by Garry Heath, Executive Chairman, Impartial Group

Garry Heath, Executive Chairman, Impartial Group

Welcome 2004, or, as us pigs down at the Regulation Farm call it, 1984 + 20. Will this be the year when the industry is allowed to start to regain the respect of the public?

Possibly, if we concentrate on the way this industry delivers products and advice to the public. I think there is little doubt that for those of higher education and higher income, the industry’s current offering gives them a good product at a great price.

Much has been made of the social exclusion and the “Savings Gap”. This is not a problem of the industry’s making but is seeded in the taxation policy of successive governments. If you want people to invest long term you must either give them disposable income linked to long term fiscal and welfare guarantees or use compulsion.

However there is something that the industry could do for itself in the field of exclusion that would cost little and receive the approbation of all those who usually criticise us. It could get its act together on the £3 trillion of Life and Health insurance that the public should be holding but doesn’t - The “Protection Gap”. Here we are not asking the public to invest in some long term saving vehicle which is likely to be pillaged by politicians three generations hence, but spend some income now for an event that could happen at any time. However the industry does need to revise how it currently offers its products to potential protection clients.

70% of potential protection clients, to quote Macmillan, “have never had it so good”. Not only is the true price of life assurance lower than for many years but systems are being created that can take client details, obtain quotations, populate systems, assess risks and, in the very near future, issue policies in real time.

For these “vanilla” clients protection is becoming a commodity product with the accompanying improvements in cost. Advice will still be needed on the amount and type of cover required but the sort of Dickensian attitude that was prevalent when I first purchased life cover has almost been banished. Well that’s true for the 70% vanilla clients.

For the rest, some 1 million applications each year, the world of Bob Cratchitt is alive and well. No magic application systems for them but the world of the quill pen and multiple paper based applications where real time is measured in months and when the client gets cover only when they have forgotten why it was needed.

No one argues that providers need to assess the risk, particularly on the more complex cases, but the current procedures are slow, expensive and lead to over 250,000 applications a year not completing to cover. These are costing the industry over £60 million a year in medical and underwriting costs and probably double that if you include the costs of sales and distribution. These are the obvious costs but there is a far greater one that usually escapes scrutiny – lost business.

Let me introduce you to the “Self Excluded”. These are potential clients who recognise they have a need, have the funds to pay for it but do not apply for cover because of the way they believe the industry will treat them. Typically they have had a medical event in the past or ongoing condition that makes them believe that they are uninsurable. For the most part they are wrong.

Unfortunately, the industry does nothing to persuade this group to apply for cover and offers only an unedifying and undignified hawking of the client around to various insurers in the hope of viable cover. The industry even labels them in an unfortunate way as Impaired Lives. Hardly welcoming is it? And yet here we have clients with need, money and motivation but we have only created systems for the majority.

I believe that the protection industry is splitting. For some of the larger providers the way forward is in large numbers of small sum assured, small premium cases, executed through IT-based underwriting systems. If these companies can prove both volume and control to the reinsurers then their rates will reduce creating a more commoditised product for those clients.

What of those clients who cannot be electronically pigeon-holed and those insurers who will never have such volumes? The answer is a more service based proposition. Insurers concentrating on underwriting skill having complex business introduced to them by specialised brokers who in turn have business introduced by the distribution at large.

This approach has a number of advantages but cannot be devoid of its own IT systems. Margins can only be maintained if information is collected only once. Specialist brokers can package the cases but still need to transmit them electronically. The need for a unified approach to application forms is more necessary here than anywhere else. The trick is to remove systemic friction and that requires provider commitment.

Finally let us relabel these clients to provide some dignity. Banish the Impaired Lives and bring in the Special Risks.

After all, we are all equal – aren’t we?

About Garry

Garry entered financial services in 1985, initially as a direct salesman for Imperial Life before establishing his own IFA business Heathland Financial Guidance in 1986. He was one of the founders of the National Federation of Independent Financial Advisers NFIFA in 1987 and became NFIFA’s first Chief Executive in October 1989. NFIFA merged with the financial services arm of the British Insurance and Investment Brokers’ Association (BIIBA) to form the IFA Association in September 1994. Garry was Director General of the IFA Association until September 1999 when it merged with the Association of Independent Financial Advisers.

In October 1999, Garry became the Chairman of Portfolio Member Services Ltd. Following the sale of this company, Garry became the Executive Chairman of the Impartial Group of Companies, which he formed with ex IFA Portfolio Managing Director and Marketing Manager.

Garry was the Founder Chairman of the Financial Services Standing Committee of BIPAR – The international body for Insurance and Investment Intermediaries. He also conceived the Financial Adviser 5 Star Service Awards, which are now entering their 12th year.

Garry Heath is a well-known figure in financial services, contributing regularly in the press and on radio and television. He has appeared on the Money Programme, Breakfast TV and prime time news broadcasts on BBC and ITV. He has also appeared before the Treasury Select Committee on four occasions.