Insurers should "abolish" the practice of loaded premiums and create clarity around commissions for the consumer, a professional protection network has urged.
The Protection Distributors' Group, a group of members who want to work with insurers and intermediaries to deliver better consumer outcomes, has warned that too much consumer detriment is being caused by what one PDG member has called "unclear pricing".
Speaking to FT Adviser, PDG member Roy McLoughlin, who was a founding member of the Income Protection Taskforce and is associate director at Cavendish Ware, said: "The insurance industry is not being clear about the pricing of premiums.
"As advisers, we need to be upfront about what we are recommending and the commissions and value need to be justified, especially in the light of consumer duty.
"We all need to be profitable to keep the industry doing what it does, but not all of us apply loaded premiums, and insurers must take steps to address poor practice."
McLoughlin added: "We have got to a good place where people are starting to understand the value of insurance. So what we do not want is for people to start losing their trust in the protection industry over a lack of clarity."
His comments came as the PDG issued a statement, urging all UK life and protection market firms to address three key concerns outlined by the Financial Conduct Authority:
- Loaded Premiums
- Claims administration
- Non-advised tele-sales.
In the statement, the PDG said it would be shortly writing to the chief executives of all the insurers with whom their members trade, to ask how they will "stop the consumer detriment" caused by those three concerns, as well as how they will ensure that vulnerable customers are properly supported.
The letter is expected to hit the CEOs' doormats within the new year, FT Adviser has learned.
The statement said: "To fulfil fair value obligations, insurers should offer a common premium to all intermediaries. If they wish to pay more commission to some, they should do so from their own profits, rather than allow some distributors to inflict loaded premium levels on unwitting customers, simply to earn more.
"Consistent with our purpose to improve what our market does for consumers, the PDG would therefore like all loaded premiums to be abolished by the insurers who currently offer them."
Response
Responding to the PDG's comments, Phil Jeynes, director of corporate strategy for Reassured, agreed that communication and transparency are essential for the customer, but said he thinks the debates are not as simple as just ditching "loaded premiums" or dismissing non-advised, telephony-based services.
He also said the term "loaded premiums" has been outdated for some time. Insurers, like any other retailers, are at liberty to price differently depending on the market they’re selling in.
