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Insurancereview – June 2012

The insurance industry has received continued warnings over the years against poor selling practices by some distributors and the lax approach of some providers to the quality of distribution.

Tom Baigrie, chief executive of the Baigrie Davies LifeSearch group, recently warned that with the Retail Distribution Review approaching and premiums set to rise, our market may attract many start-ups, some of low quality.

He was also concerned that eagerness for market share would accelerate the already endemic granting of agencies to dodgy distributors, who are allowed to flog good products badly.

“A client ripped off by one of these will hate our industry forever so you must stop the laissez-faire approach to the quality of your distribution,” he cautions.

Advisers have expressed concern over the years that life offices grant agency terms too easily without properly measuring the sales process and the quality of business being written.

While some providers have adopted more robust monitoring, others remain primarily interested in quantity over quality.

The Financial Services Authority has also warned of the migration of advisers and sellers who typically have not specialised in the protection field, in particular as protection remains outside the RDR.

In a bid to rectify the situation, Baigrie’s firm is seeking feedback on a new code of conduct for protection sellers, which would apply to all forms of distribution.

The aim is to cover advised, non-advised and online sales. Baigrie hopes insurers will agree to set minimum standards and ask their agents to sign up to them and honour them in practice.

Basic self-regulation is the best way to avoid the destruction the regulator has inflicted elsewhere.

The next step is to ask insurers and reinsurers to make sure those who sell their protection policies agree to these minimum standards and enforce a policy of withdrawing access to products from any agents proven to be neglecting these standards.

Below are the six main points that we want distributors to sign up to as part of the voluntary code.

  • Those selling critical illness cover must explain its limitations in line with FSA requirements.
  • Those who choose to highlight terminal illness benefit as a product feature must explicitly state its limitations and ensure that it is not confused with CI cover.
  • Those choosing to discuss total and permanent disability cover and income protection must clearly explain the definition of disability on which the policy will pay out.

For example, with income protection, there is no list of conditions and better policies will simply ask whether clients can do their existing job. But inferior policies will require them to prove they cannot carry out daily activities, such as climbing stairs.

  • Those selling payment protection insurance and mortgage payment protection insurance must make it clear to customers that the cover is optional, is one of a number of products designed to replace income, and may not be the most suitable product.
  • Sellers must clearly state to customers at the outset whether they provide regulated advice or not.
  • All sellers must demonstrate to insurers that they have provided for the repayment of indemnity commissions on lapsing policies. We want to get as much feedback as possible from the industry on these points. Do they go too far? Would you like further additions?

Please email comments to

Talking Points

AVIVA HAS LAUNCHED a healthy living Facebook app and a stress management mobile app, which rate users’ health and allow them to compare scores with friends and family before giving advice and goals on how to become fitter.

RESEARCH FROM REINSURER RGA showed that just 14% of Britons are aware they could receive up to £2,000 in bereavement benefits from the government when a spouse passes away.

SWISS RE’S ANNUAL Term and Health Watch 2012 report shows a significant increase in the UK Life Assurance Protection Gap, which now stands at £2.4trillion.

DREWBERRY INSURANCE HAS launched a new life expectancy calculator which predicts the chances of popping your clogs before your mortgage is paid off.


Do you ever recommend standalone critical illness cover? If so, think again. About 97% of CI sales include automatic life cover on an accelerated basis. Such policies pay out on the first event – if the policyholder dies the life cover pays out, if they suffer an illness the CI part pays out. Life cover combined with CI costs roughly the same as CI on its own, so it’s often not worth considering the latter on price.

But there’s another reason. Policies must differentiate between a death claim and an illness claim, which is done via the waiting period, typically around 21 days.

If the client dies within the period, it’s a death claim, otherwise it’s a CI claim. This means a standalone CI claim for someone who suffers a heart attack and dies within a week may not be paid, whereas CI including life cover would.


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