Carol Sergeant’s eagerly-awaited simple products review is expected to publish its final report in February, and inevitably the past months have seen intense speculation over the specific findings of the report. On the eve of the publication of the final report, now is a good time to take a step back and look afresh at the bigger picture, reminding ourselves why Sergeant’s work represents such an opportunity for the financial services sector.
On a practical level there are obvious benefits to delivering a simple IP product in particular through the workplace. Group cover is more affordable than private protection on a per person basis, policyholders face fewer exclusions and HR teams can advise employees on the right options. Businesses would also be better placed to retain staff and be protected against volatile absence costs.
In more abstract but no less important terms, there are also clear advantages for both employers and advisers. Employers can improve productivity and develop commercial awareness by embracing the trend of educating their employees about their personal finances. Advisers could use simple products as a reference point to demonstrate how they add value.
What’s more, the initiative could not come at a more opportune time. In the current economic gloom, people are increasingly concerned about their finances: our research with Populus shows that 77 per cent feel less financially secure as a result of the downturn. This should help grow the market for products like protection, which provide security in tough times.
However, we have also conducted separate research, which aimed to help us, better understand the needs of consumers. The findings revealed that banking and insurance are the worst offenders for making product information difficult to understand. Scandals such as PPI mis-selling have reduced trust in financial services further still.
As an industry we do not always help ourselves in regaining consumer confidence. Amongst insurers there are whispers that the recession and damaging scandals like PPI have been largely the fault of a gung-ho banking sector. Equally, certain sections of the banking community see insurers as too conservative and stuck in their ways. Such sniping helps no-one.
The current reality then is that consumers are turned off from the personal product market. This has led to a corresponding muted demand for workplace schemes. Scandals and industry differences have also contributed to record low confidence in the financial services sector. As a consequence, consumers’ current financial concerns are not enough to deliver significant new growth in the sector.
In this context, the true potential of the Sergeant Review becomes clear. Firstly, it should act as a catalyst to bring the financial services industry together by uniting behind a common purpose. Secondly, by addressing the issue of complexity, it should lower a significant barrier to consumer engagement. Simple Products could therefore have a big impact in growing our industry.
Recent developments such as pensions auto-enrolment and the removal of the default retirement age are proof of the growing role for employers to educate and advise staff about their finances. Encouraging financial understanding can also easily translate into greater commercial awareness among employees. Simple products would be a great tool to facilitate this process.
This is where the opportunity lies for advisers. The review should help bring more people into the market, but the simple products themselves cannot be a ‘one size fits all’ solution for all financial needs. Instead, they should become a yardstick against which more specialised bespoke advice can be compared. Whatever the final recommendations of Sergeant’s report, they will inevitably cause debate. So, looking into the crystal ball, what should the products look like?
The surprising answer is that, to a large extent, it doesn’t really matter. It is the principle that is vital here.
The key to the lasting success of the simple products initiative is that we as an industry take this opportunity to embrace simplicity as far as is possible in all our work. This will benefit the consumer and also help us to regain trust and deliver growth in our sector.
I hope that will be Sergeant’s lasting legacy.