The protection market has always been dominated by specialists when it comes to providing advice, with the time-consuming and admin-heavy nature of the market putting off large segments of the advice sector in the UK.
Unlike much of the UK’s financial services landscape, protection has largely remained in the dark ages when it comes to technology. Financial planning is about creating and protecting wealth, but the digital innovation so far has been predominantly focused on creating wealth, with protecting it largely ignored. Existing risk management solutions are not fit for purpose in the digital world and are not adequately solving modern client needs.
Protection policies are arduous
While it should form a part of any thorough financial plan, the split in protection and investment advice following the Retail Distribution Review largely resulted in advisory intermediaries focusing their business and deriving their revenue from advice on investments and a % of assets under management. With traditional protection products mainly distributed through mortgage and life insurance brokers, it would be hard to argue this is serving customers well.
The reasons for this are, of course, obvious. Protection policies are one of the most arduous areas of financial planning, with the mountains of paperwork and client approvals required making it unworkable for many businesses.
But that is finally changing, as open data and artificial intelligence are making it clear that using client data to automatically analyse lifestyles can improve the entire life insurance process, at every point in the value chain.
Automating the admin
In particular, technology is allowing providers to automate how much cover clients need, something which used to eat into advisers’ time. Instead of having to switch policies as circumstances change, policies are now adjusting automatically to different circumstances, leaving advisers with the time to concentrate on more complex financial planning needs.
Client requirements can change quite often, for example when someone pays down their mortgage, or their investments become more or less valuable. However, traditional insurance policies don't provide the flexibility for cover to automatically update. Technology is helping to change that.
What does the future look like?
There is still work to be done. For one, the underwriting process (full of yet more laborious tasks) must be made fit for purpose for the 21st century. For example, when it comes to getting protection, traditionally medical questionnaires had to be filled out at the point of sale. This now has the potential to be replaced by technology which finds answers to questions about clients’ circumstances via existing client data.It all means a sector dominated by specialists is going to be unrecognisable in five years’ time, and much more accessible to all advisers.
For those not involved in protection, it means they will find themselves in a position to expand their businesses into this area over the next few years, with dynamic, self-adjusting products enabling them to do so without being a burden on their resources.