Why protection is not a commodity

But I remember one lecture particularly well, mainly because the lecturer was wearing full camouflage combat gear, with pants tucked into the cherry-coloured Doc Martin boots that were laced up to his knees.

His subject was quite interesting as well. He covered “commodity products" and how the supply and demand of these affects the price that is charged.

Price, we were told, is the only deciding factor in the purchase decision and - what's more - people buy these products almost unconsciously, without prompting and without having been lured by advertising.

Demand for commodity products increases or decreases according to the price and compared to competitor alternatives. The lecturer waved a gloved hand and said that examples of commodity products are matches and milk.

I remember this lecture every time I hear someone call term life assurance a commodity product because it really annoys me.

Rates have been falling for the last few years and competition between providers is intense. Yet even though prices are lower than they have ever been, demand for life policies among the public has not increased. The market continues to decline.

And life assurance is not bought unconsciously. It has to be sold, justified, explained and positioned alongside other financial products like mortgages, in order to sweeten a bitter pill.

So even though life assurance exhibits none of the characteristics of true commodity products, we as an industry continue to insist that it is and continue to rely upon price alone to drive our sales.

No doubt all life assurance providers are aiming to increase their market shares next year. For many, the main tactic will be price competition. At the same time, most companies are predicting a flat or falling market. How can such strategies be sustainable in anything other than the short-term?

The industry needs to break out of this price spiral and start to find ways of really increasing demand. That means more communications to overcome the poor perception people have of the industry, targeting new customers rather than cannibalising old ones, and finding new ways to add value to our products.

Our current reliance on price would have that lecturer quaking in his Doctor Martin boots.

Roger Edwards is product director at Bright Grey.

The comments expressed are those of the author and not of the company he represents.

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