The Protection Review Conference 11th July 2007, Café Royal

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The Protection Review Conference

11th July 2007, Café Royal

The Year In Protection

David Heeney

Chief Marketing Officer, UK & Ireland

Scottish Re

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The Year In Protection - Agenda

• Are we making progress?

• News review

• Views of industry experts

• Immediate priorities

• Conclusions and agenda for the year(s) ahead

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• News review




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Overall trend in protection sales doesn’t look too bad……

TOTAL PROTECTION APE (£m)

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: ABI

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Although sales relative to GDP look less encouraging

TOTAL PROTECTION / GDP

0.00%

0.02%

0.04%

0.06%

0.08%

0.10%

0.12%

0.14%

0.16%

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: ABI/ONS

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Protection relative to total life sales has fallen sharply

TOTAL PROTECTION / TOTAL APE

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: ABI

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Most worrying of all: protection vs house purchase loans

TOTAL PROTECTION / HOUSE PURCHASE LOANS

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

1.60%

1.80%

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: ABI/CML

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Computer says “no”

Are we making progress?

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• News review




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News Review

• They say “a week in politics is a long time”

• A year in protection is an eternity!

• The past 12 months have produced many stories affecting our industry

• Here are some of the most significant…………

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July/August 2006

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ABI launches member consultation on improving clarity in on-line and telephone applications for life

and health protection insurances

FSA to consult on term assurance “age 70” rule

ABI launches new SOBP

for PMIScottish Equitable Protect research: “40% have false CI expectations”

ABI launches PPI checklist

Liverpool Victoria offers Red Arc services to all CI policyholdersABI says sales of life & pensions up

25%

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September/october 2006

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OFT refers PPI sector to Competition

Commission

Royal Liver launches new CI product based on ABI standards

GE Life sold to

Swiss Re

FSA uncovers more PPI failings

Standard Life buys stake in

Simply Biz

Axa buys Thinc Destini for £100mLiverpool Victoria updates Flexible Protection Plan using STP

ABI supports abolition

of “age 70” rule

Scottish Widows terminates ASDA partnership

Pru turns against those IFAs that churn

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November/december 2006

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ABI Income Protection Workshop: Towards 10 million

satisfied customers

Standard Life re-launches IP product

Unum Provident extends IP Plan to age 70

Kenny leaves ABIIncome Protection Taskforce launches White Paper

ABI changes SOBP cancer

definitions

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January 2007

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“Tine’s Up At FSA”

Treasury may revive PTA in a different format

LifeSearch tie up with ASDAFSA fines GE Capital Bank

£610,000 for PPI failings

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february 2007

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Legal & General buys Nationwide subsidiaries

Prudential: “£43.9m protection claims declined”

OFT refers PPI market to Competition Commission for

further investigation after public consultation

Repossessions hit six-year high

FSA fines Capital One £175,000 for PPI misselling

Treasury backtracks on PTA U-

turn

L&G sells PMI business

to Axa

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MARCH 2007

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Haddrill urges Balls on PTA

Liverpool Victoria re-brands as

"LV="

PPI refunds good for consumers, says FSA

Pru announces launch of PruLife (50/50 JV

with Discovery)

FSA ICOB Review: Interim Report published

L&G upgrades CI coverFSA makes case for PTA

Budget: Government kills

PTA

LV= takes equity stake in Lighthouse Group

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april 2007

24PTA pipeline deadline

extended to 31 July

FSA scraps Age

70 rule

PruHealth and Boots launch PMI on High Street

GE Life re-brands as “Tomorrow”

LV= and Bright Grey revamp CI cover

Deadline for implementing ABI SOBP for CI

BUPA confirms it may sell off hospitals

BUPA revises CI

product

Nick Kirwan quits Scottish Widows

Royal London and Royal Liver in merger talks

ABI consultation document on

changes to PMI definitions

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may 2007

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FOS announces reduction in

protection complaints

LV= to buy

Tomorrow

Standard Life takes stake in

threesixty

Friends Provident buys Sesame and Pantheon

Base rate hits 5.5%

Pioneer publishes IP claims stats: 97% received

payout in 2006

Capital wins £580m

Resolution deal

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june 2007

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Aegon Scottish Equitable extends life

cover to age 75

British Insurance launches new PPI

policy

NU cuts protection ratesKirwan replaces

Walsh at ABI Lloyds TSB paves way for sale of Abbey Life

PPI providers still putting prices up

LV= slashes term assurance rates

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julY 2007

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HBOS launches new mortgage protection plan

Pioneer launches new IP plan for

professionals

ABI produces consumer guide on critical illness

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• News review




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The Expert Panel

• Nearly 80% response rate

• Respondents included:

THANK YOU!

Andrew Howe Jerry Staffurth Richard WalshAndy Chapman Johanna Gornitzki Rod McKieAndy Couchman John Jenkins Ross AinslieBernie Hickman John Lister Roy ChappellChris McFarlane John Perks Steve CaseyClive Waller Kevin Carr Stuart HillDennis Smith Markus Luetzelschwab Sue ElliottGordon Sills Mike Warr Susie Cour-PalaisIan Woolliss Nick Kirwan Warren CoppJason Hurley Petra McFarlaneJeff Davies Peter Le Beau

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Most significant developments (comments attracting five or more “votes”)

1. What have been the most significant developments (good or bad) in UK protection business over the past 12 months (or so)?

PTA - introduction and withdrawal

19%

New Prudential product

12%PS06/14

(FSA changes in statutory reserving

requirements)11%

CI claims under scrutiny

9%

FSA/OFT review of PPI9%

Publication of claim statistics

8%Law Commission Issues Papers

(Non-contestability / non-disclosure)

9%

ABI initiatives: SOBP / standard CI

definitions; Protection Committee

23%

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• Increased use of technology to improve new business application processes

• Increased use of tele-underwriting

• Age discrimination directive

• Growing impact of TCF

• Increased focus on IP

• Providers buying distributors

• Increased intensity of price competition

• Swiss Re acquisition of GE

• FSA’s ICOB review

• Increased reinsurance capacity for guaranteed CI

Most significant developments (other suggestions)

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Successes/heroes (comments attracting five or more “votes”)

2. What individual successes or breakthroughs were achieved (who were the "heroes" and why)?

Prudential - product innovation

37%Peter Le Beau / Clive Waller: Income

Protection Taskforce23%

Life Search - successful and

responsible lobbying on importance of advice + ASDA

initiative23%

Pioneer: success with innovative product and

publishing IP claim stats17%

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Successes/heroes (other suggestions)

• ABI for new standard CI definitions

• Virgin for “Big C” product

• COVER for “Promoting Protection” campaign

• Law Commission (stirring the pot on non-disclosure / claims declinatures)

• Growth in use of “added value” benefits (Red Arc, Best Doctors etc.)

• Direct Life & Pensions for "Intelligent Protection“

• Scottish Re for surviving!

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Biggest challenges (comments attracting five or more “votes”)

3. What will be the biggest challenges facing UK protection business over the next 4-5 years?

Avoiding excessive/detrimental

regulation or legislation

(inc Law Commission conclusions)

16%

Building trust/confidence

among customers24%

Growing new business volumes

(profitably)14%

Further simplifying applications and risk

acceptance10%

Increased price pressure: too much

supply; too little demand

10%

Reducing claims declined due to non-

disclosure10%

Innovation; avoiding "commodity product"

approach to protection business

8%

Growing IP sales (without reducing

sales of other products)

8%

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Biggest challenges (other suggestions)

• Effective distribution (focused on protection rather than savings

business)

• Managing fallout from PPI review (all products tarred with same

brush)

• Non-advised sales

• Changing solvency/reinsurance landscape

• Reducing churning

• Avoiding CI definition creep

• Reducing dependence on the mortgage market for protection sales

• Retail Distribution Review

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What could we do better? (comments attracting five or more “votes”)

4. What could providers, reinsurers, advisers, regulators, industry bodies or any other key groups do better over the next 12 months to improve the outlook for

UK protection business and our customers?

Address declined claims due to

non-disclosure (esp. non-linked)

25%

Positive press about protection business

18%

Educate intermediaries

14%

Educate consumers on the need for

protection11%

Simplify advice processes; increase

standardisation of non-competitive features

14%

Embrace TCF - why are we still

selling PPI and not IP?18%

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What could we do better? (other suggestions)

• Recognise that a totally price-driven market is in no-one’s best

interests

• Less regulation; simpler products and acceptance processes

• Sort TPD

• Focus on innovation to grow market rather than chasing market share

• Government: recognise and promote importance of protection

business

• Increase confidence by publishing claims statistics

• Talk to each other!

• Improve access to advice for mass market

• Innovate on CI

• Talk to customers!

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New Business - Prospects5. Over the next 3-5 years do you think new business volumes of UK protection

business will increase, stay about the same or reduce?

Increase44%

Stay about the same47%

Reduce9%

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Number of providers - prospects6. Over the next 3-5 years do you think the number of UK protection providers will

increase, stay about the same or reduce?

Stay about the same50%

Reduce44%

Increase6%

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• News review




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• There are two ways for individuals to make provision for future financial needs:

Somewhere along the way we stopped explaining “insurance”

• Which offers greater benefit to society as a whole?• Which should the government encourage via tax incentives?• Where did we go wrong?

Savings Insurance

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Scottish Re consumer research* produced the following results:

• Almost half of respondents thought life companies should not be allowed to reject a death claim if important facts were omitted when the product was taken out

• Around one-third thought that insurance companies should always pay claims in full

• Only one in eight supported claims being declined due to non-linked non-disclosure

• Over three-quarters were in favour of a time restriction for investigating claims

• Almost two-thirds felt insurers should not rely solely on customer disclosures to underwrite

To regain trust we must understand and manage customer expectations

* ICM interviewed a random sample of 1012 adults aged 18 plus by telephone across the UK between 3-5 November 2006. ICM is a member of the British Polling Council and abides by its rules. Further information at www.icmresearch.co.uk.

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Declined claims and non-disclosure are key to customer confidence

• Claim declinature rates due to non-disclosure are now unsustainably high

• Consumers’ perceptions of “fairness” are not consistent with current industry practice

• In some cases customer expectations are unreasonable, so we must communicate better

• Non-linked non-disclosure is a particular problem which damaging the industry’s reputation

• 5-year non-contestability might not be such a disaster

• These problems affect the whole industry – all providers, all advisers, all products

• The Law Commission proposals are a timely prompt for industry-wide review and action

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• News review




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• New business volumes are likely to increase – there is hope!

• But not for everyone: number of providers is likely to fall

• Key messages:• We must communicate the value of protection/insurance• We have to address non-disclosure/claim declinatures• (Re-)building customer trust and confidence is our biggest

challenge• Consumers need to be convinced about the value of advice• We have to widen distribution, improve access• We need more product and process innovation• Industry-wide initiatives are making progress

Conclusions and future agenda

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“Things can only get better”

Looking ahead…..

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The Protection Review Conference

11th July 2007, Café Royal

The Year In Protection

David Heeney

Chief Marketing Officer, UK & Ireland

Scottish Re

Documents

The Protection Review Conference 11th July 2007, Café Royal