WHITEPAPER IS IGNORING GENERAL INSURANCE A DERELICTION OF DUTY?

Transcription

1 4 WHITEPAPER IS IGNORING GENERAL INSURANCE A DERELICTION OF DUTY?

2 CONTENTS Executive summary 3 The role of a financial adviser 4 Getting to grips with GI objections 5 Looking after your client 9 Competing with the internet 10 The importance of best practice 10 Is ignoring GI a dereliction of duty 11 2

3 EXECUTIVE SUMMARY BACKGROUND A number of financial advisers are still recommending mortgage products in isolation, without talking to their clients about home insurance, unemployment cover and other relevant products. But with so many General Insurance (GI) options available in today s marketplace, it s very easy for consumers to get confused when left to their own devices which could leave them financially exposed. Advisers need to step in and help their clients properly protect their homes and mortgages with appropriate GI cover, otherwise it's very likely they're demonstrating a dereliction of duty. KEY MESSAGES The importance of financial advice The role of an adviser is to help clients understand their options and see the bigger financial picture so they don t end up in financial difficulty. This means taking a more holistic approach to mortgage advice and including GI as part of the conversation. There s no good reason for advisers not to sell GI Advisers often raise objections to GI around the time and effort it takes, or the lack of commission and product understanding. Not only are these false perceptions, they re also ignoring what s best for the client. Clients need GI advice Many advisers wait to be asked for help with GI before offering their services. But clients don t always realise it's an option. So, advisers really ought to make the first move. Advisers have to take some responsibility for consumer perceptions More consumers are visiting online comparison sites, thinking that all GI products are the same. Advisers should be letting their clients know that there s more to GI than just price. It s unacceptable for mortgage advisers to leave their clients investments unprotected Not only is it best practice to help clients protect their mortgage investments, advisers also have a duty of care to consider all their clients options. Ignoring GI is a dereliction of duty When financial advisers recommend mortgages, without talking about GI, there are no excuses. It's quite simply a dereliction of duty. 3

4 THE ROLE OF A FINANCIAL ADVISER Paymentshield s average mortgage to Home Insurance quote penetration rate is 44%* *This based on Paymentshield quote data from Jan 2016 to Dec 2016 The purpose of financial advice has always been to empower people, by helping them to understand their options, make better decisions and ultimately safeguard their finances. But, with the power to provide professional guidance, comes great responsibility. And in recent years, there has been increased focus on consumer protection from the Financial Conduct Authority (FCA), along with mounting pressure on advisers to take a holistic view of their clients financial situation 1. In a bid to ensure that advisers go about their business in the right way, the FCA has been taking a long hard look at how it can make professional advice easier to understand and more accessible to everyone 2. And while it accepts that the UK has a high-quality financial advice market, it s also very aware that an advice gap remains around a number of products. Fee based products such as investments and pensions are under most scrutiny, based on the concern that consumers aren t always in a position to pay for relevant advice. But even with GI which isn t fee based, there s still a lack of advice. It s not uncommon for financial advisers to arrange a mortgage without even mentioning home insurance, unemployment cover or other relevant products. What s frustrating, is that GI is instrumental in making sure a client s property is fully protected. So the fact it s regularly overlooked, poses some significant questions: Is there a good reason why many advisers don t step in to offer advice on general insurance? Can consumers afford not to get advice about GI? Are online alternatives solely to blame for tempting them away? Is it acceptable for advisers to turn their back on ensuring their client's home is fully protected? And, if the answer to these questions is 'no', is it a dereliction of duty to ignore GI? FCA Market review March 2016

5 The ACCIDENT SICKNESS UNEMPLOYMENT FIRE, STORM OR FLOOD CRITICAL ILLNESS DEATH GETTING TO GRIPS WITH GI OBJECTIONS While there are plenty of mortgage advisers who champion the GI cause, there are still those who question the legitimacy of GI as an advice-based product. They typically raise concerns around time and money or use their lack of product knowledge as a reason to opt out. But on closer analysis, most of these arguments appear to have little or no foundation and they all seem to skirt around the underlying issue that ignoring GI can be detrimental to the client. 5

6 IS IGNORING GENERAL INSURANCE A DERELICTION OF DUTY? SOME THINGS ARE WORTH FINDING TIME FOR Some advisers say they don t have time to research the vast array of products available in today s market. Others have a good working knowledge of GI, but fail to use it, suggesting it s a lot of trouble for very little gain. Of course, the important point they re missing is, it isn t about the time and effort it takes; it s about the responsibility they have to their clients. The best mortgage rate in the world is of little use if the house catches fire or a tree falls on the roof. Plus, buildings insurance is a requirement of most mortgages lenders, which means it should be an essential part of the advice process. Ironically, the time it takes to write a GI case is usually a fraction of what it would take for other financial products. As Nick Powell, of Just Mortgages Direct, points out, GI is very quick and easy to submit, often taking no more than 10 minutes. And you already have most of the information you need after discussing other products. UNDERSTANDING THE DEMAND There are 26.7 million households in the UK, of which 20.4 million have contents insurance (76%) and 17.3 million have buildings insurance (65%).3 27% of these policies are being purchased directly by consumers. That s an incredible 10.2 million business opportunities that are advisers are letting walk out of the door!4 6

7 A GREAT ADDITION TO YOUR COMMISSION Another common complaint from advisers, is that GI doesn t offer enough commission to justify the effort that goes into it. This may sound like a reasonable concern, but it s based more on assumption than genuine substance. Plus, it focuses more on the adviser than the needs of the client. In reality, GI might not have the glamour of a multi-million-pound investment or anything like the up-front commission. But what it lacks in initial pulling power, it can more than make up for in longterm commitment. And when you factor everything into the equation, from the time spent preparing the quote, to the ongoing commission earnings, it can offer a sizeable recurring revenue stream that s hard to ignore. Simon Jones, a financial adviser from Irlam Estates in Manchester, agrees, Selling GI offers us a very important income stream; if things were to go quiet I know we d have that income coming in every month. But the more important point is, it s the right thing to do. The minute advisers start selecting products based on commission rates rather than relevance, is when the whole concept of advice goes out the window. This is another reason why Simon Jones always makes a point of discussing GI in his sales process; he explains, The secret of success is not missing any opportunity. We know we re not going to get every client; that will never happen. But as long as we re talking about this product [GI] and quoting our clients on it we know that we'll get the majority. It s also worth mentioning that there's little or no acquisition cost when targeting new home insurance clients. Most mortgage customers are happy to accept their adviser s input, and the quote information can usually be retrieved directly from the mortgage fact find. Plus, the annual renewal gives you a great reason to get in touch with clients and establish ongoing relationships. So aside from the moral obligation to support clients, it s an easy way to add value (and revenue) to your business. IT DOESN T HAVE TO BE COMPLICATED While it s encouraging that there s no shortage of GI products in the industry, this is yet another example of why advisers sometimes choose not to write any GI business. With so many options available, they simply don t know where to start. Funnily enough, this is also the very reason why advisers should be taking more of an active interest in GI because without the right advice, customers will face the same difficult choices on their own and could easily end up with the wrong level of cover. What s interesting is, there's also advisers at the other end of the spectrum, who avoid GI because they view it as a simple, low-cost option that doesn t require any degree of specialist knowledge. Some believe that financial advice is only relevant to people with money or who need help with high-cost transactions. But as well as trivialising GI, this implies that there's no risk in consumers arranging cover themselves. There are two main problems here. First of all, the relevance of GI shouldn t be judged on how much it costs to purchase, but on its value to the client especially when the wrong policy could potentially cost them everything they own. Secondly, the idea that GI is too simple for advice, couldn t be further from the truth. The range of options available in today s market has never been better. And as long as advisers are prepared to offer a helping hand, policies can be tailored to the specific needs of an individual just as much as any mortgage. 3 p4 4 p24 7

8 SUPPORT IS OUT THERE A final objection that advisers sometimes raise about GI, is that they simply don t have the knowledge or experience to sell the product. This may well be a legitimate concern, but it s also very easily resolved and nowhere near as important as the need to deliver a complete service to clients. For those advisers who don t feel confident discussing GI with their clients, there are plenty of providers who are more than happy to help. Kay Westgarth is a National Sales Manager at Paymentshield and is very aware of the challenges facing advisers in the current market. But she is a firm believer that anyone who talks to consumers about mortgages and protection has a duty of care to mention GI. After your loved ones, your home and contents are likely to be the most important things in your life, she explains, And yet in a recent Defaqto survey, 42% of clients said they didn t always know what the product features meant. Kay is very conscious that there's a knowledge gap preventing advisers from getting too involved, but offers a very easy fix. We have field-based and telephone-based experts who can help in all kinds of ways. We're happy to hold a workshop for advisers at their offices any time that suits. Plus we can attend team meetings or events while they have a captive audience. Our workshops don t just cover features and benefits; they offer tips on how to overcome objections and the pitfalls of the internet, and how to embed GI in your processes. If time's an issue, Kay s other suggestion is for firms to refer business, via a scheme like Paymentshield s Introducer initiative, where a member of their advised sales team will contact the client on behalf of the adviser. Alternatively, they could put in place a GI specialist within their business, who can take care of all home insurance and protection enquiries once the mortgage is set up. Her overriding point is that advice needs to be integrated into the sales process and it doesn t have to be difficult.

9 LOOKING AFTER YOUR CLIENT For those who still need convincing about the benefits of writing GI business, it s worth pointing out that there are plenty of advisers out there who make a successful living out of it. But ultimately, it s not about the financial benefit to the adviser, it s about the financial risk to the client. When advisers talk about a mortgage, they have a responsibility to help their clients see the bigger financial picture and offer advice on all relevant products whether it s home insurance, unemployment cover or any other insurance policy so the client is not left financially exposed. IT S UP TO ADVISERS TO MAKE THE FIRST MOVE As soon as we accept that customer care is the priority, it becomes much more appropriate to start talking about GI products as a necessity rather than a nice-to-have. Sadly, it would seem the process often falls down because mortgage clients don t actively request information on GI. Instead, it falls to their adviser to point them in the right direction. The thing to remember is that just because a client doesn t ask for help, doesn t mean they don t need it. On the contrary, anybody who is taking out a mortgage, is likely to benefit from home insurance, unemployment cover and any number of protection products. So advice in these areas should be part and parcel of the service. If advisers focus all their attention on recommending the right mortgage, without any thought for the insurance products that go with it their clients are likely to go out and purchase cheap online cover, which can leave them underinsured and exposed to unnecessary risk. The problem is, they only find out when it s too late and claims are rejected. By including GI in the initial mortgage conversation, advisers can help to remove this uncertainty. As long as clients know that a recommendation is going to be included in the service, they are less likely to go looking themselves and GI stops becoming an awkward afterthought for everyone concerned. TRUST NEEDS TO BE EARNED Even with advisers on board, there s still work to be done when it comes to breaking down barriers about GI. It s clear that some consumers still need convincing that there's any real value in seeking out financial advice. 38% don t think they need advice, 19% think IFAs are expensive and 16% think that advisers are for people with lots of money. 5 This is only going to change if consumers are made aware of their choices. They need to know that they can access the right advice, without it costing them money and that advisers can add genuine value along the way by tailoring cover to their individual needs. This will only happen if advisers embrace the diversity of GI and actively promote it as an essential part of the advice process. The right approach can, of course, make all the difference here. In a recent consumer survey about financial advice, we found that 65% of people believe it s important for their adviser to show enthusiasm about a product if they're to consider buying it. 75% believe it s important their adviser demonstrates the value of the product with real life examples. And 80% believe that their adviser should be able to demonstrate in-depth product knowledge. 6 5 From YouGov Plc. Total sample size was 1118 adults. 6 From YouGov Plc. Total sample size was 1118 adults. 9

10 COMPETING WITH THE INTERNET Perhaps the biggest obstacles for advisers today are the countless price comparison sites and price led online alternatives that have flooded the market. On this, Melissa Mussett of Just Mortgages Direct, admits that, Price is the main objection brokers get, but believes that it s up to advisers to change these perceptions. She suggests that advisers sometimes give up too easily and maintains that, If they do a good job in the first instance, by advising on the correct level of cover, they'll generally get less push-back. The truth is, it s very easy to blame online alternatives for creating this consumer obsession with price. But advisers need to take some responsibility too. At the very least, they need to quote on these products. And when they have mortgage customers in front of them, explain how the different options work and why it s important to choose wisely. Obviously, price is always going to be a major consideration for consumers. But the reason prices do vary so much from one provider to another, is that products are very different. Five star hotels cost more than three star hotels for a reason and GI products work in a similar way. That s why the Defaqto star rating system 7 was introduced to help consumers (and advisers) understand which products have better features, benefits and service. 66% 8 of people asked in a recent survey were not aware of Defaqto, which is precisely why advisers need to offer guidance to help their clients distinguish between different types of policy and match the benefits to their individual needs. THE IMPORTANCE OF BEST PRACTICE Best practice is a phrase that is everpresent in today s financial services industry. As the name suggests, it s a term used to describe process efficiency, sensible behaviour and accepted industry standards often used by regulators as a framework for roles and responsibilities. Melissa Mussett, believes that best practice is about understanding clients needs and making sure they're met. In terms of the mortgage process, this might involve recommending the right products, explaining the relevant benefits and putting a plan in place with the least amount of fuss. But it s also about looking at how being tied into mortgages can affect a person s finances especially if circumstances change, which is why GI is so important. GI products may not be considered as complex as the mortgage itself, but when it comes to best practice, they're critical to safeguarding the investment for the future. With so many different options to choose from, it s essential that clients understand which products are most suited to their situation and there s no one better qualified than their adviser to tell them. INTRODUCING DUTY OF CARE For mortgage advisers like Melissa, best practice isn t just about the most efficient way of doing something, it s about acknowledging the duty of care that goes with it. In practical terms, duty of care is a fundamental feature of every advice based industry and couldn t be more relevant to today s financial services market. Defined as, a moral or legal obligation to ensure the safety or well-being of others, it's essentially an unwritten promise from advisers that they'll always act in their clients best interests. If mortgage advisers want to build trust, credibility and long-term client relationships, this basic responsibility cannot be ignored. When they talk to clients about a mortgage, they should automatically be talking about how to protect their investment. Because, by addressing these issues up-front and extending their service to all mortgage related products, advisers can make a big difference to their clients situation now and in the future. DID YOU KNOW? In a recent Paymentshield survey, 98% of advisers agreed that it was best practice to discuss General Insurance products with their clients. Paymentshield Research From YouGov Plc. Total sample size was 118 adults 10

11 DID YOU KNOW? Home insurance claims are more likely to be paid if policies have been purchased as part of an advised sale. In 2016, the ABI identified that more than 1 in 5 home insurance claims are rejected (21%), stating that one of the main reasons claims aren t paid is that customers don t take out the right cover. 9 In contrast, the claim pay-out percentage with Paymentshield is higher than this industry average, which may well be down to the fact that these sales are always advised. IS IGNORING GI A DERELICTION OF DUTY? Right now, the reason why so many consumers believe they don t need GI advice, is that as an industry we re not telling them otherwise. The reason why they re happy to purchase products online, is that they aren t always aware of the alternative or the risk associated with going it alone. And the reason why 1 in 5 claims are currently being rejected 7 is most likely due to the fact they re not getting the right advice so don t understand what their insurance actually covers them for. As an adviser, it doesn t take a great deal of effort to add GI to your business. The products aren t overly complicated, the commission earnings are better than you might think and the provider support is available any time you need it- there really are no excuses not to talk about GI. But most important of all, if you believe in your duty of care to look after your clients best interests, then not talking about GI really is a dereliction of duty

12 paymentshieldadvisers.co.uk Intermediary use only Paymentshield and the Shield logo are registered trademarks of Paymentshield Limited (registered number ) which is a company registered in England and Wales at Paymentshield House, Southport Business Park, Wight Moss Way, Southport, PR8 4HQ. Authorised and regulated by the Financial Conduct Authority. Telephone calls to Paymentshield may be recorded for training and quality. Paymentshield Limited (07/17)