Cream Financial Solutions has called for greater use of specialist referrals and changes to client conversations as the protection industry responds to the FCA’s findings on levels of uninsured consumers.

The advice firm has identified four areas where it believes firms and providers can make progress, ranging from measures that can be introduced quickly to longer-term changes to commission structures.

Its intervention follows the FCA’s final report into the pure protection market, which found that 58% of adults have no protection in place and that 59% of those without cover have never considered taking it out.

The regulator has given the industry 12 to 18 months to demonstrate meaningful progress rather than introducing new rules immediately.

REFERRALS AND ADVISER CAPACITY

Cream argues that referral arrangements between mortgage brokers and protection specialists could provide one of the quickest ways of improving access to advice, particularly where brokers lack the capacity to handle protection cases or more complicated underwriting.

It said building dedicated protection teams would take time and may not be practical for every firm, whereas referral relationships could be established more quickly.

The firm also wants the industry’s planned consumer awareness work to concentrate on social media and the reasons households may need protection rather than individual products.

The Protection Distributors’ Group is due to lead a consumer awareness campaign, while Advice, Mortgages, Insurance will work on helping advisers improve conversations about protection.

Cream said social media could help the campaign reach groups including renters, who may have little contact with mortgage advisers, and self-employed people without employer sick pay.

CHANGING THE CONVERSATION

The firm is also calling for advisers to put less emphasis on terminology such as income protection and critical illness cover when beginning discussions with clients.

Instead, it wants conversations to start with household income, children and customers’ plans, before considering the financial consequences of illness or death.

Simon Smith, managing director at Cream Financial Solutions, said: “We’re confident that the work led by AMI and the PDG will make a real difference in the long term, but the FCA has made it clear it wants to see progress sooner than that. The clock is ticking.

“We’re on the front line of protection advice every day and we can see what can be done now. When the regulator checks on progress, firms will want more than good intentions to show for it.”

Smith said increasing specialisation within financial advice meant mortgage and protection work were becoming more distinct disciplines.

He said: “Advice has become more specialised. It happened in wealth, where pensions and investments became disciplines in their own right, and the same can be said about mortgages and protection. Most mortgage advisers are perfectly capable of arranging cover, but their focus is on the mortgage.

“If a firm can’t give protection the time it deserves, it must either invest in dedicated in-house resource, which not every firm will be able to do, or partner with a specialist to make sure its clients are properly covered. These pathways can be set up quickly and can ensure a firm’s clients receive better outcomes.”

COMMISSION MODEL

The fourth proposal concerns commission and is likely to require longer-term industry consideration. Cream wants providers to explore a hybrid model under which firms could choose how much commission they receive upfront and how much is paid over the life of the policy.

The firm argues that the existing structure can create different incentives depending on when a policy is replaced, because advisers can face clawback during the early years but receive a new upfront payment once that period has passed.

On how advisers discuss protection, Smith added: “Nobody wakes up in the morning and decides to buy critical illness cover. They wake up and buy a new pair of trainers.

“So make it real. Ask a parent what they do with their kids at the weekend and how they’d feel if they couldn’t do it anymore. The dance lessons, football training, the things that make their child happy – that’s what income protection pays for. Once people recognise its value, you don’t need to sell anything to them.”