Face-to-face insurance sales to drop, report says

LONDON - Insurers are set to go the way of travel agents in the next decade, selling most of their policies directly at the expense of the traditional providers that currently dominate the market, according to consultants Deloitte.

In a report published on Monday after six months of research into the UK industry, Deloitte said insurers would have to simplify policies including life insurance and pensions, driving out inefficiencies with internet, phone and bank branch sales.

Traditional face-to-face sales, normally through an independent financial adviser (IFA), currently account for over 70 per cent of retail insurance sales in Britain, rising to almost 90 per cent for complex products like pensions.

General insurance sales, including car or travel cover, have already shifted away from these traditional intermediaries, as internet and telephone sales of these simpler products boom.

Deloitte said it expected life and pensions to follow a similar trend, as consumers demand cheaper products and insurers cut distribution costs including IFA commissions.

"The same thing happened with travel agents. Why should I pay you 10 per cent commission to take an order?" said Scott Winslow, head of financial services at Deloitte Research. "The distribution system as it is currently conceived is broken."

Insurers have cut costs through offshoring and outsourcing in recent years, but distribution costs have risen.

Poor customer loyalty currently means many insurers end up losing policyholders years before they have recouped hefty initial investments to secure the clients.

For insurance products with high commissions, such as pensions, insurers need to have the business on their books for at least 10 years, but some 50 per cent of policies lapse around the four-year mark.

"Continuing to sell products that lose money from the moment you sell them is a losing proposition," Winslow said. It's not a question of if you'll see a shift in the market, but when."

Deloitte said face-to-face sales were expensive because of the bundled proposition - insurance with advice.

According to the report, however, consumers said IFAs were offering not financial planning help, but clarity on product features. Customers were also prepared to pay 30 per cent less than the IFAs' required revenue per hour.

"They are being overcharged for something they don't really want," Winslow said.

Many in the industry have dismissed the prospect of IFAs losing their stranglehold on the life and pensions market, saying the policies are too complex to be sold in any other way.

But Deloitte said insurers would just have to simplify the products, much as they had done for car or household cover after Royal Bank of Scotland's Direct Line shook up general insurance 20 years ago with its telephone sales force.

"Is this to say IFAs will disappear? No," Winslow said. "There will be people who need hand-holding. But they will pay." He said the portion of face-to-face sales would likely drop to around a third of the total, from a current level of almost 90 per cent for pensions and over 60 per cent for life sales.

Regulatory concerns, especially after misselling scandals that shook the industry in the 1980s and 1990s, made timings difficult to predict.

"I would caution against saying next year, two years from now, but demographic and economic challenges lead me to believe it will be 5 to 10, 10 to 20 years," Winslow said.

- REUTERS