoring collated data on key customer outcomes from the three sales channels – online, human advised and human non-advised – and to publish them publicly;
- Insurers to hold agents to account over potential breaches of OFCOM rules involving mass calling;
- Insurers to ask their non-advised telesales agents to make a clear declaration at the start of the call about the regulatory status and what that means with regards to ombudsman and other protections.
‘Insurers turning a blind eye’
LifeSearch chairman Tom Baigrie (pictured) spoke to Health & Protection before formally announcing the report at the firm’s annual awards.
“This has been an unpleasant factor in the market since LifeSearch was founded in 1998 and I’ve decided it is time I spent some real time and effort trying to reform a market I care deeply about,” he said.
Baigrie said he had hoped the FCA’s Consumer Duty would help to clear the situation up, but the regulator had “watered down” its initial proposals with changes to the second edition of its consultation on the subject.
“We don’t see the Consumer Duty as being the industry improver the FCA sees it to be and intends it to be because the FCA looks to be watering it down,” he said.
Baigrie continued: “I do think insurers are turning a blind eye to very bad practice among their non-advised tele-sales agencies and distributors and that serves them quite well.
“I think that they are complying with their interpretation of regulation and that is what they are basing their position on, I’m basing my position on consumer outcomes.”
Serve quality outcomes
At the Protection Review conference in December, Baigrie debated his views on the non-advised sector with Reassured director of corporate sales Phil Jeynes.
During that debate, Jeynes sought to highlight that firms not offering an advised sales process were not all bad and to myth bust some of the frequent criticisms aimed at them.
“It’s high time we accept that people want to buy in myriad different ways, digital, face-to-face, over the phone, advised, non-advised and unite in serving them with quality outcomes rather than infighting,” he said at the time.
This latest report is a step up from the debate and Baigrie was clear that he did not want this to be seen as an attack on Reassured.
“I’m very concerned that is how it will be seen, it isn’t,” he said.
“My problem is not with any one firm, my issue is with the model itself because of the issues that are endemic in that model of business, as highlighted in the report. But this is not a personal business to business issue.”
Baigrie emphasised this was not a case of being against unadvised sales in total, noting that he believed online sales were generally fine with customers quite happy to make their own decisions and live with them.
“We all know that when you buy something online it may not be the perfect thing,” he said.
And he also laid the lower rate of income protection (IP) sales at the non-advised sales process.
“The scale of the non-advised telesales channel is a big reason why income protection insurance doesn’t gain much traction because they don’t sell it, they’d rather sell critical illness and life,” he added.
Industry’s responsibility
Discussing the three points he wants insurers to undertake, Baigrie argued that maintaining an industry’s reputation is an industry’s responsibility.
“If you examine the three sales channels, you will see not that much difference between advice and online, and a very big difference between non-advised telesales because of the practices and habits that go on there,” he said.
“The only people who have that data are the insurers who can consolidate the data, and therefore I’m asking the insurers to do so.
“Any insurer can tell if an agent is an adviser or non-adviser if they bother to ask – I want them to ask and I want them to record the data and I want them to show publicly as consolidated in the sales channels, because it is in that channel the bad behaviour exists.”
And regarding the clarity of disclosure made to customers, Baigrie added: “The crucial bit is that the disclosure is meaningless unless its meaning is disclosed. How on earth are you supposed to know I’ve just withdrawn the ombudsman’s protection?
“I’m now saying enough is enough, this has to stop. I’m doing all I legitimately can to improve consumer outcomes in our sector.”
More akin to advice than information
Cicero/Amo conducted the market research of 20 cases through six broker firms across the market using a variety of situations and personal conditions.
Research director Ben Hope supervised the survey and told Health & Protection that as someone from outside the protection insurance market, the results were concerning and confusing.
He noted that disclosures were often left until late into the call and frequently were unclear about the impact, while conversations sounded like advice and could become “muddled” very quickly.
“Knowing who you are talking to and what it is about is very inconsistent and fact finding turns into a conversation more akin to advice than information,” he said.
Data collection
The data points LifeSearch is calling to be measured for each sales channel collectively are:
- Overall new business volumes by channel
- Lapse analysis
- Disclosure analysis
- Not Taken Up rates (NTUs) and Cancel from Inceptions rates (CFIs)
- Straight Through Processing rates
- Persistency rates
- Complaints rates
- Claims experience
- Misrepresentation rates
- Supervisory, training and development standards
- Compliant outcomes to mystery shopping audits