Steve Devine: Blog

Wednesday 23rd March 2011

Hi folks, these are turbulent times indeed, and not just in Financial Services.

Things will never be the same again for so many people in this world, who have had their lives turned upside down by both natural and man-made disasters and tragedy. 

With the editor’s permission, I would like to concentrate this blog on an opportunity to improve upon the current situation with regards to establishing an effective private safety net in the UK for those that suffer from the effects and impact of accidents, illness and job loss.

Here are my thoughts on just how we might look to create such a safety net…

Simple Financial Products: A Consultation – HM Treasury

Please note that this response is my own, as an individual, and does not reflect the views of Protect or any other company or organisation that I work with.

Question 1: The Government would welcome general comments on the vision and objectives for a new regime of simple products.

I very much welcome and support the introduction of simple products and processes in the savings and protection insurance markets. However, this must not be at the expense of innovation. There is absolutely no benefit in all products being the same and there must be some fresh thinking about how value can be promoted on product league tables and comparison tables.  

I feel that regulation has become too onerous, largely because of the continued focus on PPI since 2005, and that the stand-alone short-term income protection insurance market must be allowed to grow. It is the closest product to being a mass market safety net for the employed population. This will not happen if it is treated as PPI by the FSA and Competition Commission and OFT.

I think a ‘baseline specification’ similar to that created for MPPI would be a sensible approach. The baseline would specify minimum standards that products should have in order to ensure they work effectively. This would minimise consumer detriment and mis-selling. It would also encourage innovation and competition in the market.

A good-quality short-term income protection product would help provide an effective safety net for people that lose their income due to disability, accident, and unemployment. It would also reduce the strain on the State Benefits system.

Question 2: Should this work be led by industry and consumer groups and not Government?

I think the Government via its relevant agencies is a stakeholder and should be involved, but the initiative should be driven by the insurance industry in liaison with other stakeholders such as consumer groups, the media and regulators.

I would suggest two working groups – a steering group to oversee the initiative and a technical group made up of experts and practitioners that could develop and maintain and police the baseline specification. (I have had experience of working on both such groups on the Sustainable Home Ownership Initiative.)

Question 3: How can industry and Government ensure that a voluntary set of standards offers sufficient protection for consumers?

Publishing complaints numbers and claims statistics would prove that the products were working or not. This would help underline the importance of service and value, and help wean consumers off price-alone comparisons.

Question 4: Are there any reasons that simple products should have price caps or other standardised pricing features?

There is no need for price caps or standardisation apart from the minimum baseline specification.

Question 5: How could simple products be used as a benchmark or a comparator? Is there a case to support this with regulation, as with the RU64 rule?

A kitemark standard or ABTA-type scheme would help boost consumer confidence.

Question 6: Are there any groups in particular that simple products should be targeting? If so, what implications would this have for the development and promotion of simple products?

For younger people, we need to make buying insurance a ‘cool’ thing for them to do.

Question 7: Is it practical or desirable to have a range of completely standardised products? Is standardisation more practical for some products than others?  

I don’t think its either practical or desirable to have a range of completely standardised products. Choice and innovation should not be sacrificed.

Question 8: Beyond standardization, what other measures could be used to help improve consumer understanding of product features?

By increasing consumer awareness and responsibility through education and advertising. 

Question 9: Should someone police the standardisation of products?

No extra policing is required. It is in everyone’s interest to ensure that products, providers and distributors are open and transparent.

Question 10: How could the simple products brand be developed?

The kitemark could be issued to those products (and those companies that provide and distribute them) that are above the baseline specification.

Question 11: How can consumers be reassured that these products meet the required standards?

I refer to my previous answers relating to openness and transparency and the publishing of relevant figures and information.

Question 12: Do you agree that deposit savings products and protection products should be the initial areas of focus? Are there significant features or product characteristics in these categories that would lend themselves to standardisation?

Yes, I do think savings and protection products should be the place to start.

Question 13: Do you have views on how simple financial products could be developed to benefit particular age groups or sections of the market?

Provide affordable simple products for the younger generations.

Question 14: The Government would welcome any evidence about costs and benefits of developing a new regime of simple products, preferably drawing on experience of implementing previous simple products initiatives or introducing new products lines.

A baseline specification approach would not cost the Government a single penny.

Question 15: What would be the benefits and disadvantages of linking simple products to CFEB’s national financial advice service, including within the financial health check?

It would be of great benefit to link in with the CFEB’s services.

Question 16: Should the new regime of simple products be linked to regulated advice? If so, how might this work?

Question 17: The Government would welcome evidence on the role of savings stakeholder products in the market and the effects of removing or keeping them.

Question 18: The Government would welcome evidence on how the basic advice regime is working, if is it understood by consumers and profitable for providers.

Question 19: The Government would welcome views on any other wider issues that need to be considered alongside simple products, including the impact on the wider market.

There is already a vast protection gap, which will get wider if we don’t introduce simple and affordable mass market products very soon. The level of savings is at an all-time low.

We should look at incentivising and rewarding responsible behaviour and strategies to help protect families and individuals when they need it most.

* Steve Devine is chairman of Protect, an association of companies and individuals working in the UK protection markets.