Protection plans should be treated with the same ongoing care as investment and pensions advice
How many advisers write investment and pension business and then ignore it – never reviewing continuing suitability, changing client attitude to risk or underlining fund performance? Hopefully not many. It would be an easy way to lose the confidence of the client as well as any ongoing advice fees.
So, why is it that protection plans are rarely treated with the same care? Why is it hundreds of thousands of clients have life assurance policies that no longer match their needs or can be obtained cheaper based on more competitive rates or changing personal circumstances, such as giving up smoking? Why is it similar numbers of clients retain critical illness plans that offer far fewer conditions and contain inferior claims wordings to those currently available?
Reviewing life assurance contracts is relatively easy. Assuming the term remains appropriate, and any changing health or lifestyle issues have been considered, it is broadly a matter of price.
Yes, there is a plethora of value-added benefits which I would not decry, but they are rarely understood by clients and even less used. The most important aspect is to establish the new or alternative contract before cancelling any existing plan.
Reviewing critical illness contracts, on the other hand, is anything but easy and a lot of it will require specialist knowledge.
I have seen advisers make the mistake of believing a plan offering 70 conditions must always be superior to one offering 65, or assuming today’s plans must be superior to those of 10 years ago. Then, perhaps most dangerous of all, there are those who rely on the “this plan is cheaper” approach.
A robust review should include:
- Access to incidence and claims statistics;
- Understanding the nuances between critical illness plans, critical illness plans with partial payments and serious illness plans;
- An understanding of how conditions can overlap (e.g. diabetes and blindness or Crohn’s disease and ulcerative colitis);
- Understanding how to calibrate the relative merits and breadth of illnesses and added benefits for particular clients;
- Recognition of the impact of being a smoker, having a high BMI or suffering from diabetes.
But is rebroking not churning? It would be all too easy to throw around accusations of churning. But rebroking and churning are fundamentally different. Rebroking is where an adviser has assessed the fact a new plan is better for the client in that it is more likely to result in the payment of a claim and, if the costs are higher, that these represent better value for money.
Churning is where a policy is replaced purely for the benefit of the adviser, with no advantage to the client. Pretty clear to me.
Risks of not reviewing
It should go without saying that any adviser failing to review these plans risks losing the client to another who can offer a proactive review.
One case making the headlines in 2016 concerned a man involved in a road traffic accident who lost a leg below the knee. He had two critical illness plans in place but found when he went to claim that his old-style plan wording required the severance of two limbs. His claim was declined.
The FOS sided with the insurers because the plan wording was contractual and the insurers had no obligation to advise him that a more comprehensive plan existed. When he discovered that today’s plans now pay on severance of just one limb, his action turned to compensation from his adviser.
All advisers recognise the value of protection. However, putting it in place should be at the start of the advice process, not the end.
Tony Müdd is the divisional director for development and technical consultancy at St James’s Place