The Protection Distributors Group (PDG) has said a number of important questions remain unresolved following its review of We Buy Life Policy.
In response, We Buy Life Policy said it wants to formally engage with the PDG to address any misconceptions the body has about its product.
Product review
The PDG’s review calls on the company to provide better assessments of consumer outcomes and testing, more meaningful management information (MI) and continued engagement with regulators before the PDG could support wider adoption of its type of proposition.
The body revealed its review of the offering, which seeks to create a secondary market for certain life insurance policies, followed on from enquiries from member firms and media.
It stressed that it believes innovation has an important role to play in improving consumer outcomes and reducing unnecessary policy lapses, adding there are circumstances in which a customer may no longer require life cover, for example following the repayment of a mortgage, changes in dependency arrangements or wider changes in financial circumstances.
In such cases, the PDG said, the ability to realise some value from an unwanted policy may represent a better outcome than simply allowing cover to lapse.
For this reason, the body added that while it does not oppose the principle of a secondary market for life insurance policies, it believes that propositions of this nature should be assessed against the same standards of consumer protection, transparency and good outcomes expected across the wider protection market.
Important questions remain
Following its review, it maintained a number of important questions about the offering remain unresolved.
In particular, it said it would like to see stronger evidence relating to consumer outcomes, customer understanding, vulnerability management, governance arrangements and the respective responsibilities of advisers and distributors involved in referrals.
The group noted that the company’s proposition currently operates outside the Financial Conduct Authority’s (FCA) regulatory perimeter.
The PDG added that while this does not make the model inappropriate, it does mean that advisers considering involvement should carefully consider their own regulatory obligations, professional indemnity implications and responsibilities to customers, particularly where a recommendation or referral forms part of a wider advice process.
Understanding the implications
The PDG also said it believes consumers should fully understand the implications of assigning a policy to a third party, including the loss of future protection benefits for dependants and the alternatives that may be available to them before proceeding.
Consequently, it said before it could consider supporting wider adoption of this type of proposition, it would expect to see:
- Evidence-based assessment of consumer outcomes beyond simple comparisons with policy lapse
- Consumer testing demonstrating clear understanding of the transaction and its consequences
- Meaningful management information covering conversion rates, vulnerability indicators, cancellations, complaints and customer regret
- Enhanced vulnerability safeguards and outcome monitoring
- Greater clarity around adviser responsibilities, referral arrangements and customer disclosures
- Independent assessment of valuation methodology and fair value considerations
- Continued engagement with regulators regarding any future regulatory framework for the sector
Cautious engagement
“Our current position is, therefore, one of cautious engagement,” the PDG continued.
“We recognise the potential benefits that innovation in this area may bring for some consumers, however, the PDG has not yet seen sufficient evidence of the safeguards, governance and outcome monitoring necessary to support wider adoption.
“As an organisation representing quality protection distribution and one that exists purely to improve what the protection market does for its customers, the PDG will continue to support innovation while advocating for the highest standards of consumer protection and customer outcomes.”
Offer to engage
In its response, sent to Health & Protection, We Buy Life Policy said it welcomes ongoing feedback and dialogue with PDG or any other organisation that intends to understand its methodology and processes.
“Our product has been offered in the US for many years and is accepted as being established, and hugely consumer-friendly, as evidenced by the success of companies such as Maple, Abacus, Coventry and others. In the UK a secondary market has existed for more than 100 years and ‘sale of life policy’ forms part of the HMRC tax code.
“Every case that comes to us goes through a structured suitability process to make sure the customers are informed of the implications of their decisions and we accept only those customers who have already made the decision to lapse or switch their unwanted policies.
“Our vulnerable customer policy and due diligence procedure is extremely robust, and we only work with customers who are typically over the age of 45 and who have made the decision to lapse or switch their policy. Our declination rate currently sits at over 70%. In addition, we have a strict due diligence process to address vulnerability, which includes recently signing up to a digital solution which many leading banks and financial institutions use to identify and protect vulnerable customers.
“Our core mission is to provide choice for policyowners where it did not exist previously, and transparency and fair consumer outcomes are at the heart of what we do. Full disclosure of all legitimate options available to the consumer should be a minimum professional requirement for any reputable broker. We actively encourage customers to seek independent advice and are currently in discussion with several adviser firms to broaden the proposition. We look forward to engaging further with advisers and the industry as we evolve our proposition to overcome any ongoing misunderstandings and concerns.
“The PDG very kindly sent us a draft copy of the press release in advance and since then we have reached out to them to provide further information and offering to formally engage with us in order to clarify any misconceptions about our product.”
