Advisers need to broaden their reach, cross-sell and adopt a more consultative approach if they want to thrive. John Greenwood hears how and why
Corporate advisers need to offer employers an increasingly holistic risk management service if they are to replace lost pension business and remain relevant in the next decade. That was the conclusion of delegates at Corporate Adviser’s roundtable – Redefining Corporate Advice: Building Sustainable Models – in Edinburgh last month, held in association with Canada Life Group Insurance.
Cross-selling of different product lines will remain key to delivering a better all-round service, said delegates, although a change of mindset and an upskilling of some advisers might be needed to fulfil even the most obvious of these cross-selling opportunities – group risk to new auto-enrolment clients.
LEBC senior financial planner Jaffray Weir said: “Auto-enrolment is a perfect opportunity to go beyond pensions. LEBC has a specialist division doing AE and we have got people doing group life, PMI and PHI, but for all firms there is an issue with how best to utilise the skill base. Most IFAs are tunnelled. They do what they have always done and rarely stray outside their comfort zone.
“As an industry, we create different parts of the market, we create different divisions to target different things, but we don’t talk to each other enough. The number of opportunities on the pension side that could go to group life and vice versa is huge. But the RDR system has stopped that integration. However, because of pressure on fees, and to replace the commission that has been lost, people may change and come back. The culture needs to change across the whole industry.”
Pensions party over
Delegates agreed that the pensions party was over for most advisers. JLT Benefit Solutions head of health & risk Adrian Humphreys, who was formerly at WPA, said: “I have been an insurer for 16 years and now I am on the other side – I’m not sure if it’s poacher turned gamekeeper or the other way around. But you walk into a large employee benefits consultancy and it is almost as though they haven’t got over the shock yet that DC came along and ripped out a huge amount of their income.
“So what else is there? Health is a no-brainer because the NHS is going nowhere. Group risk, of course; group life, yes, but yawningly boring and, if you are under the age of 30 and you’ve got no kids, who are you going to leave the money to?
“So the big growth area is group income protection because it is more important to have my salary paid – should I not be able to work – than to have death benefits.”
Growing the market
Canada Life Group Insurance marketing director Paul Avis said the growth in the group risk sector that had come from expansion of existing schemes to non-insured people, whether as a result of AE or otherwise, was a welcome trend. But the bigger issue, and the bigger opportunity, was in the vast majority of employers that bought no group risk at all.
Avis said: “Expansion since 2010 has been good by employees and by premiums, but not by employers. We are basically not engaging with the SME market. We want to grow the group risk market and we are constantly challenged by the fact there are about 72,000 group risk schemes but about 1.2 million companies in the UK employing people. That breaks down to around 51,000 group life schemes, 17,111 income protection schemes and around 3,000 critical-illness schemes.”
Group risk may not be flying off the shelves but it is considerably healthier than the individual market, although it is yet to fill the gap being created by plummeting individual sales.
Scottish Widows protection specialist Johnny Timpson said: “The individual protection market is shrinking at a rate of knots. The intermediary section is stagnant. It is incredibly reliant on the mortgage market but we have seen that market move back to pre-Thatcher, pre-Big Bang levels, with renting becoming a growth area. We are more folks renting than owning, which we had pre-1960. So with the decline of the bank assurance, the workplace is key in engaging people with protecting life events.”
Avis said: “We thought that, on the back of the RDR and the removal of commissions on pensions and the DWP charge cap, everyone would pile into protection and group risk would take off astronomically. We also thought that, on the back of AE, the adviser would be seeking something like group life to enable them to maintain contact with the employer once the pension scheme was implemented.
“We have a significant amount of frustration from a provider perspective on the number of employers that could be purchasing group risk but are not. We believe that, if we do not get into addressing this issue, the market will basically churn or move the same schemes around at less cost, with some schemes becoming uninsurable.”
Technology may hold the key
Humphreys said technology was about to revolutionise the way the benefits sector operated and, if intermediaries did not get on top of it, someone else would.
He said: “We are still in the Stone Age with people writing on pieces of paper. Why do we have all these different application forms where people fill in the same information for the same employer? Ideally, there would be one interface that links into payroll and that puts all the information across – and this will come soon.”
So is there a lack of information exchange because it is in no provider’s interest to hand over its data to rivals?
Financial services marketing consultant Roger Edwards said: “I have always thought that, whenever that has been said, it has been an excuse. We have as an industry tried to share information in the underwriting process. But it is certainly true that the cost of acquisition of business in the protection industry is massive. Once you stick a profit margin on top, the customer is not getting such a decent proposition.”
Humphreys said: “We have BenPal, which is a platform that works quite well. But we need it to talk directly to payroll and also to providers. That is starting to happen but there are no excuses now. Everything is dot-net and there is no danger of that information ending up in the wrong place.”
Avis said: “In our world we have got the UnderwriteMe quote comparison software and the CLASS system, on which 10 per cent of all group risk goes. We are actively seeking partners to do linkages with.
“If you think about all the pension providers, all the PMI providers, anyone that holds data, these people have the data we need to offer quotes. We can digitise that so there is no human intervention at all. That is an offer that is available from us today but how many people are banging down our door saying ‘I want to grow my group life business on the back of auto-enrolment?’”
“None at all,” said Humphreys. “Because they are all too fat because of all the commission that was available pre-RDR.”
Avis said: “The close rate on CLASS is well into double digits. We have one job to do and that is put the quote in front of the employer and they buy it. And guess what? You get commission of 30 per cent for every scheme put in place.”
Opportunities abound for advisers who move to a more consultative approach. Some drive down costs for employers; others manage the existing risks more effectively, creating synergies and giving the employer and their staff more for the same benefit spend.
Broadstone risk and flexible benefits director Nick Boyton said: “The existing market has got a lot tougher in recent years as a result of AE because a lot of consultants and brokers out there foresaw that their commission was going to disappear from pension schemes. And they’ve been looking around thinking ‘What else can we do?’ and they’ve looked at this book over here with ‘Risk in Healthcare’ on it, which they did as a favour, or they weren’t that interested in. And then they’ve looked at it more carefully and realised that it was quite a profitable business and they could grow it.
“And now the income from that is pretty much on a par with, if not more than, their future revenues from pensions. So they have upped their game and we have this war going on where people are undercutting each other for existing business on fees.”
Weir argued that AE should be an opportunity for advisers to expand into group risk, provided they got the message right.
He said: “AE has opened up the markets. It has given us more contacts within small and medium-sized companies. Group life is very important because it is a door opener, because it is relatively cheap. And from an employer costing point of view it is a huge benefit not just for the employer but for the employees as well.
“I agree that PHI will become more important but you have got to take it in steps and grow it because there is a lot of ignorance and a lack of understanding from employers. There is also a lack of understanding among the adviser community as to what the benefit is. Advisers who are not specialists look at it and think ‘Oh my God, what is this about?’”
Avis pointed out the synergies between insurances that could be capitalised on. He said: “If you think about income protection and early intervention, we get 80 per cent of people back to work in the first six months. If it is a work-based accident, that mitigates the loss of salary for the employer liability insurance, so why is it that people doing liability insurance are not coming to us and saying ‘Can we link income protection and liability insurance?’”
Humphreys said: “That is why these days we don’t want to talk to just the comp and bens person. We want to talk to the HR director and the finance director too.”