One of the UK's largest protection advice firms has set out a four-point plan to close the protection gap, as the FCA gives the industry 12-18 months to show ‘meaningful progress’.
Cream Financial Solutions believes the key to meeting the challenge is to focus on steps that can be put in place quickly, such as implementing referral partnerships, while the industry implements long-term solutions.
The regulator fired the starting gun with the final report of its pure protection market study. Rather than introduce new rules, the FCA has handed the industry the task of closing the gap after finding that 58% of adults have no protection in place, of which 59% of those have never considered it.
The Protection Distributors' Group (PDG) will lead a consumer awareness campaign, while trade body Advice, Mortgages, Insurance (AMI) will lead work to help advisers improve how they discuss protection with customers.
With the regulator expecting swift progress, Cream says it is important that the industry focuses on initiatives that can be implemented quickly, such as:
- Double down on referral pathways: Many mortgage brokers have the expertise to advise on protection but don't have the capacity, especially where underwriting is complex. One of the fastest and cheapest ways to deliver good outcomes for their clients is therefore to set up referral partnerships with trusted protection specialists. Building a team takes time firms may not have, while a referral arrangement can start now.
- Social media campaign that focuses on emotional drivers: The PDG's campaign should run mainly on social media, where it can be launched within weeks and reach renters, who may never sit down with a mortgage adviser, and the self-employed, who have no employer sick pay to fall back on. It should say little or nothing about products and focus on the emotional reasons people take out cover, such as family and the things they love.
- Change the way advisers talk about protection in client conversations: Terms such as income protection and critical illness cover mean little to most consumers. Advisers should open with what matters to the client – their children, their income, their plans and ambitions – and what would happen to those if illness or death struck.
- Rethink the industry’s commission model: While this may take longer to implement, providers should explore a hybrid commission model that lets firms choose how much commission they receive up front and how much is paid over time as premiums come in. At present, advisers risk clawback if they move a client to a better policy in the first few years but earn a fresh upfront payment once that period ends. Paying less up front would take the timing out of the decision.
Simon Smith, Managing Director at Cream Financial Solutions, said: " We're confident that the work led by AMI and the PDG will make a real difference in the long term, but the FCA has made it clear it wants to see progress sooner than that. The clock is ticking.
"We're on the front line of protection advice every day and we can see what can be done now. When the regulator checks on progress, firms will want more than good intentions to show for it.
"Advice has become more specialised. It happened in wealth, where pensions and investments became disciplines in their own right, and the same can be said about mortgages and protection. Most mortgage advisers are perfectly capable of arranging cover, but their focus is on the mortgage.
"If a firm can't give protection the time it deserves, it must either invest in dedicated in-house resource, which not every firm will be able to do, or partner with a specialist to make sure its clients are properly covered. These pathways can be set up quickly and can ensure a firm’s clients receive better outcomes."
On how the industry talks about protection, he added: "Nobody wakes up in the morning and decides to buy critical illness cover. They wake up and buy a new pair of trainers.
"So make it real. Ask a parent what they do with their kids at the weekend and how they'd feel if they couldn't do it anymore. The dance lessons, football training, the things that make their child happy – that's what income protection pays for. Once people recognise its value, you don't need to sell anything to them."
