Having just been short-listed for six awards this month we're feeling quite chirpy at LifeSearch at the moment.
With the ASDA tie-up going well and a number of positive aspects included in the FSA’s recent ICOB review taking our favour it’s been a good year so far.
But, in typical LifeSearch style, the chirpiness doesn’t last for long and we soon focus on the next thing to get better at.
Recently, the focus is once more on what we call ‘drop-offs’. Such things have no relation to taking the kids to school and do trust me when I say that any school boy humour is also absent!
Drop-offs are what the rest of the industry refers to as NTU’s (not taken up) or NPW’s (not proceeded with).
They are those cases where the application is submitted but for whatever reason the policy never starts – meaning the customer never gets insured (at least not through you), the provider doesn’t get any premiums, and the intermediary receives no commission. A bit of a ‘lose-lose’ scenario all round really.
Those outside the protection world might not see the issue here, while those within it will be all too familiar with the problem, and its costs.
We do all the work – quotes, advice, recommendations, administration, underwriting and chasing around - for zero return.
In fact it is less than zero return because we’ve lost a customer that at some stage was probably going to do business with us.
Now, mystery shops aside, and we all receive (and make) those to varying degrees, in protection I defy any intermediary or seller to have a 0% NTU (or drop-off) rate. It’s just impossible, even if like us you try not to multi-propose wherever possible.
There will be always be customers who get declined and always customers who get put off by the loaded premium or just the lengthy (and unexpected?) delay in buying what they weren’t that interested in buying in the first place.
If consumers aren’t excited by the thought of buying protection (and trust me most aren’t) they’re equally unlikely to spend 6 months trying to get the damn thing on risk when our industry keeps finding new hurdles to put in the way.
I’m told that the industry as a whole is running at an average NTU rate of 25-35% and rising, which means that on average around three in every ten applications never start.
While this figure will vary greatly from provider to provider, with those who are less price sensitive and who control their distribution likely to have far lower figures, it’s a concerning and disappointing figure whichever way we look at it.
I’m also told that for all protection business written it costs around £125 on average for a life office to process each application – a figure that roughly doubles when only taking cases that need additional underwriting into account.
So let’s do the sums…
On the basis that around 2m protection policies are sold each year, 30% of that number is 600,000. 600,000 x £250 (because these are ones that probably needed underwriting) is… a heck of a lot of money!
It is in fact £150,000,000.00 – or £150m to keep it simple.
You’d think that life offices would pay close attention to these stats in terms of the distribution and commission deals they offer, but the majority do not, although a few are wising up quickly.
You’d also think that helping intermediaries to tackle the problem would be high on the providers' agenda, and that maybe a few clever product providers could steal some additional market share as a result?
Kevin Carr is head of protection strategy at LifeSearch
The views expressed in this article of those of its author and do not necessarily represent those of IFAonline or any other Incisive Media affiliated organisation.IFAonline
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