Like many others, Kerry Nelson has been making the argument that the industry needs to advise and instigate more protection for more than a decade. Here, she explains why more advisers should get involved in the protection game…
Apart from anything else, protection presents a remarkably good news story for the financial services industry, certainly when looked at from a claims point of view.
Figures from the Association of British Insurers and Group Risk Development (GRiD) showed payouts in 2018 of more than £5.3 billion and a £200 million increase year-on-year.
The claims paid surpassed 200,000 for the first time ever and an impressive 97.6% of claims were met. Almost every year within our own client base we also see how these payments work in practice. Indeed, it is difficult to convey how important it is unless you have received such a payment or seen just how important it can be for families at such times.
Yet when the industry debates the issue it all seems a little one-sided. It’s almost like we are shadow boxing without an opponent.
Attend any protection insurance conference and there will be at least one session discussing how to get advisers to recommend more policies and more cover in a way that doesn’t happen for other ‘product’ lines. I have also heard very senior, often veteran, industry figures voice their concern that the advice sector has moved away from its roots given the generally anaemic sales record in protection.
There are some signs of improvement because individual sales rose 5.7% in 2018 compared with 2017, according to Swiss Re’s annual report. Yet I would argue we are still well below what should be the natural level of policies recommended.
Attend any protection insurance conference and there will be at least one session discussing how to get advisers to recommend more policies and more cover in a way that doesn’t happen for other ‘product’ lines.
It still feels as if much of this debating, urging and cajoling has passed large parts of the sector by. Obviously, this doesn’t include the specialist protection firms, though how they operate seems a world away from what most advisers do, as they are highly sales orientated.
Such businesses may serve an essential role given the rather sluggish approach of the rest of the sector.
‘Same clients, different stages of life’
Yet the two intermediary types I would really like to challenge are the mortgage brokers and the IFAs.
Nexus is a financial planning business with a strong investment proposition, but we have also recently beefed up our mortgage offer, and indeed ruled out outsourcing to a specialist.
In fact, we might suggest that mortgage brokers and advisers are simply meeting the same clients – just at different stages in their clients’ lives.
This fits with our view that we want to offer services and utilise financial products that are appropriate to clients at all ages because, ultimately, that supports our advice offer.
Therefore, we see protection as a crucial part of our interaction with our clients. We don’t convince all our clients to protect themselves and their families, but we always try to. Yet this brings us to one of the stranger aspects of discussions about protection.
Every time this argument pops up on social media, whether from advisers or brokers, there is an absence – and that is the other side of the argument. We hear that views have been expressed at a conference over coffee or over a beer at the end of the day.
A mortgage broker may say there are simply too many mortgages to be sourced and that is, ultimately, what the client wants because they can then buy the house they want. If they want insurance, they’ll ask!
If we met that broker, we would say there are compelling reasons to at least test whether those taking out mortgages, and thus taking on significant debt, should consider a protection policy. It may be a matter for debate whether that is dealt with within an intermediary firm or a strongly recommended referral. But it surely means you are treating your customer or client fairly.
In a similar vein to the mortgage broker, an adviser may suggest their client base is too well off, that they are not really interested and they can simply self-insure.
In response to this protection-sceptical financial adviser, we know that advisers may be dealing with customers at minima reaching £300,000 to £350,000 to invest, with a good income and likely broader wealth.
Yet we would be sceptical of the argument that someone with that profile could easily self-insure, and cope with a severe illness without some pretty radical adjustments in lifestyle for themselves and their family.
A client who has a family, with children at school, a good job, free assets they are still building up and a hefty mortgage, still sounds like they could do with a reasonable degree of protection cover.
The business case
To look at our business case, we would suggest quite simply that protection brings another significant stream of income – one that isn’t particularly dependent on the housing market or the stock market.
Indeed, since the early days of Nexus we continually analysed our income streams in terms of protection, pensions and investments and it currently splits roughly three ways. That is a situation we are really happy with.
Indeed, we are determined not to overlook protection, even as we expand the investment proposition of our business. Yet our last argument is surely the strongest. We have been in operation for more than a decade and have seen protection plans pay out frequently.
These policies bring financial security and peace of mind in the most trying of circumstances for our clients. Sourcing and establishing that security is surely something that every financial planner should do.
Kerry Nelson is managing director of Nexus IFA