The Simple Product brand is part of the Treasury’s strategy to increase trust and take-up of financial products by creating a range of uniform products adhering to specific “simple” rules.
Speaking at Protect, the association for the protection industry, Helen White, head of protection insurance at the Association of British Insurers, said last week: “The ABI has committed to producing term life and whole of life assurance products for the Simple range and it has also been working on an income replacement product which we initially thought was too complicated due to the interaction with means tested benefits.”
But following the latest working group which took place in June which included the ABI and other interested parties, including the Financial Conduct Authority and the Treasury in an observatory capacity, the group concluded it was feasible to produce short-term, long-term or group versions of an income replacement policy.
The group has devised a set of eligibility criteria for the product which it believes adheres to the findings of the Treasury Commission Steering Group, chaired by former FSA director Carol Sergeant, which was set up to find a solution to problem of lack of interest in financial products.
White said that customers must have a job and work at least 16 hours a week and ideally the product would not exclude certain high risk jobs.
She said: “Excluding high risk jobs would carry a reputational risk which would reverse the objective of the brand which is to gain the trust of the public. Take the armed forces for example, if we were to exclude them it would not win much support.”
The pricing of the range will be priced simply and will remain steady with no introductory periods or indexation and the customer must have a clear understanding of what they have bought and how much it costs.
White said the benefits offered by the range would be lower than other products on the market because affordability is an issue so it is important to offer a basic level of cover which customers can afford.
She added: “These products are to help people through the most difficult part of their period of unemployment and not to cover them for the rest of their lives therefore it would offer the customer between £500 and £1000 per month.”
There will be a fixed period of cover, which can be used through multiple claims throughout the customer’s working life, of between two and five years which is still under discussion and the customer will be offered a choice of deferred payment periods.
White went on to say the final key point would be communication from the provider.
She said: “The provider must write to the customer once a year to remind them that they have the product and the benefits it carries. It is important to keep people engaged and confident that the product they have is a good idea but also they need to be reminded that if their circumstances have changed a Simple Product may no longer be the best option.”
The group had yet to decide whether they would go down the route of no exclusions, wherby certain reasons for not working are excluded, which one conference attendee said would be an expensive decision.
White said it was a “tricky area” and it had not yet been decided how much could be set down in policy guidelines and how much could be left to the commercial decision making of the provider.
But the audience reacted by raising the point that if the decision of exclusions was left to individual companies it would stop the range being uniform; one of the key objectives of the Sergeant report.
Nick Jones, brand and marketing manager for Exeter Friendly, said: “I agree that to help consumers believe that this “simple” product is designed to deliver, it is vital that exclusions for certain conditions are kept away from the blueprint. Yes, this will have an impact on product pricing, but the success of any simple product is dependent on more than simply price. Consumer’s have to believe and trust them, which will only happen if claims are paid. That’s when the product delivers value, trust grows and price becomes less relevant.
And on eligibility he said: “From our perspective, as an insurer that covers perhaps the widest range of occupations available in the market, I can understand the importance the group has placed on this being achieved. However, in practice it will be tough for insurers to cover all occupations, no matter the risk. We should strive to get as close as possible, but some risks may be so extreme, to include them runs the risk of damaging the overall proposition.”
Jones added: “The big challenge still to overcome is the application and underwriting process. We live in an age where as consumers we can get what we want, when we want it with very little fuss. So to imagine that the same consumers will be happy to complete a 20 odd page application form and have to wait for hours, days or maybe weeks to get a result is a bit ambitious. Insurers need to find a way of managing risk but still delivering a quick and seamless buying process; or we will lose those we engage with easy to understand products.”