Some are complex by necessity, such as pensions and income protection. Others are complex because marketers add on questionable options and make it hard for customers to compare.
So what of Carol Sergeant’s suite of simple products? Let us look at each one:
Savings
The problem with savings products is bank interest rates at 0.5 per cent. There is nothing to tempt the saver. Thus providers complicate offers by linking current accounts or structured products to savings account offers or add options of dubious benefit. The prince of these must be Santander’s additional 0.1 per cent bonus if Rory McIlroy wins an eligible golf “Major”. This trivialises investment and ensures comparison is impossible. Temporary bonuses only work because savers often leave their money in ‘zombie’ accounts.
A simple savings account carrying a British Standards Institution Kitemark might have a place. The problem is that the return will be poor and will be uncompetitive against accounts where the sum invested is larger or the period longer. Ms Sergeant’s team has recognised this by adding a 30-day account, but this may not be enough.
VERDICT – Case not proven
Life Insurance
Too few people are insured. Swiss Re puts the protection gap at about £2.4 trillion. Is it because life insurance is too complicated? Of course not. It is the one product that marketers have largely ignored. Folk just do not recognise the need.
A flaw in the interim review was the insistence on standard terms and conditions with no options. There seems to be a softening towards added features but this major flaw remains. As it stands, terminal illness benefit will not be allowed, making these simple life plans inferior to every decent product on the market.
If this practice were to become the norm, we would return to a nasty market in second-hand life policies for unfortunate people who are dying and need to release cash.
Oddly enough, the review recognises the importance of such benefits. It actually states that: “It was important that consumers should be made aware of these features. A signposting process, including information and guidance from the Money Advice Service and pre- and post-sales communications from providers was recommended as an appropriate way.”
Imagine some poor soul trying to buy a ‘simple life product’, having to find a way through the maze of the Mas website, to find an ‘adviser’ who would point out that the simple product was just a bit too simple to be any good. Would this be automated (generic) advice? Or will Mas be employing actual advisers – presumably qualified?
These products are described as ‘entry level’. The implication is that you start with one of these until you can afford something better – except that they are unlikely to be cheaper. Surely it would be better to include an important benefit rather than point out its exclusion?
The working group now has the enviable task of deciding what a simple whole-life policy will look life – with profits, unit linked or non-profit. Before you answer, please consider what whole-life sales actually look like:
