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Have our distribution predictions come true?

Hindsight is a wonderful thing, says Ron Wheatcroft.

Predicting change is, at best, an educated guess based on what we know at the time. We've all done it and probably got it wrong!

Ten years ago, we were emerging from an economic crisis. A seemingly endless round of consultations on the RDR was finally coming to an end.

Tied sales forces accounted for almost 40% of new term policies and more than 56% of new income protection policies. Even then, tied sales volumes were in decline.

New sales from IFAs and directly-authorised firms were doing OK and grew between 2006 and 2010 from 759,230 to 865,072.  

So, how do the predictions that the relatively new kids on the block, comparison sites, would be the most popular place to purchase protection in 2021 look now that we've arrived?

The story today

Ten years on and we are (hopefully) emerging from a global health crisis but with the impact on world economies yet to be known fully. Clear parallels with ten years ago then, even if the trigger is different. What has changed is the rapid advancement of digital technology in making insurance products more easily accessible to customers. Indeed, Swiss Re's Term & Health Watch 2021 showed an increase in new non-advised purchases in 2020. The following table contrasts with new purchases in 2015. New non-advised purchases in 2020 were almost 250% higher. The split by product line shows a direct link between the perceived complexity of the proposition and confidence in purchasing without taking advice.

  Non-advised 2015 Percentage Non-advised 2020 Percentage
Level term 160,621 30.6 394,544 49.9
Level term with CI 21,164 12 59,248 23.9
Decreasing term 27,783 12.4 76, 657 24.2
Decreasing term with CI 8,704 4.4 18,398 10

There is much discussion about consumers using aggregators to purchase cover. The following data from the same Report show the number and percentage of non-advised policy purchases concluded in 2020 through aggregator sites.

  All non-advised Number concluded through aggregators Percentage of non-advised through aggregators 
Level term 394,544 56,577 14.3
Level term with CI 59,248 7,034 11.9
Decreasing term 76,657 23,238 30.3
Decreasing term with CI 18,398 5,212 28.3

In reality, of course, many more consumers use aggregators as part of the process of selecting and arranging their insurance cover.

Of the 162,515 new income protection sales in 2020, 8,125 (5%) were concluded on a non-advised basis. This low figure is little surprise given the relative complexity of the product and possible impact on entitlement to State Benefits.  

Tied sales forces are now a very small part of the market. That 40% of new tied term sales in 2010 had fallen to just 4.1% by 2020.

Business from directly-authorised firms has fared relatively well with reported sales at the end of 2020 for level and decreasing term policies of 1,303,317 new policies, well up on the 865,072 ten years earlier. Those who may have seen a bleak future for them clearly underestimated the resilience of advisers.

In five or ten years' time, will most purchases be made directly? The continual drive towards greater use of technology as a natural part of our daily lives will undoubtedly encourage this way of purchasing. Ultimately, this must be the choice of the consumer but it is incumbent on all to ensure that the quality of what they buy is of a standard and quality that they would expect. 

This infers a drive for greater professionalism across the sector in which things like explaining how cover and State Benefits impact each other and policy ownership are addressed properly at outset irrespective of how the consumer chooses to buy. Failure to do so feels decidedly uncomfortable with the regulatory spotlight on a Statutory Duty of Care. In any event, a better quality approach can only improve the persistency of business written and perceptions of our industry.

And it would be wrong to underestimate the strength of the advice sector and the great opportunities that the corporate market, estate planning and signposting, to name just a few, can bring to support consumers and businesses alike.

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