Concerns that more people will cancel their protection policies as a result of the cost-of-living crisis has not materialised in 2023, according to Protection Distributors Group chair, Neil McCarthy.
McCarthy explained that people have faced many challenges during the crisis such as increased mortgage rates, power costs, and inflationary effects all impacting discretionary spend.
However, despite these difficulties, McCarthy reported there has not been an increase in policy cancellations.
Instead, McCarthy said the awareness of the impact of cancelling a policy was “well highlighted” in the Association of Mortgage Intermediaries guide, which the PDG was involved in.
“We mustn’t forget inflationary pressures also impacts intermediary businesses, where salary inflation and operating expenses have increased during 2023, while new business opportunities have been negatively impacted,” he said.
McCarthy also described the focus on understanding value, service, support and measuring outcomes that has come as a result of consumer duty as a “positive for our industry”.
He explained that "good consumer outcomes are now very much the top priority of the sales pyramid".
However, McCarthy stated that consumer duty is “bedding in” and that the industry needs to see how distributors, insurers and the FCA are going to interpret the rules.
He concluded by stating that consumer duty resulted in many firms introducing signposting and passing protection opportunities to specialist firms.
Loss of competition
2023 did come with its negatives however as McCarthy described insurers leaving the market and the consequential reduction of competition and innovation in the market as “a bad thing for distributors and consumers”.
He explained that the lack of new disruptors entering the market indicated to him the low margin environment the industry operates in throughout the value chain.
“The expansion of value added services to life and critical illness products, with additional rehabilitation services added to IP products significantly improve the level of potential engagement a client has with a policy during its lifetime, making it more relevant,” he said.
McCarthy also said the PDG has highlighted the ongoing service issues with some insurers and will be amending the claims charter in 2024, to reflect the need to measure the speed of communication.
However, he added that, “unfortunately”, the claims process seems to have elongated.
He additionally stated that, at the point of need, insurer service level agreements should be at least as good as new business processing.
tom.dunstan@ft.com
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