Life and Protection - Intermediary Focus - UK - October 2013
“The next 12 months will remain challenging for intermediaries, but there are reasons to be cheerful. The recovery in both the UK economy and housing market finally appear to be gaining strength, while certain regulatory changes may also create fresh opportunities to grow protection business.”
– Sarah Hitchcock, Senior Analyst – Financial Services
Some questions answered in this report include:
- How is the new regulatory framework impacting on the protection advice industry?
- Is the introduction of simplified protection products viewed as a positive development by advisers?
- What impact will welfare reforms have on the protection industry?
- Should protection advisers be concerned about the growing influence of price comparison sites?
- How confident are protection advisers feeling about the next 12 months?
The UK intermediary market is mature and remains heavily populated, despite heightened consolidation activity over the past few years. It is also undergoing huge upheaval, with firms having to adapt to a host of new rules and requirements. Topping this list is new regulation linked to the Retail Distribution Review (RDR) introduced in January 2013.
Although pure protection products fall outside the scope of RDR regulation, the majority of advisers active in the protection sector are still impacted. Many are affected directly, because they also advise on pensions and investments; and others indirectly. For example, some firms specialising in protection have reported rising competition from advisers active in other sectors, as well as from unqualified advisers moving into protection as a way of remaining in business.
Simultaneously, protection is starting to attract interest from direct-only operators and price comparison sites. Although the majority of protection sales are intermediated, product providers are increasingly keen to explore new ways of reaching a wider audience and tackling the protection gap. This includes developing more simplified propositions for the direct-to-consumer market.
This report explores how these competitive pressures and changing market conditions are impacting on the protection advice market. It draws on a mix of trade and desk research in order to provide a comprehensive overview. Additionally, the report presents the findings of Mintel’s latest IFA survey, conducted by NMG Consulting. The survey offers insight into how protection advisers have performed recently and how they view their future prospects. It also reveals the areas in which advisers would like product providers to make further improvements.
The focus of this report is on intermediaries who advise on life assurance and other protection products, such as critical illness cover and income protection. In a regulatory context, retail intermediaries can be either directly authorised (DA) or appointed representatives (AR) of a DA firm.
DA – are individual advisers or firms who are directly authorised by the Financial Conduct Authority (FCA), which means they are responsible for, among other things, the professional indemnity insurance, compliance and liabilities of their firm.
AR – individual advisers or firms that are appointed by a directly authorised firm (known as the ‘Principal’). Under the terms of this contractual arrangement, the Principal accepts responsibility for the regulated activities undertaken by its appointed representative. Many ARs are ‘tied agents’, ie individuals or firms that are limited to selling the products or services of one or more companies.
New intermediary classifications
Prior to the introduction of the RDR regulation in January 2013, there were three main distribution channels:
IFAs – independent firms that give advice across the whole market
Tied – advisers who recommend the products of either one company or a select number of companies.
Non-intermediated – products sold directly to the customer without intermediary intervention
As from January 2013, the main distribution channels are as follows:
Independent advice – refers to IFAs who review all products and options available across the whole market
Restricted advice – refers to advisers whose advice will be restricted in some way – for example, they may only offer products from a specific provider or range of providers (ie single and multi-tied advisers), or their advice is restricted to a certain product type (ie whole-of-market advice but restricted to a specific product/area)
Non-advised – refers to pure direct sales and introduced/third-party distributed sales without advice.
In addition, a proportion of sales (which could come via any of the above three channels) may additionally be classified as ‘bancassurance’. This refers to the selling of insurance by banks, usually but not always on a tied basis.
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