A recent industry media article addressed the problem the PMI industry has with maintaining affordable and sustainable premiums, placing the blame firmly on the doorstep of medical inflation which is running at a rate of 9% to 10% - much higher than general inflation.  Medical inflation has always been a problem for the industry, but I believe there is another major factor involved, to which insurers seem to turn a blind eye.

Many large broker firms and networks are using the ‘holy grail’ of the internet to generate leads in volume and are paying a fee (up to £20+?) "per click" to the likes of Google.  And I’m constantly getting spam emails (at least one a day - and very annoying), telling me that NHS waiting times are soaring and that I should be buying PMI in order to avoid the queues.  Of course these large brokers have the financial capability to harness the full potential of the internet and are consequently ‘hoovering’ up business, leaving the crumbs for the small intermediary firms - the people who generally provide good quality, long-term business, but at much lower rates of commission.  

With an enquiry to sale rate of probably no more than about 10%, the cost per internet-generated sale can be very high; consequently these large brokers and networks demand very high commission rates (60%+?), which many insurers are prepared to pay for high-volume sales.  Logic would suggest that this can only increase the cost of a policy to the consumer, making PMI too expensive to consider for many people.  But insurers continue to follow the same old path of paying high commissions to gain market share. 

Unfortunately there tends to be a lack of continuity within many insurance companies, particularly in the larger organisations.  The turnover of people involved in upper management can be quite high, with appointees coming and going every couple of years or so.  It would seem that the individuals concerned are often using the post as a career stepping stone and high volume sales look good on a CV, irrespective of how they are achieved.  So these people move on (and up), and a new a manager/director moves in – quite often bringing their own management team with them; lessons are not learnt and the same old costly mistakes are repeated time and time again.

I suspect that a substantial percentage of internet-generated sales are poor quality and result in a high drop-off rate; it’s a bit like trying to fill a bath with the plug out – high volume being pumped in at the top end, but constantly leaking out at the bottom end.  Of course, the drop-off rate does not feature on CVs; the actual long term effect of producing these sales figures is ignored and the PMI industry continues to stagnate, struggling to find good quality, sustainable business.  The only real winners out of all this are the likes of Google, while insurers struggle to keep premiums to an affordable level and the smaller intermediary firms that provide sustainable, quality business, are gradually gobbled up and acquired by the big boys.

I think the moment may have slightly passed, but this is my first Protection Review blog since we all first heard about the idea of an annual National Protection Awareness Day – so this is my first opportunity to share my feelings on the subject. 

They are, in a word, mixed.  It’s difficult to be against an idea intended to raise the profile of protection – and in a strong, successful consumer market it might make good sense as the icing on the consumer awareness cake.  But in the continuing absence of anything much in the way of cake, I’m not convinced that icing is the first thing that’s needed.

I’m doubtful partly because I can’t help questioning the impact that a National Protection Day would achieve as a stand-alone initiative in real life.  Are you aware, for example, of the already-existing National Data Protection Day?  Or National Horse Protection Day?  Or National Immigrant Protection Day?  Or even National Groundwater Protection Day (September 12^th this year, all groundwater lovers will want to know)?  According to Google, all of these exist.  But I can’t say that any of them generate huge drama or excitement among the general public, and I don’t think our National Protection Day would do much better.

But what really bugs me is the way that once again, when a bunch of people in the industry who could start investing in some proper, branded marketing trying to persuade consumers to engage with the specifics of what they have to offer are offered, as an alternative, the opportunity to take part in a cheaper, more gimmicky generic stunt which probably won’t happen and won’t achieve anything much even if it does, they turn unhesitatingly and enthusiastically towards the wrong option.

I simply do not understand why firms in the protection industry are so eternally reluctant to get out there and compete for business in the consumer marketplace.  We hear talk of generic advertising campaigns.  We hear calls for Government-funded public information campaigns.  Now we’re introduced to the concept of National Protection Day.  To me, all these things are red herrings – distractions from the kinds of activity that might really make a difference.

If I could wave a magic wand and get one message across to the industry, it would be that as far as consumers are concerned, there’s nothing exceptional, extraordinary or superior about protection.  It’s just another product (or service, depending on your point of view), competing for a share of their disposable incomes.

As products (or services) competing for business, protection is – or at least could be – compelling.    It has good stories to tell.  It has powerful emotional and rational benefits to offer.  It costs less than many people expect.  Some providers have interesting USPs to communicate, and no doubt more could develop some if they chose to. 

But with the exceptions of AVIVA (whose excellent Paul Whitehouse commercial was in fact part of their overall corporate brand promotion and not specifically designed to support their protection business) and Unum with their oddly-executed Back-Up Plan campaign, none of the players in the market seems to show any interest in playing the rather strong selection of cards in their hand.

All the evidence from other parts of the consumer economy shows that people start getting interested, engaged and even a bit excited when they perceive the existence of a vibrant, lively and diverse market populated by organisations with relevant and engaging propositions for them.  That’s as true in huge national chunks of the consumer economy like mobile phones and financial price comparison sites as it is in small local chunks like my neighbourhood Swiss Cottage farmers’ market.

The conclusion is obvious.  If protection providers really want to engage consumers with their propositions, what they need to do is get out there and promote them.  And the more of them do so, the more attention consumers are likely to pay to them.  Once we reach that point, we’ll have, so to speak, a cake.  And who knows – it might then even be worth thinking about the icing of a National Protection Awareness Day.  

1.      To what extent are your non-customers and customers similar?

2.      Are women a coherent segment to whom we can tailor marketing messages?

It may be hard to believe now but in the 1980s there was a big debate about whether or not ‘the personal computer’ was a big deal or a flash in the pan.  IBM was slow to get in to the PC market because when it asked its customers if the PC was or would be an important part of their IT infrastructure, the majority said, “No”.  With the benefit of hindsight we can see that this shouldn’t have been surprising – by being IBM customers these companies had bought in to the IBM (mainframe based) model of computing.  The PC and Apple Mac customers were individuals and smaller businesses who were buying computers with user-orientated software on them and connecting these smaller systems via networks. IBM had overlooked the fact that its non-customers were not like its existing customers.  It was an expensive mistake. In 1992, IBM’s $5bn loss was the biggest in US corporate history.

Might the same be the case with the Protection sector? It seems to me it has a reasonable success story selling to the worried well and the worried well-off, but is not growing as well as it should be given changes in demographics and wealth. In a decade where we’ve seen the rise of Apple, Google, m-commerce and social media and the advent of behavioural economics, the Protection sector seems to be just the same as it was ten (20?) years ago.  How many consumers are there who do not think the same way as Protection professionals when it comes to making decisions about risk and money? How should Protection providers connect with these folks?

To build on this theme, I refer to a recent Money Marketing article, Marketing Protection to Women, by Martin Werth. The opening sentence noted that “the clock is ticking to buy protection at the lowest ever rates” (although later on there was an assertion that women focus more on dependability and value, rather than unique features and price) and the article set the scene by drawing readers’ attention to the Gender Directive and tax changes that are coming in to force later in the year. 

The article was informative and seemed reasonable but something nagged at the back of my mind. I looked again at the title.  Would we ever see an article, Marketing Protection to Men?  I don’t think so.  From a marketing point of view how significant is gender as an indicator of consumer need, decision making and purchasing behaviour?  Sheconomics notwithstanding, are ‘women’ a coherent segment to whom we can tailor a marketing message?  I suspect not.  Think about the female customers you currently have. How homogenous a group are they? How would they describe and identify themselves?  Answers on an e-postcard to Blue Peter (Le Beau) at The Protection Review.

A typical claim has many people and parties in its lifecycle.  There will be the claimant and the insurer, perhaps the broker.  Where health or bodily injury claims are concerned there may well be doctors, nurses, caregivers, vocational rehabilitation experts.  There may be any number of service providers for replacement goods and services.  The whole claims process will operate most efficiently when all these participants can assist to the best of their ability in its successful resolution.  With most claims operations though, the claims handler sits at the centre of a complex web of interactions and communications all facilitated by telephone calls, conventional post and now email and possibly text messages.

This can work quite well; we all know of hard-working claims handlers and well organised claims departments where this burden of communication and flow of information is managed to the best of the claims handler’s ability.  But that, however, is its weakness.  It all hinges on the abilities of the claims handler and the strengths of the claims system which is serving them.  The other parties in the system are neither served nor managed by the process, even though they are required to contribute through the claims handler.  But what if the claims system was serving more than the claims handler?  What if the claims system was extended to directly facilitate the actions of all parties?  Not only that, but what if the claims system was able to manage their contributions, measure their progress and analyse their effectiveness?  The answer to these questions lies in a concept we are turning into reality  here at FINEOS that we term the “Claims Ecosystem”.  This is all about extending the reach, influence, and support your claims system provides in order to derive maximum benefit for all the parties involved in a claim and ultimately the optimum outcome for the claimant.   

There are many reasons why the time is ripe for this innovation.  Partly it is due to the expansion of telecommunications and the growth in computing power.  These, of course, are pre-requisites, but the main shift is in people’s attitudes to and expectations from technology. There has been a paradigm shift in people’s experience of internet ‘systems’.  What we think of as the ‘system’ nowadays is invisible to the user.  Leading internet companies such as Amazon and eBay do not see themselves as software companies but simply as service providers.  Couple this with the dramatic rise of social media and its all-pervading influence on consumer behaviour and we see a much greater incidence of involvement in all processes across and through the internet.  This sets people’s expectations of how they should be interacting with service providers.  And the characteristic that is now most prevalent is that of collaboration.  These experiences are collaborative and inclusive; they revolve around community interaction and equal access.

The collaborative model embodied by social media in all its web and mobile incarnations has facilitated great change – in speed, levels of understanding, interactivity, personal responsibility and facilitated massive increase in levels of communication. Overall, accessibility is the stand-out shift in consumers’ expectations.  Access to current information at anytime from anywhere is an expectation that is now the norm as is the ability to interact.   So how can the industry capitalise on this evolution in communication and collaboration?  For us, it is by extending the claims ecosystem from its home firmly embedded in the office of the Claims Department and allowing direct access to all the parties in the claims process.  

Much has been made recently of claimant portals, and their introduction to the claims world will certainly increase efficiency and improve customer service.  However, if every participant has their own portal – or viewpoint – into the claims system then each will be able to move the claims process forward at their optimum speed.  In this way each involved party feels that they are at the centre of their process instead of at the periphery of someone else’s.  By increasing the footprint of the claims ecosystem we can open up the claims process to all parties and let them interact with it as if they are at the centre of their process and gain optimum efficiency from everyone. 

Clearly each portal has to be tailored to the individual needs of each participant – claimants, brokers, employers, medical advisors, nurses, loss adjustors, lawyers etc. and obviously there has to be a strong, clear security environment to ensure that no-one can see or change any information to which they are not entitled.

The benefits of such a development are manifold.  This will bring faster resolution of claim, but speed is not the only manifestation of a successful claim.  Claimants will no longer have to phone the claims department every time they want to know where a payment is, service providers can submit invoices and track their own payments without having to trespass on the claims handler’s valuable time.  Everyone can be working together to achieve a common, mutually beneficial goal.  Each party can contribute at their optimum speed and capability.  Each will retain a sense of ownership and control.  This answers the question of how to motivate each separate party.  The answer lies in serving both their individual and group needs.

Serve everybody’s needs and you get the greatest efficiencies and the best outcomes.

Michael Kelly, CEO, FINEOS Corporation

March 2012

The last few years have offered insurers numerous opportunities to engage with the wider community as successive governments have wrestled with the issue of welfare reform. Yet the Protection Gaps remain stubbornly unchanged and some of the solutions that appeared to have been working have become mired in controversy…think PPI.

One of the more recent opportunities to engage with government and grow the market was the Sickness Absence Review led by Dame Carol Black the National Director for Health and Work and David Frost former Director General of the British Chambers of Commerce. This sought to find a more effective sickness absence system embracing risk reduction, benefit payment, rehabilitation and back to work services. Representations were received from both PMI and IP insurers and much space in the final report was devoted to whether an increase in insurance provision was the answer.

Whilst there were certainly some kind words for the industry, the conclusion was that insurance was a product focused on the needs of high earning executives, largely inappropriate for basic rate tax payers (the mass market) and not deserving of incentives from government to increase the spread of coverage.

Whilst some of the thinking behind this should be and indeed is being challenged, it is disappointing that such conclusions should be drawn.

No-one would deny that high earners have more to protect and represent an attractive market sector for insurers. Similarly, no-one would deny that State benefits are the most appropriate solution for the unemployed and low paid. However, for insurance not to be seen as appropriate for basic rate tax payers is an indictment of the industry’s failure to address a mass market which most certainly needs its protection.

Fortunately, some within the industry want to change this but if they fail to do so and the industry persists in squabbling over the same narrow customer groups, it will remain a niche player in the protection industry.

There are more than enough pointers out there showing what needs to be done. Distribution methods need to be re-thought to provide easier access for consumers, products need to be simpler and more co-ordinated, underwriting approaches need to be more transparent and straightforward, there needs to be much closer co-operation between the public and private sectors to reduce risk and manage claims more effectively and the divisions between individual and group, short-term and long-term insurance need to be broken down if the industry is ever to achieve its potential, So, just for once, can we pull together and get on with it?

As a reminder,

“The Government believes that simple products should be developed so that they deliver against three clear objectives.

• To ensure that people understand the products they need;

• To help people make better choices; and

• To encourage competition in the market.”

So, at least two things are going on:

·         The idea of Simplified Products is that consumers can make their own informed decisions more easily (where have we heard that before?), perhaps with less FSA “policing” but I’m not sure about that. Certainly, they seem to want to vet the policy propositions

·         Then there is the interest from Providers like Skandia to re-grow market share, and that means mass market focus and to a degree that demonstrates the fact that current distribution channels do not fulfil the current and probably future needs. Execution only should come into play a lot more, not popular with some but evidently will become an increasing means of distribution.

On the product front Providers need to get a grasp of reaching consumers needs.

If we as an industry can produce products that are fit for purpose then that’s great. They have, but it’s got more and more complex and I just wonder whether this has been a more competitive element for distribution rather than having the consumer at heart. After all how many Rolls Royces vs Ford Fiestas are on the road and perhaps we should adopt a similar approach. IP doesn’t have to be so complex and as for CI, that seems to have gone mad with conditions and consequently definitions. Yes we need to be fair and clear to consumers and one way, to coin an old statement, is to get back to basics. With IP this could be “budget” plans and CI could see us return to core conditions only. Much easier to explain to consumers and for them to understand. I am convinced people give up on the complexities and end up doing nothing. Surely some cover is better than none?

There is a strong challenge for marketers. Protection products, particularly, have a record of needing to be sold, rather than being bought. So there is still a need to reach consumers. Opportunities are there!!

 When we put too many electronic barriers between the organisation and the customer, and the financial services sector is among the best at that, we need to be sure that those barriers are staffed by those who care, that they are empowered and are able to talk to people in the other barriers: sorry, my language is wrong, I should have said ‘points of contact’ or ‘stations of involvement’, it’s just that everyone I talk to feels that they are barriers.

 I write about this now because it is fresh in my mind, after a startling encounter with such a barrier at the end of January. I was minding my own business when I received a telephone call; it was from India, where else? To be specific it was from the fraud/security department of my credit card company. “Mr Cooke, we have reason to believe that there may have been fraudulent activity on your card, so we need to check some transactions with you.”  So far so good; a chap is always impressed when the barriers are on the ball. Having come successfully through the security questions – I was pleased to know that it was me who was calling – we moved onto the recent transactions check. They asked me about six transactions and they were all correct and bona fide. It was obvious that one of them was out of my normal pattern - an air ticket with JAT airlines for a flight to Belgrade – and, on the face of it, exposed to the east European mafia boys; that had been the trigger.

 But all were mine and that seemed to be the end of it. Not so; I was then told that my card would be immediately blocked, “because there are indicators that the card has been compromised, and you are at serious risk” A new card would be issued “within 7-10 working days”. You’re right, it’s not real is it – 7/10 days? So this customer digs in the heels’ “not acceptable, old chap”, I opine. “unless you can tell me how it has been compromised, you can accept this call as formal announcement of my termination as a card holder with your organisation. “Mr Cooke, I do understand how you feel”, he read of the screen. He couldn’t tell me how the card had been compromised; “I am not allowed to share that information with you?” I imagined the government’s COBRA group listening, anxious,  as this security issue developed. In response, I shared some information with him: stop this nonsense now, take a leaf out of Amex’s book and get me a new card within 24 hours, by courier, or I’m off. “I’ll put you on hold, Mr Cooke.” Oh, good I mused, I haven’t heard Vivaldi’s Four Season’s for a while. He’s back: “Mr Cooke, we do not wish to lose your business, so we will lift the ban on your card, you can use it normally until the new one arrives. “So I will not be at risk then?” Silence. “How can I have been at severe risk five minutes ago, but not now.” Much mumbling, no coherence, more on-screen script reading.

 “I’m calling off now.” “ I do understand Mr Cooke, and thank you for your call.” Next day I rang the UK Customer services number and insisted on speaking to an advisor: she knew nothing about any of this and was appalled; perhaps she was upset that a one of her barriers was not talking to her barrier. The result – I’m no longer talking to any of them. Customer service? Mmm. Perhaps I am just a small pawn in the bigger game of market share and customer churn; but I’m not the only one who feels like this. Financial services is, of course a numbers game; but the banks, insurance companies and credit card companies had better wake up, because more and more customers are getting their number!

Why does the group risk market still inhabit the technological dark ages when it comes to placing and renewing cover and obtaining quotes?

Space 01 has been researching the market with brokers. From what we have seen, generally brokers obtain the required information from the employer, clean it, and then usually email the information on an excel spread sheet to the relevant providers. They can then wait a very long time for a quote and longer still to put a scheme on risk.

In fact, there are still only a couple of providers who offer an electronic quote and even then not for all business and it is restrictive based on the size of the scheme.

We struggled to think of the term for what is needed, and realised that we are talking about straight through processing. The concept is actually so accepted in other financial services product areas, including individual protection, than no-one even mentions it. It is almost invisible, but group risk is still crying out for it.

From a personal point of view, when I was working in a life office in the 1990s, this was the system in use then. It is little short of amazing, though not in a good way, that things have not moved on significantly.

There may be reasons why. First we suspect that the market has not been top priority. If it is always at the bottom of the ‘to do’ then perhaps it is not so surprising if it doesn’t get done.

Some aspects of the market, such as the need for large schemes to split their cover between insurers, may have lessened the competitive pressures. In addition, insurers turn down a lot of schemes. Perhaps the fact that the individual information required is so simple has also made automation less of a priority.

However, we don’t see how anyone is benefiting – not employers, employees, brokers or insurers - from a system where an employer may receive a financial statement about cover as much as six months after a broker has got in contact.

There are of course other issues which may require some thought. How ‘clean’ does a case have to be before it is passed? Is there any way to increase the minimum cover levels before underwriting has to be done while remaining cost effective?

But even if a big percentage of schemes do require more detailed work, at least an automated system might identify them more readily.

There is one other reason why time may be of the essence. There is a huge opportunity to talk about group risk alongside auto-enrolled pensions. Some employers will simply want to comply with the legislation. However others may use the opportunity to examine their whole benefits strategy. It doesn’t look like the State is going to offer a helping hand, as it does in Australia, where you can put a small part of your compulsory pension contributions towards protection.

But as the systems for pensions and payroll are automated to make auto-enrolment cost effective, surely group risk needs to get to a minimum technology standard as well. Otherwise sales could be lost because of the administration hassle and that’s a shame for everyone most importantly for employees.

I accept that there may be reasons why technology has not been widely adopted and I would love to hear from providers and technology firms what they are.

But surely it is about time providers automated their own processes, and somehow got together to provide a quote engine too? It is not as if the technology isn’t tried and tested. 

One area of blame should probably be Middle Management. Most advisers’ interaction with people in the industry begins and ends with their broker consultant, if they have one. Any issues that the adviser may have can be relayed to their broker consultant but as long as said consultant’s sales target is not affected, they really aren’t bothered. If it is a big enough issue to get referred up the line, it will probably go no further than the manager’s inbox. After all, who can blame Middle Management for paying little heed to whinging advisers who they’ve never met? With all due respect to high volume distributors this does not apply to them. First; their issues are very different to us small-volume players and second; their business volumes mean that their needs are responded to effectively, relatively speaking. Big-hitters they may be but us firms with only a handful of advisers are reflective of the vast majority of the industry.

Proof of this breakdown in communication frequently manifests itself via the cosy chats with Senior Management over a beer, where commonly held adviser frustrations are seemingly news to them. Maybe they are just humouring me but I don’t believe so in every case.

It is a shame that more frequently these days the most effective method of getting a resolve to an adviser grievance is via trade media or a negative post on twitter. But these points should not relate to only negative issues. I am sure that great ideas and initiatives also get overlooked because the two ends of the distribution chain are so far removed. (By the way; don’t ever let advisers hear you referring to them as being part of a distribution chain)!

I sense that more than ever the product manufacturers in the protection industry are desperate to know how adviser distribution is going to evolve in the run up to 2013. Quite simply; those that observe from their ivory towers will learn little, whereas those that roll their sleeves up and get their hands dirty at the coal-face will learn much.

Looking back at 2011, Greek intransigence put the Eurozone on a precipice, and has likely pushed the economy backwards. This is probably the most significant event for financial services in general, and will continue to be a painful backdrop in 2012 as fear permeates. For those of us in the protection business in particular, the demon of PPI mis-selling has certainly reared its ugly head as well.

But 2011 was by no means all doom and gloom. We’ve seen some significant positive changes too – changes which I’m proud to say Unum has been at the forefront of. For the first time, Income Protection has been heavily marketed to consumers, with TV advertising campaigns not only from ourselves but also from Aviva. We’ve highlighted the enormous gap in protection that exists for consumers today, and explained why a back-up plan like Income Protection is a good thing to have – especially if you get it through work. We’re building demand, which advisers can capitalise on.

And this leads me to look forward to 2012. Clearly IP promotion in 2011 is creating opportunities for advisers to sell more IP. But for many IFAs, RDR is the biggest thing on the horizon, and the focal point for 2012. With the removal of commissions, how can advisers justify the visible, upfront consulting fees? What products or financial problems are large-enough scale to support the fee-based model? Where do the opportunities for new business lie – especially in the current economic situation?

Well, we have an idea. The major growth opportunity for Income Protection is those in the aspirational middle class. Today, these people probably don’t have access to an IFA, and under RDR, are even less likely to pay fees. The best way for this group to get IP is through work. So where’s the growth potential for advisers? In short: Group IP in SMEs.

GIP schemes are traditionally the preserve of corporate IFAs and employee benefits consultants. But the majority of corporate advisers focus on medium-to-large employers. Small businesses are often underserved. Yet many IFAs will have relationships with individuals whose high net worth has been derived from entrepreneurship and director-level positions in precisely those small businesses. Could those IFAs not discuss the needs of their businesses with those owner-managers? And a 10-50 person GIP scheme would not only be a major source of new premium from existing clients, but is RDR-exempt as well.

Of course, there are two counterarguments: SMEs don’t want GIP or they can’t afford it, so there’s no opportunity. Let’s address each in turn.

To say SMEs don’t want GIP is an over-simplification. Some truly won’t see the value of protecting their staff and insuring themselves against their own costs of absence. However, many do have strong desires to care for their staff – particularly if those SMEs are family-run businesses. That moral sense of care includes wanting to ‘do the right thing’ for staff who are long-term sick. In fact, Unum’s experience shows that, whilst SMEs are less likely to have a GIP scheme in place, when they do, they are far more likely to cover all their staff than larger companies. In fact, for firms over 2,000 employees, just 6% of staff are covered – IP is merely another senior management perk. Whereas for businesses in the 10-49 range, it’s 67% – small businesses want to look after staff. And in many cases, lack of penetration is less about not wanting IP, it’s about not knowing about it, or about the risks faced by both employee and employer, from long-term injury or illness. This lack of awareness is common amongst employee and employer alike. So there’s actually a major opportunity for IFAs to educate their owner-manager clients, and explore the real appetite for GIP.

With constrained budgets, cost is an issue. That’s why we’ve developed options for GIP cover that start from as little as £200 per employee. GIP has traditionally been sold to senior managers as a ‘gold-plated’ product, with high levels of income replacement, and insurance against being able to do specifically your old job. To protect the essentials of life, such rich cover isn’t necessary. A foundation level of IP cover is an affordable way to show employees you care – especially when pay-rises are not on the cards. And this formalises sick-pay policies, simplifies them and makes them non-discriminatory – whilst covering the direct costs of absence for the employer as well.

So here’s the idea: 2011 began to build consumer interest for IP; 2012 offers individual IFAs an opportunity to capitalise on that demand with SMEs, in a way that offers new revenue streams in the face of RDR. Sound interesting? We’d love to hear your views!