Scottish Widows is deciding which advisers that use loaded premiums it will work with and believes insurers will be increasing due diligence of intermediaries on the subject.
Lloyds Banking Group protection director Rose St Louis expects Scottish Widows to launch an income protection (IP) product next year soon after completing the update of its intermediary platform.
Speaking to Health & Protection, St Louis also emphasises there are no plans to buy more intermediary firms after Cavendish Online and reveals Scottish Widows is seeing a sharp increase in business through direct-to-consumer channels with its Lloyds Banking Group (LBG) partners.
Discussing the Financial Conduct Authority’s (FCA) latest flagship Consumer Duty policy, St Louis highlights the importance the regulator is now putting on fair value for customers and clarity from the industry.
She believes this will drive insurers to focus on their purpose, integrity and on communicating with customers.
“You hear a lot about the cost to serve, the cost of leads and who’s going to pay for the cost, the disclosure, the transparency, the value,” she says.
“The Consumer Duty is going to really force providers and distributors to look at their business practices and really think, to put themselves in the place of the consumer and to challenge what’s right, what’s fair, where costs are and to offer transparency.
“There’s definitely accountability, it will test the values of organisations, the purpose and the real desire to give good customer outcomes and make sure there’s clarity and transparency communicating with customers about what they’re buying, what it costs and what they could get.
“Could they get it elsewhere at the same price?”
Reviewing loaded premiums panel
Tied-in with this is the subject of loaded premiums, where customers pay a higher monthly premium to give the adviser a higher commission.
St Louis agrees this has been a “hot topic” within the industry and admits there is a question about whether loaded premiums persist and what disclosures or communications start being issued for conversations and recommendations.
She added loaded premiums may end up persisting in different sectors of the industry or through different routes to market.
“They show up everywhere and looking at the rationale for them, maybe it’s more palatable in some segments than others,” she continues.
“Everyone’s looking at what everyone else does, so I’m really excited to see the outcome of that as well.”
Specifically on Scottish Widows’ plans, St Louis says the insurer does not participate heavily in the space and does not have a blanket approach, but acknowledges it is high up the list of priorities.
The scrutiny and due diligence conducted of intermediary firms and their business model appears to be intensifying however, and the insurer is content to pull out where it deems it right to do so.
“We’re having conversations and deciding what panels we want to participate in because that’s in our gift to participate or not,” she says.
“We will have the due diligence to understand the end-to-end value chain where our products will go, what our product will travel along to get into the hands of the customer – it’s very much a case-by-case individual due diligence, just like any intermediary would do on an insurer.
“But I think we’ll see a lot more of that reciprocal due diligence now. Insurers aren’t responsible for regulating anyone in the market, but I think there’s a piece around purpose and integrity that we’ll see more of and we’re already seeing more of social responsibility.
“So I think there’ll be a lot more due diligence both ways to make sure and we will be leaning into that.”
Appraising annual statements
For St Louis another key outcome from the Consumer Duty which is bound-up with pricing clarity, is a wider customer understanding of the product they are buying or have bought.
Scottish Widows like many insurers issues annual statements and St Louis reveals the provider is reviewing how these are used and what information they convey.
This is particularly important as customers lives evolve and their need for protection cover may change.
“We’re reviewing our annual statements to make sure they still do what they need to do, but we’re also mindful of if they are giving customers enough information,” St Louis says.
“We’re making sure customers can understand what their options are around increasing cover if they have children, their guaranteed insurability, and other key updates such as those interventions around Covid, premium holidays, and making sure the policy is still fit for purpose.
“Again, by us doing those as a provider that can really help intermediaries, but also everyone through the value chain to make sure that we are all leaning into the requirements of Consumer Duty,” she adds.
FCA’s signposting inaction ‘disappointing’
Another subject addressed, if indirectly, by the Consumer Duty publication was signposting for customers unable to find cover.
Despite consultation responses urging the FCA to require signposting to specialists, the regulator chose not to mandate such a move, frustrating much of the industry and appearing in conflict with its aim to increase access to insurance.
St Louis agrees the FCA’s lack of action was “disappointing” on one hand, but it will not stop the industry continuing the path it has already begun, promoting signposting as much as possible.
And she adds that protection advisers should also be directing clients to their colleagues in the wealth space where appropriate once the protection needs have been considered.
“There are great examples of protection businesses coming in to wealth businesses to make sure they can signpost and there’s partnerships between large distributors and other protection firms where they will make signposting calls,” she explains.
“We should absolutely be encouraging wealth advisers to signpost to protection firms, but my challenge to some of my distribution team is once the protection needs are sorted, we should be encouraging signposting back to wealth, because financial services is holistic.
“Protection is one element of that holistic advice piece, yes everyone should be protected, but what are the other needs and how can we make sure that we are actually looking after the financial resilience of the customer and signpost on as well?”
IP launch and adviser platform overhaul
One of the other more pressing items for St Louis’ agenda is updating the adviser pathway followed by the launch of an income protection product to fill that gap in the insurer’s portfolio.
The “re-engineering and re-platforming” of the intermediary system is expected to be finished early next year, and aims to deliver a frictionless, digitised pathway and improved buying experience for advisers.
Once that is complete product development will follow, with the launch of an IP product due to follow soon after, joining its existing life and critical illness cover options.
“We want to start with income protection and look how else we can be relevant,” St Louis says.
“The task I set for the team is how can we simplify income protection, which is a challenge in itself, but also just to simplify or give intermediaries the tools so they’re not put off having the conversation.
“Everyone’s trying to grow the IP market, but how can we give people the tools to make sure the people that are selling it can sell it more compellingly and confidently, and those people that aren’t selling IP can start to sell it, because they don’t need to be overwhelmed by it.”
‘Shoot for the stars’
Since joining the insurer in March 2021 from KPMG, St Louis has been keen to make her mark and earlier this year went public about her goal to make Scottish Widows a top three insurer in the UK protection market within five years.
While seeking to increase business volumes is hardly rare, being so open about targets, especially such significant ones, is far less common, but St Louis is not concerned about that frankness.
“We wanted to be ambitious,” she said.
“You can move up by either taking incremental steps or we could just shoot for the stars and then align people.
“The top three ambition is anchored to our purpose. It’s not as if we’re just going to try and be a top three player, we’re going to try and satisfy our purpose, which is helping Britain prosper.
“How do we do that? By creating financial resilience, financial education, preventing financial vulnerability – and then from a protection perspective, in the event of loss of income, loss of job and so on.”
And the key element to building this has been making sure everyone within the protection business understands that purpose.
“It’s really amazing that when you lean into your purpose and you have clarity about what you’re doing, then you don’t need to ask permission,” St Louis continues.
“You can empower and make your teams more autonomous, and therefore, I’ve been delighted with the results from the first half of the year to see that ticking up, especially working with the tools that we’ve got.
“We’ve got such great plans, but we’re working with what we’ve got to stay relevant to the current market and we’ve been able to achieve so much already with even more to come.”
Direct-to-consumer surge
The top three aim is tied into several movements within the insurer that are already starting to see its protection business grow – with a 50% increase in business reported in the second half of 2021 and first half of 2022.
While 80% of Scottish Widows’ protection business comes through intermediaries, the firm is looking to grow and be more relevant to customers across the spectrum, including those available direct through the retail banking arm.
All told around 50% of the UK population bank with Lloyds Banking Group institutions – Lloyds Bank, Halifax or Bank of Scotland, St Louis notes.
Addressing this population is one of the main goals and has been the main driver of new business as it “turbocharged” the growth seen in sales over the last year.
“It’s really our responsibility to make sure that we are looking after their financial needs, anchoring into that purpose and making sure we’re having conversations to understand their protection needs and provide solutions to meet those needs,” St Louis says.
Last year a direct-to-consumer proposition was launched and linked with Scottish Widows underwriting engine which means now Halifax and Lloyds Bank customers can buy life insurance and critical illness cover through the banking app on their phone.
No more adviser acquisitions planned
There was also recognition that this population would need a variety of journeys and so when the opportunity arose Scottish Widows took the chance to buy intermediary firm Cavendish Online.
But we should see this as a one-off to fit more immediate business needs rather than the start of a spending spree.
“Acquisition wasn’t really on my agenda when I first came to LBG 15 months ago, but we came across this opportunity and it fit with our purpose, our strategy, and brought capability in,” she says.
“We haven’t got any plans for more acquisitions, it’s definitely not on the agenda, I’m not looking to grow the protection market by buying loads of intermediary businesses.
“At some stage in the future who knows, but it’s definitely not front of mind – we’ve got so much to do that growing our business through acquisition of intermediary firms is not in the plan.”
Advice, execution-only and guidance
Once the Cavendish Online acquisition is completed the intermediary will be somewhat ring-fenced within LBG and will serve a dual purpose with capabilities which the banking group does not currently have – advice, execution-only and non-advised guidance.
Despite concerns raised from some quarters of the industry, St Louis notes that guidance is “growing increasingly interesting around nudging people back into journeys after they fall off”.
“What help do they need to make decisions if they don’t want full advice?” she asks.
“We can point those three prongs towards our retail banking business to make sure we can be relevant to every kind of customer, whether they want full advice, to execute on their own, or they need some help in between.”
For LBG customers the Cavendish Online service will initially direct people towards Scottish Widows products unless they do not fulfil the need of that customer.
For example, if there was a need for income protection, St Louis notes it is the insurer’s responsibility, through Cavendish Online, to make sure that need is met.
“Equally, Cavendish Online has got a great brand and a great name already in the intermediary market, we’re not going to curtail what they do.
“They will still run their independent advice business using those channels with their own panels and be whole of market,” she concludes.