Protection Introducer February 2020

Champion of the Mortgage Professional

PROTECTION

INTRODUCER www.mortgageintroducer.com

FILLING THE PROTECTION GAP Looking at the best options for customers

February 2020

Is your knowledge of the protection sector a little cloudy?

Keep up to date with the latest protection news and developments at www.mortgageintroducer.com

EDITORIAL

COMMENT

Publishing Director Robyn Hall Robyn@mortgageintroducer.com @RobynHall Publishing Editor Ryan Fowler Ryan@mortgageintroducer.com @RyanFowlerMI Deputy Editor Jessica Nangle Jessica@mortgageintroducer.com @MI_Nangle Deputy News Editor Jake Carter Jake@mortgageintroducer.com @JakeCarter25 Editorial Director Nia Williams Nia@mortgageintroducer.com @mortgagechat Commercial Director Matt Bond Matt@mortgageintroducer.com Advertising Sales Executive Tolu Akinnugba Tolu@mortgageintroducer.com Campaign Manager Joanna Cooney joanna@mortgageintroducer.com Production Editor Felix Blakeston Felix@mortgageintroducer.com Head of Marketing Robyn Ashman RobynA@mortgageintroducer.com Printed by The Magazine Printing Company, using only paper from FSC/PEFC suppliers www.magprint.co.uk Mortgage Introducer, CEDAC Media Ltd 23 Austin Friars, London, EC2N 2QP

Information carried in Mortgage Introducer is checked for accuracy but the views or opinions do not necessarily represent those of CEDAC Media Ltd.

Time for protection

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hen you actually think about it it is astounding that protection products continue to be eschewed by the broker sector.

The perils of being unprotected are clear for everyone and the potential impact that a lack of protection can have on both individuals and families can be devastating.

Over the years we have seen intiatives such as ‘7 Families’ look to raise public awareness of the financial impact of long-term illness or disability.

This has been coupled with strong pushes from the likes of Vitality to help encourage people to finally ensure they have adequate protection.

Despite this as a nation we’re still chronically underinsured, and this presents and opportunity that can be seized by brokers.

But the protection conversation needs to be made easier for brokers. It is clearly a difficult one for anyone to have - especially if there are children involved.

As a nation we are happy to insure our pets, mobiles, iPad, or valuables yet none of these will pay our mortgage.

When it comes to prioritising their own health and wellbeing, clients require advice more than ever.

The market must now unite to ensure that protection becomes an integral part of the mortgage advice process.

Surely protection advice must become a mandatory part of the mortgage advice process?

How can you not talk though protection when you know a client is taking on the largest debt they will ever incur?

This is the only way to ensure that clients can get the service they deserve.

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Contents 4 Kevin Carr A run down of the latest news 5 Andy Philo The time to discuss income protection 6 Mike Allison Considering protection options 7 Steve Ellis Protected client = protected mortgage 8 Debbie Kennedy Mental health and protection 9 Craig Brown Protecting tenants 10 Interview: Protection should be key for brokers Primis Mortgage Network explain the importance of protection 12 Cover: Filling the protection gap Natalie Thomas considers the role brokers have in plugging the protection gap 18 Geoff Hall Addressing protection misconeptions

THURSDAY 5 MARCH 2020 PRESTONFIELD HOUSE, EDINBURGH www.scottishmortgageawards.com

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FEBRUARY 2020

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REVIEW

NEWS IN BRIEF

Renters on the rise Kevin Carr chief executive, Protection Review, and MD, Carr Consulting & Communications

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he protection market has turned its attention to renters and gig economy workers recently, with The Income Protection Task Force (IPTF) reporting on the fragile finances of contract workers, while both LV= and Legal & General have introduced products specifically for the rental market – and you can see why.

According to Swiss Re’s Term and Health Watch report, the private rental sector has doubled since 2002, rising to 4.5 million households, with, on average, renters spending 35% of their income on rent.

LV=’s income protection (IP) upgrade includes features that better support renters, such as allowing clients to increase their cover if a landlord ups their rent or they move home, providing an involuntary unemployment premium payment holiday of up to six months, and offering expert advice and support for tenancy or landlord disputes.

Citing ONS figures that show 38% of renters have dependent children, LV= has also added child cover to its IP plan, paying a lump sum of up to £25,000 if a policyholder’s child is diagnosed with a specified condition.

Over at L&G, it has followed a successful four-month trial with the Mortgage Advice Bureau by launching

a suite of protection products for renters to the wider market – including rental income protection benefit, rental life insurance and rental life insurance with critical illness cover, now available to all L&G intermediary partners.

Mark Dennison, director at advisory firm LightBlue UK thinks it’s encouraging to see new products come to market for renters. “For too long the industry has focussed on mortgages underpinning the need for protection, and while it’s still a valuable trigger point, it’s important to help arm advisers to give those who don’t own a home more reasons to consider protection.”

FLEXIBLE WORKING

As the number of renters has risen in the UK, so has the number of people working more flexibly. A recent IPTF report found that 31% of the UK’s 10 million strong gig economy workforce live pay-check to pay-check, don’t make ends meet or are in severe financial difficulty, and are much more likely to be unable to work long term because of ill health or disability (44%) compared to their employed counterparts (25%).

Evan Odell, researcher at Disability Rights UK believes a growing contract workforce is also creating some negative consequences for people’s finances. “Rather than providing workers with flexible working hours they can control, the rise of the gig economy has merely stripped away predictability of hours and earnings, and with that financial security and peace-of-mind.”

NEWS IN BRIEF iPipeline has reported a 69% year-on-year increase in new UK protection business during Q4 2019.

LV= has announced substantial changes to its critical illness policy, including a £1,000 cancer diagnosis payment to help with additional costs.

AIG Life suggests that 17% of career breaks are because of stress or mental health issues, with 19% of working women taking time out for this reason, compared to 15% of men.

An agreement to make protection insurance more accessible has been signed by 26 industry parties, pledging to refer customers who they can’t help due to medical reasons to a specialist adviser.

Holloway Friendly has revealed its 2019 claims statistics, showing a 60% increase in the benefit paid out, to 1.5 million, paying 94% of claims.

Holloway Friendly also announced radical changes to its underwriting philosophy in order to cover more people who have suffered mental health conditions.

British Friendly paid 94% of claims in 2019, averaging a 96% rate of claims paid since 2005.

With many income protection products available for people whose work pattern doesn’t fit the standard mould, the IPTF’s hope is that, with a little planning and advice, more people can safeguard themselves against financial catastrophe. P I

Mortgage advisers left exposed

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recent report from VitalityLife highlighted that a large number of advisers aren’t prioritising their own business protection needs, by insuring their company against the impact of death or illness – which is true when specifically looking at advisers who write mortgage business.

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The research showed that 45% of mortgage advisers don’t have any business protection in place for their own companies, and two-thirds (36%) of this group have no plans to do anything about it. This could be down to that fact that while mortgage advisers spend more time on business

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protection than the average UK adviser, there is still a gap between the number that write business protection for clients (69%) and those who write personal protection for clients (100%), highlighting the need for providers to offer more support for advisers to sell business protection products. P I www.mortgageintroducer.com

REVIEW

INCOME PROTECTION

Now’s the time to discuss IP Andy Philo director of strategic partnerships and employed distribution, Vitality

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t’s still assumed that term life insurance comes top in the hierarchy of protection needs.

While a homeowner’s life insurance pay out can, of course, reduce financial pressures on their family by paying off the mortgage, the truth is they’re far more likely to go on long-term sick than die during their working lives. Income protection (IP) provides a vital safety net for people to keep up with their mortgage repayments and pay the bills if they’re unable to work for an extended period.

Traditionally the poor cousin in the protection family, the message seems to finally be getting through about IP.

According to Swiss Re IP sales have risen for the fifth year in a row, with policies growing by 22.6%.

SALES BOOST

These sales have been boosted by the sterling work of mortgage brokers who, according to technology provider iPipeline’s Q3 results, have boosted overall protection sales by 90.5% year-on-year. Brokers should take the opportunity to review their client files to see if IP was mentioned during any of the conversations they’ve had this year – and if not, bring it up.

Lucy Brown, head of protection at L&C Mortgages, believes that although buying a home is often the trigger for borrowers to consider their protection needs, they may be more receptive at a later stage. “Customers who may have turned down the chance to protect themselves in the past may well have had a change of circumstance

and be grateful for the chance to rethink their requirements,” she says.

Brokers should also ensure clients have the right information at the right time, adds Dean Mason, director at Masons Financial Planning: “Almost all clients view life cover as priority with critical or serious illness next and IP down below unemployment cover. With a set budget this rarely changes unless the protection fact find is thorough and presentation happens at a time when getting the mortgage is not the only thing the client thinks about day and night.”

Who knows, now that they’re happily ensconced in their lovely new home and the whirlwind of offers, deposits, surveys and all the rest are over, your client may have the headspace to think about the best ways to protect their and their family’s future. Just remember the old sales maxim - you don’t ask, you don’t get. P I

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REVIEW

ADVICE

Advisers should consider all options Mike Allison head of protection, Paradigm Mortgage Services

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e are all aware of the pressures put on advisers to continue to help their clients receive the best possible advice across a range of products and services.

Those operating successfully in the mortgage market over the past five years or so have seen unprecedented opportunities to interact with clients and get them the best quality deals.

Statistics show that the intermediary share of the market continues to be extremely favourable and, in theory at least, it could be said - in the words of the famous MacMillan speech of 1957– “You’ve never had it so good.”

Many intermediaries may disagree to some extent, probably insisting that increased regulation, increased workload to research recommendations as well as non-industry based regulations have meant that while the rewards are clearly there for quality brokers, the time pressures have increased significantly.

This they would say has ensured the perfect balance of increased revenues versus reducing or stable costs has not yet been achieved.

As a result of the ‘creep’ of increased regulation and time pressures generally, opportunities to add value to clients by offering them a broader range of services can be at best difficult and at worst non-existent.

It is not for us to necessarily ‘judge’ a firm for not doing certain things.

I have been around long enough not to try and force individuals to do something or preach the threat of the compliance authorities ‘clamping down’ on those who sell mortgages

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without protection. In reality, evidence from a number of industries show us that the more products a client has the more likely they are to go back to the same originator.

Quality brokers should want to be able to offer a broad range of services to their customers to aid their own client retention.

With the advent of more 5-year fixed rate mortgages being taken out, the time lag is potentially getting greater for brokers to have meaningful contact with their mortgage clients.

The Canada Life research published late last year showed an element of dissatisfaction from customers when their broker hadn’t contacted them during the fixed-term period to the extent that many said that they wouldn’t go back to their original broker at the end of the term – there were clear lessons to be learnt from this.

TIME TRIALS

The reality is that there are options to cut down on time spent writing protection and/or GI, and providers are getting more inventive with regard to helping brokers do this.

Paradigm members, for example, have access to providers who can subrogate the responsibility to complete the application to a client on

a short form via a link – it is the client who will complete the questions set but the broker who will benefit.

At the other end of the scale, the broker can use a third-party to complete the life and/or CIC/IP sale.

For the client and still receive some commercial benefit from doing so – sometimes this may be seen as an option that isn’t financially beneficial, however a smaller percentage of something is always better than 100% of nothing, and a trusted and experienced partner in these fields of life assurance can add value to the broker and the client.

Finally, people often talk of the need to upskill or ‘How to Sell’ certain products where they have had limited experience in doing so.

It has been impressive to see that Assurant has recently devised a comprehensive ‘background to GI’ for brokers who want to avail themselves of the opportunities in that market.

The introductory programme has been created to assist in several areas, whether an advisory firm has a new employee, is looking to add home insurance business to its customer offerings or just wants a refresher on the sector.

The course itself is part text and part video commentary, finished off with multiple-choice questions that upon successful completion, yields 60 minutes of CPD accreditation and a personalised pass certificate.

Yes, time is the enemy of all of us, but thinking outside the box to deliver client solutions is definitely something to be considered to add to client satisfaction. P I

Advisers should offer the best possible advice across a range of products

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REVIEW

CRITICAL ILLNESS

New sales, same protection needs Steve Ellis head of risk and protection, Premier Choice Group

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ot long into 2020 and already there is challenging news for mortgage brokers: while house prices rising is good news for sellers, we will see that this news follows lower sales last year.

So, what will this year bring? Quite possibly much of the same but what needs to be reviewed and kept up to date is the changing yet continuing need for protection against the liabilities homeowners and borrowers are taking on.

House prices in December were 4.0% higher than in the same month a year earlier and on a monthly basis, house prices rose by 1.7% according to the Halifax.

In October to December house prices were 1.0% higher than in the preceding three months (July to September). The average house price was £238,963.

Russell Galley, managing director, Halifax, said: “Average house prices rose by 4% over 2019, at the top of our predicted range of 2% to 4% growth for the year. This was driven by a monthly gain of 1.7% in December which was the biggest monthly increase of 2019, pushing up the year-onyear growth rate and reflecting that December 2018 was a particularly weak month.

“Looking ahead, we expect uncertainty in the economy to ease somewhat in 2020, which should see transaction volumes increase and further price growth made possible by an improvement in households’ real incomes.

“Longer-term issues such as the shortage of homes for sale and low levels of house-building will continue www.mortgageintroducer.com

to limit supply, whilst the ongoing challenges faced by prospective buyers in raising deposits will serve to constrain demand. As a result, we expect a modest pace of gains to continue into next year.”

The stats on prices perhaps marry with the data on mortgages towards the end of last year. According to UK Finance there were 30,620 new firsttime buyer mortgages completed in November 2019, 10.5% less than in November 2018.

There were 30,750 homemover mortgages completed in November 2019, 10.6% less than the previous November reflecting the particularly strong home purchase activity in November 2018.

Meanwhile the number of remortgages were up: 18,610 new remortgages with additional borrowing in November 2019, 5.7% more than in the same month in 2018.

The average additional amount borrowed in November was £51,470.

There were 18,470 new pound-forpound remortgages (with no additional borrowing) in November 2019, 12.4% less than in November 2018.

It seems that buy-to-let proved less attractive – or less achievable – in that there were 6,300 new buy-to-let home purchase mortgages completed in November 2019, 4.5% fewer than this time last year.

There were 15,000 remortgages in the buy-to-let sector, 5.1% fewer than the same month in 2018.

PROTECTION RISE

Now the point to all these stats from a protection point of view is that if house prices are higher and if remortgaging raises the amount of the debt then the amount of protection also needs to rise.

It won’t rise by much – insurance, okay critical illness and income protection are more expensive then basic life insurance – but broadly what extra your clients will pay for a little extra insurance will pay over and above should a claim have to be made.

And if your clients lower their borrowing you could always review their cover – but be easy on lowering cover – place it elsewhere, perhaps switch a proportion to an insurance not in place. If there is life cover only then encourage clients to think about some critical illness or income protection.

It all of course depends on their circumstances.

Ask a health insurance intermediary contact or get them to discuss this with your client for you. We all have the same end in mind – a protected client, a protected mortgage. P I

Ptotection needs rise alongside increased remortgaging debt

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REVIEW

MENTAL HEALTH

Protection and mental health Debbie Kennedy managing director – protection, LV=

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t seems everyone is talking about mental health. From royals such as Princes Harry and William to celebrities and sport stars; it’s ok not to be ok.

One in four people in the UK will experience a mental health problem each year. And in England, one in six experiences problems such as anxiety and depression in any given week.

There’s a lot of good work being done to encourage people to talk about their mental health. But I’d question whether we have really been listening and more importantly are we doing enough as a result?

SENSITIVE SUBJECT

Discussing mental health during an application for life or disability cover can be a tricky subject for adviser and client.

When applying for Income Protection (IP) people need to disclose information about their mental health.

The questions haven’t changed in decades and it can be difficult for an adviser to suddenly switch from questions about occupation to ‘have you ever attempted suicide?’

There is growing realisation that more needs to be done to help customers make relevant disclosures.

Processes can be cumbersome, misdirected and insensitive. Forms include many questions, unnecessary repetition, and often demand specific dates and timescales in language that feels harsh and impersonal.

We use the same approach as any other illness and expect a clearly defined prognosis and impact. However the mental health spectrum is far more complex and reflects community norms and views in ways that other illnesses don’t.

This was brought home when I spoke

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to mental health support groups in Australia as these quotes illustrate.

“My mental illness doesn’t define me – but it’s one of the things that makes me awesome. These are very deficits based questions – why is the language so negative?”

“They are very static questions. There are times when my mental illness has had a huge impact on work, friends etc but over the long-term, it’s more limited because the periods in between episodes are positive.”

By challenging ourselves about the questions we ask, the language we use and the way we underwrite we can make it easier for people with mental illness to apply for protection. We can also help advisers discuss sensitive issues with confidence and encourage relevant disclosure.

At LV= we recently carried out such a review using staff and partners who have training or a background in mental health. We now ask fewer, but more relevant questions, explore the cause and effects of any emotional health experience and we’ve improved the language we use.

Mental illness is a leading cause of IP claims and those relating to work relationships or stress are 20% more likely to involve time off than physical

Mental illness is a leading cause of IP claims

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injuries and for significantly longer periods. If I could only ask one question at application it would be ‘How well do you get on with your Boss?’

Our industry needs to be more inclusive and adaptable to reflect the mental health spectrum.

For more serious illness the approach can be overly-simplistic, with exclusions applied by default. This doesn’t reflect people’s experience and I’d like to see more intelligent and adaptable responses and support.

MENTAL ILLNESS DISCLOSURE

That said, there’s a common misconception that mental health disclosures always result in adverse terms or cover declined. But nearly 80% of our applications with a mental illness disclosure are accepted immediately (89% on standard terms), and only 1.5% declined.

The links between mental health and financial vulnerability are clear.

According to the Money & Mental Health Policy Institute there are 1.5 million people in England with both mental health and money problems.

People with mental health problems are three and a half times as likely to be in problem debt. Mental health problems can make it harder to ask for help or access advice services.

Mortgage advisers play a positive role in helping clients buy their dream home yet for many the mortgage will be the biggest personal debt they’ll ever take on. Exploring and recommending IP can play a vital role in protecting this important asset. Increasingly products include emotional, practical and family support for the challenges often associated with a prolonged period off work, serious illness or death.

Mental health is increasingly featuring in the news as more providers and distributors enhance the support they provide.

And this can only be a good thing.

We all share a duty to make access to insurance easy and fair for all customers, including the one in four people with mental health problems. P I www.mortgageintroducer.com

REVIEW

TENANT PROTECTION

We can’t forget about protection for tenants Craig Brown director, Legal & General Intermediary

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ccording to UK Finance, 32,760 first-time buyer mortgages were completed in June. While this is an encouraging sign for the UK market in times of wider uncertainty, property prices continue to increase - and millennials are still facing affordability issues.

The Bank of Mum and Dad, which is just outside the top ten largest mortgage lenders in the UK, is helping borrowers purchase nearly £70bn worth of property this year. This figure is a reminder that financial support from loved ones is a vital backing for many wishing to achieve the dream of homeownership.

However, going to the Bank of Mum and Dad isn’t an option for everyone.

According to the Institute of Fiscal Studies, for 25-to 34-year-olds earning between £22,200 and £30,600 per year, homeownership fell to 27% in 2016 from 65% two decades ago.

Renting remains an option for those who are unable to raise a deposit, or do not wish to buy, with nearly a quarter of UK households expected to rent by 2023.

Just like homeowners, monthly payments make tenants legally bound.

Otherwise, they may face arrears, fines, and in worse case scenarios, eviction.

Those renting a property arguably have less leeway. For example, some homeowners can arrange alternative solutions with their lender if they are struggling with payments, such as a debt management plan (DMP).

Both renters and mortgagees need to have a reliable source of income to support their lifestyle, and we cannot

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ignore the fact that some people will need to take time off work due to illness.

Research from Legal & General’s Deadline to Breadline report showed that, on average, employees in the UK could be on the breadline in 32 days if they experience a loss of income. Plus, on average, UK employees have only £6,500 in savings – but many believe they would need at least a further £9,830 to feel financially secure.

Even with these figures, it can still be difficult for advisers to kickstart conversations about cover with tenants.

So where can advisers begin?

A LITTLE LESS CONVERSATION

First-time buyers have always been a key demographic for protection, as they’ll usually receive a natural prompt about insurance when taking out a mortgage. Tenants, however,

don’t benefit from this, so starting these conversations can be tricky.

This leaves tenants facing a higher risk of vulnerability due to unforeseen circumstances.

To address this issue, Legal & General recently launched a Rental Protection Plan, a market-first rental product. The product consists of a choice of rental income protection benefit, rental life insurance and rental life insurance with critical illness cover, which means tenants have the flexibility to select a policy that meets their specific circumstances and budget. Policyholders also have the flexibility to increase cover if their rent rises, or they move to a new rental property.

Paying rent – whether you are single, a couple or married – what all these factors have in common is needing an income to fund that lifestyle. As such, we must work together as an industry to support all types of clients to provide the greatest possible cover for everyone.

It’s human nature to think that misfortune only happens to others, but advisers are only too aware of how quickly an individual’s circumstances can change. P I

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It can be difficult for advisers to kickstart conversations about cover with tenants

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INTERVIEW

PRIMIS MORTGAGE NETWORK

Protection should Vikki Jefferies, proposition director and Toni Smith, chief operating officer at PRIMIS Mortgage Network tell Jessica Nangle how technology is impacting the sector and the importance of education What is your take on the protection industry over the past 12 months?

The protection industry has gone from strength to strength over the last year, mainly due to two key factors: growing consumer demand and broker support. Within our own network, we actually saw more protection cases than mortgage applications during the course of 2019. As societal trends continue to evolve, such as the increasing number of self-employed workers, consumer demand for different types of cover has grown. In order to help brokers keep up with this shift, we’ve seen lenders and distributors offering more support and education, including training workshops, marketing collateral, and digital solutions to help them streamline the underwriting process. This has equipped more brokers with the content and tools that they need to advise their clients on protection more confidently.

Product innovation also remained strong throughout 2019, with lenders doing a stellar job in developing solutions in line with changing consumer needs. This has meant that more consumers have been able to get the relevant cover and advisers have been able to produce better customer outcomes.

How is technology impacting the sector?

Today’s customers want digital solutions that can be accessed very easily. The protection industry has previously been slow off the mark when it comes to employing technology, but innovative solutions in areas including product development, underwriting and customer service are now being deployed across the industry. It’s obviously essential that advisers are recommending the best product for each customer, but ensuring a smooth and accurate process has become equally important in recent years. As a result, brokers need to regard technology as a tool that can help them to streamline and enhance the advice process. Advisers who are more willing to adopt this technology will be rewarded with more opportunities for growth and will

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stay ahead of the curve. However, it’s important to note that technology will never eliminate the need for human advice. When it comes to protection, the human touch is still vital when discussing real and often sensitive issues with clients. Technology’s role is to augment and enhance this advice, rather than replace it.

Have you been identifying any significant trends in the protection industry?

We’ve been seeing a rise in demand for rental protection, mainly due to the growth of generation rent, as well as interest in policies covering risks that were previously uninsurable, such as mental health. Until now, a lot of clients felt that they had no options in these areas, but that is not the case at all. Now more than ever, providers are offering solutions that are geared towards these underserved customers, so it is now up to brokers to explain the benefits of these policies and to seize the opportunity to grow this part of the market.

What is the value of a protection provider being part of a network?

Protection is the foundation of all sound financial planning; that is exactly why we put so much resource into helping and supporting advisers in this area. It’s important to remember that protection doesn’t end with critical illness cover, however. Whatever a client needs, whether it be income, life or mortgage cover, there’s a solution out there for everyone. That is why we are constantly evolving our proposition so that our brokers can access high quality products at competitive prices.

But accessing products and providers is only part of the picture, which is why we continue to invest in broker education and support. At PRIMIS, through our sales team and training events, the added value of being part of a support system like a network really shines through. Through our online sales team support, practical training and educational workshops, we aim to drive growth in the protection market by providing www.mortgageintroducer.com

INTERVIEW

PRIMIS MORTGAGE NETWORK

be key for brokers

Vikki Jefferies

advisers with easy access to the financial solutions their clients are demanding.

Toni Smith

from each other. By participating in events like these, brokers can expand their protection knowledge and also get the latest updates from the industry.

How important is education in the protection space?

What do you forecast for protection in 2020?

Education in this area is vital for ensuring that intermediaries have the tools, skills and knowledge they need to grow their protection business. Our society is hugely under protected at the moment, so broker education will be key to ensuring the best consumer outcomes. If the brokers themselves don’t have access to information they need to inform their clients, then the protection gap in this sector is only likely to increase.

As an industry, we need to educate and empower brokers to engage in difficult conversations with their clients and meet these opportunities head on.

That’s why at PRIMIS we hold regular broker events throughout the year, including our popular Protection Workshops, to allow our advisers to network and learn

With all of us living longer, the need for protection is only increasing. Digital technology will increasingly play a vital role in helping advisers to serve this market better, not only by streamlining the claims process, but also by making it easier for them to highlight the different products on offer, along with their benefits. Technology will never replace the need for human advice, but it will continue to make advisers much more efficient by putting key information at their fingertips and saving them vast amounts of time in areas like administration.

These tools, combined with ongoing education and product innovation, will therefore enable advisers to build their businesses and consistently secure the best possible outcomes for their clients. P I

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FEATURE

MARKET

Filling the pro t Natalie Thomas discusses who is responsible for the protection gap that exists in the market and what more can be done to fill it

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or many homebuyers, getting protection alongside their mortgage isn’t always a priority.

Let’s face it, most borrowers don’t want to think about the day they lose their job or are diagnosed with a life-limiting illness and they especially don’t want to be reminded of this when happily buying a new home.

So, can brokers be blamed for the so-called ‘protection gap’ and what if anything, can be done to help make protection less of a tough sell?

The thought of having to obtain life cover for example is a thought to which most borrowers don’t want to succumb; but while they might not be able to live with – can they afford to live without it?

ARE BROKERS SELLING ENOUGH? The thorny subject of whether mortgage brokers are selling enough protection is one which continues to linger. For some brokers, protection is seen as more of an add-on than a must-do when it comes to the mortgage sale.

It is often the awkward conversation that ensues after the main event – the mortgage. It is perhaps unsurprising then that borrowers are at times reluctant or unexcited at the thought of protection. Many will have already stretched themselves financially in order to afford the mortgage they are taking out and so are inclined to hedge their bets when it comes to incurring an extra cost ‘just in case’ they should fall ill or lose their job.

“In our view, the current rate of protection sales tied to a mortgage is historically low,” says Eoin Lyons, chief executive officer at technology firm OPAL Group.

“The reasons for this are not straightforward but it certainly isn’t the cost. Most consumers have no idea what protection costs and it is usually cheaper than they thought. One problem is most people don’t think they’ll ever need it and it is having the right conversation at the right moment of truth to get people thinking about protection,” he says.

“Mortgage brokers who are great at meeting the →

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FEATURE

MARKET

o tection gap

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FEATURE

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Tips for selling protection Jeremy Duncombe director of intermediary distribution, Accord

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ortgage protection products are sold, they are not bought.

Financial advisers and mortgage brokers know the importance of these products, so the skill lies in finding the balance between the client’s budget, needs and understanding, to sell them the most relevant and needed protection for their situation.

When engaging in the protection conversation, remember that you’re not just talking about a mortgage and a house - it’s likely your client wouldn’t really worry about those in case the worst happens to them.

Instead, they’ll be more concerned about their family and home.

This subtle change in words and language will help, encouraging the client to think about protection in a more emotional context. Developing the right listening and questioning skills will help to discover a client’s needs, and convince them of the value of the long-term safety net that insurance provides for them and their family.

A powerful story that contains measurable results can be the one thing that makes a client take notice, and is a fundamental part of effective value-based selling. Stories can be used to reflect different scenarios: somebody affected by a serious illness, for instance, and how they had to adapt to the financial impact this had on their family and lifestyle.

It’s also worth having a protection section on your website to highlight this is part of your proposition and

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raise awareness so clients are more informed ahead of a first meeting.

Having blogs on the topic of protection, informing your audience of the need, building awareness and understanding are also useful sales tools. Protection content on the website can also be supported by client stories and testimonials, providing evidence of its importance and helping visitors build trust in your business. Remember, if your client is remortgaging, this is an ideal opportunity to revisit the protection conversation. Many protection plans include guaranteed insurability options related to mortgage increases. There isn’t any additional underwriting involved so the conversation about this is made easier, and when your clients receive an annual benefits statement, this can be a reminder to them of the cover they have in place, helping to trigger the conversation.

If advising on protection isn’t for you, partnering with a protection specialist may be the right way to go, helping you focus on your core business while ensuring client needs are met. After all, your role is principally to present the facts and risk warnings of losing an income through sickness, and the inability of keeping up with monthly mortgage payments.

Protection is often seen as an extra, but by incorporating it into your advice process and using some simple sales techniques, it can become a much easier and profitable conversation, whilst ensuring the best customer outcome.

Knowing your client has a mortgage they can afford and the security of assistance if their circumstances change has to be an indicator of a job well done for any adviser.

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mortgage needs of customers are often not great at protection. You need a slick process, to be competent, but also to be comfortable. That takes time, experience and a desire.”

Lyons is not alone in his thinking that more protection needs to be sold.

“While some firms will look at the protection requirements on every mortgage sale and achieve high percentages of life to mortgage sales penetration there are those who for many reasons cannot, or do not, sell protection as much as they might,” says Mike Allison, head of Paradigm Protect.

“Quite often it can be time-consuming - for the broker and customer- to add protection to the mortgage sale.

The fact finding process for a mortgage can be highly time-consuming and often at the end of a fact find, both the adviser and the customer could be excused for leaving the life cover to another time, which often doesn’t get followed up,” he explains.

“Those successful in high penetration rates often bring the life assurance conversation into discussions early and/or employ specialists to follow up on it separately. Cost can be an issue but in reality if the cost is treated as part of the total cost of the mortgage, the percentages are quite low as a proportion” he believes.

Tommy Taylor, financial services director of Just Mortgages estate agency division, feels there is not enough protection sold in general.

“For example, fewer than one in 10 families have any income protection in place should they be unable to work due to incapacity,” he says. “Your income pays for everything, not just the mortgage. Many families simply do not have the cash reserves available to support themselves beyond 30 days, and in most cases state support is inadequate to bridge the gap,” he adds.

While protection can provide an extra income stream for brokers, the paramount concern is that borrowers who should be protected are not.

Rob Clifford, chief executive of mortgage and protection network, Stonebridge, would like to see an uptake in protection penetration rates, not just because of the significant additional income it can drive into firms, but also because of the real benefits it can provide.

“You won’t need to dig particularly deep to find plenty of cases where, were it not for the adviser’s recommendation of a protection policy – whether income protection or critical illness or others, the client would have faced serious financial hardship when their circumstances dramatically changed,” he says.

“We understand that it can seem like a difficult sell, especially when clients might be concentrated solely on their mortgage needs, but we believe the protection conversation is absolutely vital and, even if you’re not able to write the business, then refer it on to a specialist, so you can ensure the client gets cover.”

He warns that any broker not providing protection advice potentially risks the wrath of the regulator.

“We would suggest this risk is growing and you are www.mortgageintroducer.com

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MARKET potentially putting yourself and your firm in a very difficult position if there is a future impact on the client and they deem this to be the fault of a lack of advice in this important area,” he says.

Mark Cracknell head of distribution for protection at Aviva, believes that distributors are working hard with advisers to try and maximise protection sales, but says sometimes it can come down to the individual client.

“A lot of it depends on personal circumstances,” he says. “A conversation about critical illness cover with a client is much harder to have than one about life protection and a lot depends on what that client’s own personal experiences have been.

“I not only have children but have had cancer in my family and if you have personal experience of something like that than you are far more attuned to it,” he observes.

“If you are sat in front of a mortgage adviser and have already pushed your budget to buy a bigger house and have all the other utility costs to factor in, it’s a difficult decision to make,” he explains.

Another problem, he says, is that people can still confuse income protection with Payment Protection Insurance and can be sceptical as to whether insurers will pay out in the event of claims.

HOW BROKERS CAN SELL MORE For those that are cynical, Cracknell says one of the best things brokers can do is show clients the figures of how fast and how much insurers do pay out.

He says remortgaging can also be a good time to broach the subject of protection.

“If someone is remortgaging, that is an opportunity to re-engage with the customer and review their cover,” he says.

“Things such as critical illness cover need to be sold, which is why the adviser has such an important job.”

Rob Evans, chief executive officer at Paymentshield believes as the trend for longer term mortgages continues and opportunities to support the client potentially become fewer and less frequent; insurance could be a good way to stay in touch.

“Insurance is something that generally needs to be reviewed every year, which not only helps to maximise adviser income opportunities in the short to medium term but also build stronger customer relationships and engagement for the long-term,” he says.

Clifford advises that one approach could be to not dwell on the potential negatives that protection policies can cover, but also some of the positives – especially for younger clients.

“For instance, we have a new breed of providers/ products, who offer health/fitness-related benefits with policies, such as gym membership,” he says.

“That could mean an actual cost-saving for clients, depending on the gym they already use, and is definitely worth raising when looking at policy options.”

Taylor believes confusion around what protection → www.mortgageintroducer.com

The need for protection Debbie Kennedy director of protection, LV=

F

antastic, you’ve helped your client buy the home of their dreams: But… Financial Conduct Authority research shows that an alarming 65% of all UK adults have no form of protection insurance. Yet for many consumers, awareness of the need and value of protection remains alarmingly low.

A significant chasm looms, particularly your clients who are experiencing one of the biggest protection triggers - taking out a mortgage.

As a mortgage adviser, you’re probably sick of the Mortgage Market Review (MMR); the regulatory intervention and studies have made for a lengthy and cumbersome mortgage fulfilment process.

Yet MMR has stopped short of addressing a critical wider need – debt protection. In securing a mortgage to enable a client to buy their new home, a mortgage adviser is creating a significant financial risk with, for many, the biggest financial debt their client will ever have. If something bad were to happen, can the client keep their home?

The regulatory tide rolls on around a common theme of responsibility and collective duty of care to act in the best interests of the customer. This means where a protection need exists, it cannot be left ignored - particularly where there is prospective debt.

We have a duty of care to address it directly or signpost them to someone who can. The direction is clear; a protection conversation should form part of every mortgage sale.

PROBLEM OR OPPORTUNITY There are no industry-wide figures, although one leading network and mortgage club reckoned their protection to mortgage sales ratio

averaged around 30-40%.

Recent industry statistics reported an upward trend in protection sales from mortgage advisers, supported by:  Good business sense: Addressing the wider client needs leads to better customer outcomes, stronger client loyalty and additional revenue streams.

In a world where we see more direct lending and internal transfers, the mortgage adviser has to stand apart and prove their value. Protection offers a lifeline.  Digitisation: Technology is evolving at pace. We’re seeing greater integration of mortgage sourcing and protection services, reducing the time and effort demands on the adviser and automatically generating priced protection scenarios.  Proactive response and options: Networks and mortgage clubs are investing in support for advisers that put them and their members in a stronger position to fulfil their duty of care. This can be through greater investment in data and back office systems, mandated mortgage/ debt protection advice models with tailored online journeys, and more training. Plus, for those who can’t or don’t want to undertake protection conversations themselves, the option of handing off to a protection desk or specialist protection firm.

SO WHAT ARE YOU GOING TO DO? ‘Nothing’ is not the answer. You’ve got to have that protection conversation; it’s much easier than you might think and there’s plenty of support around to help you.

For you, this means building stronger client relationships and more sustainable business models.

For your client, they’ve got their dream home.

Plus if a life shock does strike - such as prolonged time off work, a life changing illness or untimely death – they have the means and support to keep it. They’ll definitely thank you for that.

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Technology and protection Paul Yates product strategy director, iPipeline

T

echnology is having a two-fold impact.

First, it is making the process more efficient, automating administrative tasks and delivering operational efficiency and simplicity.

This enables advisers to write more protection with the scarce time they have. It is also attracting more advisers to write protection. Secondly, technology is making the protection advice process more effective.

The addition of artificial intelligence and data analytics has helped advisers have an increased number, and more complete protection conversations, with their clients. This has highlighted the importance of having the right protection in place and transformed

the shape of protection sales.

We can see from our data that there are extraordinary variances in the percentage of protection business written by mortgage brokers.

Mortgage brokers who have strong advice processes, great technology and the right products sell 2-3 times more protection.

We have seen a considerable growth in sales of income protection as mortgage brokers and advisers have fuller, more considered conversations about client needs.

Regulation is already in place – the right needs analysis and advice should be provided. For those mortgage brokers and advisers who aren’t selling protection, they should take advantage of the processes in place to hand-off to a protection specialist.

The question is, when will the regulator take action on cases where the clients suffer from poor or no protection advice?

policies are and the benefits they can offer can add to clients’ confusion.

“As an industry, we need to think about better ways of communicating this to clients,” he says.

“By contrast with income protection, around a quarter of pet-owners have or have had pet insurance. So as a nation, it seems we actually place the importance of protecting our pets above our own incomes. This is an awareness issue as most of us have heard about the nightmare of sudden huge vet fees, but few people talk about the wider impact on those forced to sell up or move home due to an unexpected accident or illness.”

Evans believes price comparison websites have in some ways been detrimental to the sale of insurance, and advisers sometimes assume borrowers will go online to do it themselves – especially general insurance.

He believes around 70% of customers will go onto comparison sites to look at insurance and will come away believing that it is cheaper online because they are often not comparing equal levels of cover.

“If you set the scene early, your clients will be better informed when they do go online, they will be more likely to look for comparable cover and less likely to settle for cheap, but potentially inadequate, protection,” he says.

“Some advisers think it is too complicated, too expensive or question if it worth their time. Many assume customers will just go online and get something cheap anyway so why bother?” he says.

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“However, those that do GI know it is worthwhile.

They have happier clients, who are more likely to return again and again and they build a recurring income to support their business,” he stresses.

As an industry, he believes more work needs to be done to educate consumers about the importance of having the right level of protection to cover them for their individual circumstances, rather than picking a policy on price that may not be suitable.

He worries some customers see GI as a ‘box ticking’ exercise.

“They know they need insurance, assume all policies are the same and so they pick the cheapest, but if they were ever to claim, an unsuitable policy that doesn’t pay out is effectively useless. So, securing the right cover is more important than securing the cheapest cover.”

“It’s my opinion that all advisers have a duty of care to at least have a conversation about GI with their clients, so that they are made aware of some of the considerations and potential pitfalls of purchasing cover from a price comparison website. It should be ultimately be up to the client to decide whether or not they want to receive advice on GI, but advisers should make the option available,” he says.

When it comes go GI, Evans believes the way that consumers buy it needs to change.

“Price comparison websites provide people with a false sense of security that they are getting a good deal, but while they can filter information at a superficial level, they still require a significant amount of input from the customer.

As we can see from the number of people who remain on uncompetitive products; without professional guidance, customers can easily follow the wrong path and often stay on that path because they don’t have the time or expertise to do differently. So, it is time to put greater emphasis on the value of advice and the limitations of price comparison websites.”

MAKING IT COMPULSORY So what could potentially be the answer to making sure borrowers are adequately protected? Would making insurance compulsory alongside a mortgage solve the problem?

“In the 1980’s and early 1990’s it was compulsory to have a life policy assigned to the lender but this changed, partly due to regulation and possibly to lender systems and process,” says Allison.

“The preference would be that it wasn’t ‘forced’ upon people but they would appreciate the value it adds to them.

Perhaps a lot more education is required on the benefits a policy has (not just the core benefit of the cover selected) so that customers want to have a policy to give them peace of mind.”

Clifford says that while making cover mandatory alongside the mortgage has often been talked about, it would require government/regulatory change – www.mortgageintroducer.com

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MARKET something he feels there is little appetite for.

“That’s not to say it wouldn’t happen in the future but we have a very mature financial services market already and I get the impression there’s not a great deal of support for mandating at the moment,” he says.

Taylor feels while there is clearly an argument for ensuring that everyone has some level of cover when taking out a mortgage, the problem with compulsion is that it can turn it into a tick-box exercise.

“The risk is that people will end up doing the bare minimum to be compliant regardless of what their actual needs are. What is needed is to engage with clients and have proper conversations with them about risk and how to manage that,” he says.

Cracknell agrees that in practice it would take a shift in processes and practices, which the industry is perhaps not ready for.

“I don’t think we will see it become compulsory,” he predicts. “For that to happen it would have to apply to banks too and across all channels. I can’t see that happening; you would have to apply it rigorously and make it compulsive to every form of mortgage distribution – including online.

Lyons is all for the compulsion of insurance but believes the industry would have to offset such a move by reducing the profit/commission they get from each plan sold.

“I would welcome the insurance of debt on a family home to become a regulatory requirement. It can only be good for society. It shouldn’t be viewed as an opportunity to grow profits because of more sales. As part the process the industry would have to pay itself less per plan sold,” he says.

NO EASY ANSWER...

The protection conundrum looks set to continue. There seems no lack of desire to sell protection alongside a mortgage – from distributors, providers and on the surface - brokers. Yet that desire is often not matched by the borrower. The emotive nature of protection also means it is not something that can necessarily be sprung on clients and needs to be broached in a certain way.

While consumers seem to understand the need for mortgage advice, a ‘tick-box’ mentality seems to overtake when it comes to protection sales, with some borrowers looking to comparison sites for cheap but often inadequate cover.

A wider shift in society’s views towards protection cover is perhaps needed before borrowers’ understanding and attitudes change.

This however does not mean all is lost – as borrowers do increasingly turn to longer-term fixed mortgage rates, insurance offers a viable and easy way for brokers to maintain a relationship with clients; who with the help of distributors and providers can keep banging the insurance drum. P I www.mortgageintroducer.com

Understanding is key Andy Walton protection proposition director, Mortgage Advice Bureau

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he majority of mortgage advisers will tell you they could improve protection sales. Most want to do more and believe it is the right solution for their customers. The key point here is that protection must be “sold” as customers rarely ever ask an adviser to ensure they have adequate life cover, critical illness and income protection. It’s just not something they’re aware of.

In order to generate more sales, mortgage advisers need to allocate a suitable amount of time to the protection process. Without adequate time given to help a customer understand the importance of protection, they aren’t going to make the sale.

It is absolutely critical that protection is positioned as part of the overall journey at the very outset of the discussion with the customer.

Customers need to understand it is on the agenda and that they are speaking to a specialist adviser who can help them keep up the repayments of their mortgage.

H o w e v e r, t h e r e i s n o p o i n t signposting protection as most customers just don’t understand what that means. Instead of focussing on a product, focus on the outcome for the customer.

When it then comes to the protection conversation, advisers need to look at the whole picture and spend time designing bespoke solutions (e.g. protection portfolios) within an agreed budget. Therefore,

it isn’t about one solution but lots of solutions to help in different scenarios.

Less than 20% of customers decline because of cost and some may decline because they just don’t understand it – this means in 80% of mortgage cases, advisers themselves determine the protection outcome.

Technology can certainly aid the protection process but even the very best technology is useless if the adviser does not engage correctly with the customer.

Where technology really comes into play is with needs analysis, risk analysis, protection research, submission to providers and CRM’s interacting with customers at the right time using machine learning.

Technology can speed things up and save some of the time that needs to be found if we are going to protect many more mortgages.

The aim for all advisers should be as a minimum for 60% of all mortgage purchases to be protected – 40% of all remortgages and 20% of all BTL transactions.

Advisers should also aim for a minimum of 10% of the mortgage repayment to b e allo cated to protection. If the industry got to these percentages, the UK protection marketplace would look very different indeed.

The future of protection remains strong – we are seeing income protection grow substantially and customers responding extremely well to the right approach.

I personally believe protection will always need to be sold and no robot will ever replace an adviser’s specialist skillset at approaching the protection conversation with a customer and taking a pragmatic approach.

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Protection misconceptions Geoff Hall chairman, Berkeley Alexander

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ortgage customers may commonly buy life insurance when arranging the core mortgage application. Afterall, life insurance makes financial (and emotional) sense at this time in life, but actually the statistical chance of dying during one’s working life is far less than the chance of being out of work for two months or more, so income protection should always be considered as a primary cover.

According to Royal London’s 2019 State of the Protection Nation’s report, 20% of consumers believe they are likely to die within their working life, when the actual chance is 4% for men and 3% for women.

Yet, there is a 26% chance of a man being away from work for two months at some stage during their working life and a 37% chance for women.

Why then isn’t protection insurance a bigger priority conversation with customers? This highlights a very real and dangerous misconception. We are not treating customers fairly (TCF) if we don’t set the record straight.

NOT JUST A TICK BOX EXERCISE

The Senior Managers and Certification Regime (SM&CR) was introduced for insurers in 2018 and was extended to the vast majority of the remaining regulated intermediaries in December 2019. The regulation shifts management and conduct responsibilities from firms to employees.

In October 2019, a survey revealed that only 56% of brokers were aware of the SM&CR. The FCA warned firms in January that they may fail to meet the SM&CR if they do not address non-financial misconduct. The regulator expects firms to be proactive in tackling

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non-financial misconduct and “poor culture” at their firms.

According to the FCA, lack of diversity and inclusion, and nonfinancial misconduct are all obstacles to creating an environment in which it is safe to speak up; the best talent is retained; the best business choices are made; and the best risk decisions are taken. This apparent lack of awareness of SM&CR is concerning. The main message has to be, if you’re not sure about your responsibilities under the new regime, speak to your compliance department.

NOTHING SIMPLE ABOUT COMPARISON SITES

When you consider the pitfalls of using comparison sites as a consumer, it’s ironic to think any of them should market themselves on simplicity. As professionals we all know this of course.

Mortgage brokers wouldn’t dream of directing consumers to a mortgage comparison website, so why do it when it comes to insurance? A broker’s advice is so important in making sure the customer gets the right cover.

A recent article I read on the Which? consumer website brought the risks and misleading practices of some o comparison sites starkly into view. For example (and these are seriously just a few of the headlines)…  Pre-ticked boxes: it’s not unusual for a comparison site to assume you don’t have a criminal record and

Consumer clarity is essential

FEBRUARY 2020

pre-tick a box stating you have no convictions. As professional advisers we know the risks here. If they have been convicted of an offence in the past and don’t untick the box themselves, they could be left with an insurance policy that won’t pay out. With home insurance, customers have to provide details of non-standard issues themselves… But, how many would even be aware what constitutes nonstandard for insurers today? If they forget or don’t specify correctly, or can’t find a way to do so, they could again be at risk of buying a policy they’re not able to claim on. That’s where you come into your own – knowing what specific questions to ask and knowing information about your clients.  Perks: price comparison websites are set up to find the cheapest deals for products, but these may not always provide the level of cover or the standard of customer service you would expect. �uality is as important as cost. The cheaper policies, for instance, are unlikely to include all the cover you would expect from a quality product, such as “trace and access” under a home insurance. In a tight spot, customers might appreciate benefits like this. Which? also says it found policies with add-ons that were free for a year, but then automatically renewed at a cost to the customer, unless they specifically ask to cancel. They also saw examples of price comparison sites adding on extras at an additional cost to the consumer even if the customer didn’t request the cover.  Other hidden costs: paying monthly rather than annually can make a huge difference. For home cover in some cases almost 50%!

I could go on. There are plenty more examples that highlight the complexities of insurance buying and the inadequacies of price comparison sites for TCF. Arranging the right insurance as well as the right mortgage should be the job of an experienced broker. P I www.mortgageintroducer.com

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