Protection policies have found their way into the news recently for all the wrong reasons. You only had to read the comment in last week's Insurance Times to see how negatively payment protection insurance (PPI) is perceived.
Specifically, payment protection policies have come under the spotlight of the FSA, which has taken the sellers of these policies to task for dodgy selling practices and a lack of proper compliance controls.
Such policies are typically taken out with a loan and the regulator has correctly identified the sale of PPI with credit arrangements where questions must be answered about suitability, price, terms of cover and other issues.
Many policies of this type are 'sold on', meaning they are seamlessly included with the loan and that high rates of commission go to the salesman.
But this is just one type of protection that the insurance industry is involved in - and one that is usually outside the boundaries of the typical general insurance broker.
The areas of protection of most concern to the broker include income protection, critical illness cover and mortgage payment protection cover; commonly known as accident, sickness and unemployment (ASU).
With more and more people enjoying an ever-higher standard of living, yet not doing anywhere near enough to protect the income that makes that standard of living possible, this kind of insurance becomes more and more vital.
Minimal assistance
It also becomes something of an obligation for the broker if he is to comply with the FSA's direction on Treating Customers Fairly.
With little or no savings to fall back on, higher debts and a more expensive lifestyle to support, it is clear that any disruption to the family's income could prove disastrous.
Plus, with state benefits providing only minimal assistance, families are left with the choice of adequately protecting their income by buying private insurance cover or simply
hoping that redundancy, sickness or accident never strike.
But ABI figures show that the number of protection policies being written has tailed off in recent years, with a 21% decrease in the number of new policies taken out between 2003 and 2004.
Already this year we have seen the unemployment figures edge upwards and there has been a corresponding increase in the numbers of court orders being issued for home repossessions.
Against this kind of background, getting your clients to take out an ASU policy should be a simple enough sell.
This is especially true now that we live in a flexible working environment and that the government has greatly reduced the help available to the unemployed for their mortgage repayments.
This is an area where the general insurance broker and other intermediaries have the opportunity to make an important difference and give added value to their client.
Much cheaper
For, unlike the lenders, they have the opportunity, and indeed, are required under regulation, to trawl the market for the best deal for the consumer.
The adviser should first assess the consumer's needs and requirements, research the protection market and come to a conclusion on the best deal for the individual client - which is often very much cheaper than any option offered by the lenders.
However, brokers should be wary of deals that initially seem enticing.
For example, there are some in the market that offer free cover for six months, but then revert to a high premium level.
This policy may well be the best for a client in certain situations, such as where they want cover but are financially stretched during that first six-month period.
But you must make them aware that in the long term they will be paying more for the cover - after all, that is what the FSA would expect you to do, isn't it?
You should also avoid policies that pay too much in commission.
When the client discovers how much you as the adviser are pocketing from the deal and decides that it is too much, the chances are you will have lost a client for good - and in a worse-case-scenario they may even report you to the Financial Services Ombudsman.
Some mortgage PPI providers include in their offering a product comparison table to aid the process of selection.
Even if you don't want the bother of arranging the cover yourself, you can outsource the entire fulfilment process and regulatory responsibility to an external specialist wholesaler and still earn yourself some useful commission.
By utilising their independence in the market-place brokers can make themselves invaluable to clients.
They will also raise their reputations in the process, which may ultimately result in opportunities to conduct other business with clients and form a mutually rewarding relationship. IT
' Ted York is managing director Berkeley Alexander Insurance Services
