Simon Burgess argues that training in the payment protection insurance market is like the product itself – an afterthought
Perhaps it really is true that you can’t teach an old dog new tricks. Having taken the time to look at the current pricing levels in the loan protection insurance market, the price differential between the highest and lowest priced policies remains immense.
At its widest point, some policies are more than 12 times more expensive than others being sold in the market, and it is still the biggest providers who are the worst offenders.
The fact that some providers will charge as much as is physically possible is no surprise. The real surprise is that brokers are selling these products, borrowers are still buying them and providers have not been forced to stop selling them.
Whether this pressure comes from the regulator, competitive pressures in the market or consumer watchdogs is irrelevant, what matters is that a change comes sooner rather than later.
Certainly the FSA has been making all sorts of noises about Treating Customers Fairly (TCF), the need for best advice and the competency levels of practitioners in the market.
But given that some providers are selling loan protection insurance for over £40 per £100 of cover, in contrast to others at less than £3.50 per £100 of cover, it seems the FSA has, in practice, had little effect.
Although all insurance brokers and tied agents have to pass a threshold exam to operate in the market, scant attention is paid to the protection sector.
Protection insurance is a labyrinth all of its own and, while many would argue that the likes of loan protection cover are not particularly complicated, the way they are being abused and mis-sold would point vehemently to a need to tighten things up.
Indeed, because policies like loan protection are viewed as simple insurances, it has been easy for providers to offer them as secondary, tick box sales and this is at the very root of the market’s problems.
If sellers were forced to go through more stringent testing and the FSA were more dogmatic in enforcing its TCF initiatives things could be dramatically improved for borrowers in a matter of weeks.
Although protection insurance is covered in qualifications like the Certificate in Regulated General Insurance, little attention is paid to the area as a whole. Given that payment protection insurance is a multi-billion pound industry, surely there should be a greater focus on the abilities of those selling it, especially when the sector has such a large number of issues to deal with at the moment, and remains under investigation from the Competition Commission.
Training in the protection sector has unfortunately been seen in many ways like the insurance itself – as an afterthought. It is regularly attached to the end of more general training certificates and modules.
If we are to move towards an environment where payment protection insurance policies are sold in a truly competitive environment and the best cover is sold to the most appropriate client, we cannot view things like loan protection as nothing more than an extra opportunity to make money.
Of course loan protection will always be a secondary sale, but that does not mean we cannot treat and regulate the market in the same way as we do for primary insurances.
Creating specific training modules for the protection market would be a clear demonstration that the activities of those selling it are in the spotlight.
However, the problem remains that for tied agents, the sales process may be squeaky clean, but because the product is so poorly priced and designed, customers still end up getting ripped off and paying way over the odds for their insurance.
This is why the regulator needs to come down harder on those offering policies at prices that leave the door open to large-scale consumer detriment. It also needs to be firmer on brokers who are not tied. If they are working from a panel, is it truly representative of the market and what it has to offer at its best?
For brokers using the whole of the market to source products, are they being lured by commission or are they choosing the best value policies with the most flexible criteria for their customers?
Nobody wants to see the FSA hounding through the market with a big stick and bullying firms, but equally it has to be firm and fierce enough to make practitioners compliant and get them to be as competent and well-versed in their work as is possible.
The regulator is currently focusing on a move to principles-based regulation, and while there are many benefits to this, there are also a number of serious problems.
In its recent review of how firms were adapting to its TCF principles, the regulator found that small firms were struggling and only just over 40% had shown they were beginning to adopt the new system in any meaningful way.
How the regulator is going to be able to cajole these firms into adopting regulation as a whole on this principles-led basis remains a mystery.
The other major problem is that even though bigger firms faired quite well in the FSA’s review, the fact their protection market products are so out of kilter with best value, means consumers still lose out.
It would therefore seem there is a strong argument for the regulator to revert to a product-led style of regulation for certain products, which would encompass many of those sold in the protection sector.
By doing this, the FSA could bypass the problems created by the lack of competition in the market, making it impossible for larger firms to sell overpriced products and making it easier for the smaller firms operating in the sector to comply with its rules.
Indeed, by making such a move, the FSA would not have to try to teach so many of the old dogs selling insurance new tricks, but could still make sure consumers were better protected than they are at present. IT
‘ Simon Burgess is managing director of Britishinsurance.com