gi value ratio    

Will the proposed GI value measures make life protection cover more attractive to GI providers?

The FCA’s review of GI add on products reported in July 2014 concluded that there was a need for more competition to encourage consumers to shop around to seek out the better value. The idea that value could be described via a single measure – claims ratio – was first explored. The report highlighted certain products with lower claims ratios than others, and that these low claims ratios had persisted over several years, indicating a lack of competitive pressure to improve the value of add on products to the consumer.

Roll forward to June 2015 and the Discussion Paper [DP15/4] went onto explore options for publishing value measures in the GI market. Responses from the industry have been received by the FCA to DP 15/4 and in March 2016 their next action was communicated. This will involve adopting the “Scorecard Approach” [publishing a package of measures: claims frequencies, claims acceptance rates and average claims pay-outs] and piloting it across a limited range of products in the Summer of 2016. The FCA intends to publish firm level data on its website which, aided by press commentary, it hopes it will encourage consumers to review the data as part of their consideration of the value of any add-on products they might buy.

At Simple and Open we see this as an important step to opening up new distribution for life protection products in what has otherwise become a stagnant market where new distribution models have failed to appear. In some cases, we have seen a reversal of the focus on protection due to other regulatory changes. The Mortgage Market Review is a case in point; as the advice process for the core mortgage gets ever longer reducing the customer appetite to then sit through a lengthy life protection application process.

We are keen to see new drivers to distributor behaviour, which encourage them to offer products, which are higher up the consumer ‘needs scale’.  If consumers decide to step away from some of today’s add-ons, then distributors will seek other revenue sources. These could come from related product sales such as Life Cover which can be offered as complimentary to household cover, mortgages and even motor, where life cover is often provided though Personal Accident products.

Whilst the Aggregators have made it easier for consumers to seek cheapest prices, it has often been at the cost of acceptance ratios through more detailed underwriting and selection processes. Many customers click through to attractive prices from well-known providers to then be faced with answering 40 or more questions, tele- underwriting, further medical checks and higher premiums, and none of this is mobile-friendly.

Some GI providers have tried selling protection in conjunction with their ongoing servicing – a cross sell at renewal, for example. Success has been limited mainly due to the complexity of using traditional products plugged into a standard process more geared to face to face advised business.

Therefore, the encouragement for new distribution to embrace protection cover is likely to be influenced by regulatory drivers such as the GI value measures proposed by the FCA, coupled with innovative product, process and proposition design. When we conceived the distribution strategy for SO – Simple and Open Limited, we took these factors into account;

  • Protection cover must be able to be plugged easily into a distributor’s existing customer journey with minimal or near zero effort.
  • The point of display of the protection proposition must be bridged in a highly relevant way to the core purchase thereby introducing relevance to the customer.
  • Dual branding would be key to leveraging the distributor’s brand and continue the branded journey onto the SO site.
  • A high policy acceptance rate of c.90% should be the target to ensure better customer experience thereby enhancing the distributor relationship with the customer.
  • Thinking ahead to the point when claims value measure disclosure would be implemented, the protection product should demonstrate value. Our life product does with c.60% of the premium designated to the claims fund and with no policy exclusions.
  • Customer journeys must be short, simple and fast. The SO experience takes under five minutes on a mobile phone.
  • The product must address a customer need.

GI providers should benefit from enhanced customer loyalty through a product, which typically stays in force for a much longer period than the underlying GI relationship. For life cover this is around 9 years for a 15-year term. This also provides valuable additional income to the intermediary by promoting a product which the customer needs. The benefits to the customer is protection for an affordable price, which is clear and transparent, and may go a little way to closing the £2.4 trillion protection gap.

Addressing the new distribution challenges for protection is certainly going to be helped by the initiatives emanating from the FCA’s value measure proposals. We look forward to the research results for the ‘scorecard pilot’ and have already seen early signs that GI distributors are waking up to the protection opportunity.