Navigating the Protection Market: Price First or Quality First?
In the ever-evolving landscape of the protection market, the debate between prioritizing price over quality or vice versa has been a longstanding one. Consumer Duty, the FCA’s recommended standards of service and regulatory focus, emphasizes the importance of delivering value to consumers, transcending the narrow confines of price considerations. A recent shift in regulatory perspective recognizes the significance of both quality and price in protection advice. But the question remains: Should one prioritise price and then quality, or quality and then price?
The Flawed Pursuit of the Cheapest Plans
Before July 2023, protection advice leaned heavily towards recommending the cheapest plans available, under the influence of the Financial Ombudsman's perspective. However, this approach has long been deemed flawed by critics. When safeguarding the well-being of your loved ones and securing your financial future, the focus should extend beyond mere affordability. A better consumer outcome, it can be argued, lies in selecting a good product rather than merely opting for the cheapest one.
Quality First, Price Second: A Broader Perspective
The analysis reveals that insurers like Legal & General and Aviva, known for their rock-bottom prices, are among those who prioritize quality in their offerings. To avoid a detrimental price war that compromises client benefits, many insurers have directed their focus towards enhancing the quality of their products. Consequently, today's protection plans are far superior to their counterparts from a decade ago.
Consumer Duty now mandates that advisers consider both quality and price in their protection advice processes to ensure a comprehensive assessment of value. However, an intriguing question arises: Does the sequence of evaluating price and quality matter?
The Impact of Evaluation Sequence on Insurer Selection
Data from two prominent services, iPipeline's Solution Builder and Protection Guru Pro, shed light on the significance of the evaluation sequence. When price is the initial assessment criterion, a narrower range of insurers is selected for the report. In contrast, starting with quality and then adding price results in a more diverse selection of insurers.
The analysis, based on over 60,000 product searches in 2023, shows distinct differences in insurer selection based on the evaluation sequence. Notably, when quality is prioritized, Vitality, AIG, Guardian, and British Friendly enter the mix alongside the usual players.
Dominance of a Few Players in the UK Protection Market
The data also highlights the dominance of a small number of players in the UK protection market. Legal & General, Aviva, Zurich, Royal London, and LV= consistently emerge as the most popular providers, albeit in different orders across life protection, critical illness, and income protection.
Protection Guru Pro data reinforces this trend, revealing that 85% of clients, when given the choice between the cheapest plan and a superior contract, opt for better plans. This choice results in an average premium increase of £6, underscoring the importance clients place on quality over price.
Quality First for Better Outcomes
In light of these findings, the case for comparing quality before price in the protection market becomes compelling. For many of us, when we see a price comparison, the lowest price tends to become fixed in our minds. By prioritizing quality assessments before price considerations, a more balanced evaluation is presented which aligns with the principles of Consumer Duty.
In the dynamic protection market, where the well-being of individuals and families is at stake, striking the right balance between quality and affordability is crucial. As we navigate the intricacies of protection advice, let us prioritize the value that truly matters – a comprehensive and effective safeguard for the people we care about the most.