Mike Allison is head of protection at Paradigm Mortgage Services
It is undoubtable that mortgage advisers in our industry want to do the best for their clients.
This isn’t necessarily down to the regulatory environment that has added to the workload in selecting the most appropriate products for them, it is simply that in order to build a sustainable business, service is vital. If a customer doesn’t think they are getting value, they may well look elsewhere.
Research undertaken by Canada Life last year gave us a valuable insight into the thoughts of a large sample of clients of mortgage advisers who confirmed this stance.
A large proportion (over 30%) said they would not return to their adviser at the end of the deal they had taken, and many cited a number of reasons why, including lack of contact and limited perceived value.
The level of research now going in to selecting the right product for their customers has quite rightly helped the intermediary sector grow rapidly in the past few years, so it was probably not the quality of the products they had chosen, but possibly more likely to be the communication and the perceived ongoing value they were adding.
In our world, customer engagement and increasing consumer trust have risen quickly up the agenda. In these articles, I have written previously about the communication challenges faced by advisers, especially given the move to 5-year fixed-rate mortgages as opposed to 2-year, creating a greater ‘gap’ to fill in communication strategy.
Clearly protection and/or general insurance sales have a part to play in filling this gap, as does the wealth of ancillary services provided as part of insurers’ products nowadays. However, while these services are to be applauded, one area that appears to have been neglected but is still potentially vital for the consumer is that of trusts.
We know that if the worse were to happen and a claim is necessary for either a critical illness policy or in the event of death, in the majority of cases, the customer would have pretty simple instructions as to where the benefit should go. Usually, this would be the spouse, children or cohabitee in the case of a mortgage – sounds simple enough, but this may not be the case.
Increasingly, good advice is to offer life policies not on a joint life first death basis but as two single lives. If the life cover is there to cover the mortgage and the borrowers are unmarried, what happens to the policy benefits if either were to die? Potentially not what the customer who bought the policy in the first instance wanted.
If either were to die without a will then the monies would revert to the laws of probate, which apart from being quite technical are also time-consuming – and may not be completed in time to save foreclosure.
This all sounds like a potential nightmare and there are instances where the unthinkable has happened. What are the options/solutions then?
Clearly writing a policy under trust with a clear direction as to where the benefits should go is potentially one simple option – and can show how a broker can add real value to the client in their ongoing relationship, but insurers tell us this option is under-used. Indeed, we hear statistics from them stating typically less than 10% of cases are written under trust despite many offering guidance. There are reasons why a broker may not to choose the trust option – lack of knowledge and/or clarity in their own minds, or simply fear of getting it wrong are possibly high on the list.
Going back to basics, we assume that life cover is insurance that pays out when you die, and customers accept that. But the frustration of probate, over a six-month-plus period, can do little to aid adviser/customer relations.
For mortgage advisers especially, the problem has been exacerbated because of the growing group of unmarried couples who face the double whammy of potentially losing out on the policy altogether because intestacy directs the money where they didn’t expect. Add to that the perceived complexity and the fact that trustees are generally not present at the point of mortgage/life application.
So how can we ensure the policy benefits go to the intended person without the complexity and at the same time support customer relationships and client retention? One way is to use those insurance companies who have tried to simplify the process. As an example, AIG Life has bucked the trend by achieving an overall trusts rate of nearly 20%. This can be explained by the consistent adviser mentions it gets for user-friendliness and extra effort when it comes to trusts, especially its online process.
Guardian has gone even further and introduced its payout planner. This is a simple and intuitive solution for both advisers and clients to ensure that any future pay-outs avoid the typical delays and problems associated with probate. It’s an innovation which has been particularly well-received by mortgage advisers who are unfamiliar with trusts.
Should a client wish to place their plan into trust at later date, then this supersedes the beneficiary nomination. They say the proof of the pudding is in the eating and, up until the end of 2019, 62% of all eligible clients have chosen to nominate a beneficiary using payout planner.
These are two simple examples of how insurers are helping overcome a traditional ‘sticky’ area and helping advisers in their quest to maintain customer contact, do the best for their clients and treat customers fairly.