"In particular, we would like to see stronger evidence relating to consumer outcomes, customer understanding, vulnerability management, governance arrangements and the respective responsibilities of advisers and distributors involved in referrals."
- PDG
The Protection Distributors Group (PDG) has called for greater evidence around consumer outcomes and vulnerability management in its review of the secondary life proposition launched by We Buy LIFE policy (WBLP).
WBLP’s proposition entered the UK market earlier this year and offers a lump-sum cash payment for life insurance policies that would otherwise be lapsed.
The PDG reviewed the proposition "following enquiries from member firms and media," and stated that it "does not oppose the principle of a secondary market for life insurance policies."
"There are circumstances in which a customer may no longer require life cover, for example following the repayment of a mortgage, changes in dependency arrangements or wider changes in financial circumstances. In such cases, the ability to realise some value from an unwanted policy may represent a better outcome than simply allowing cover to lapse," the comment said.
However, the PDG also underlined its belief that "propositions of this nature should be assessed against the same standards of consumer protection, transparency and good outcomes expected across the wider protection market."
Upon review of WBLP’s current proposition, the PDG found that "a number of important questions remain unresolved. In particular, we would like to see stronger evidence relating to consumer outcomes, customer understanding, vulnerability management, governance arrangements and the respective responsibilities of advisers and distributors involved in referrals.”
The Group noted the fact that WBLP’s proposition "currently operates outside the FCA regulatory perimeter," and although "this does not make the model inappropriate," it warned advisers to "carefully consider their own regulatory obligations, professional indemnity implications and responsibilities to customers, particularly where a recommendation or referral forms part of a wider advice process."
The PDG also explained that it "believes consumers should fully understand the implications of assigning a policy to a third party, including the loss of future protection benefits for dependants and the alternatives that may be available to them before proceeding."
In addition to requiring "evidence-based assessment of consumer outcomes beyond simple comparisons with policy lapse," the PDG said that it would also need to see "consumer testing demonstrating clear understanding of the transaction and its consequences; meaningful management information covering conversion rates, vulnerability indicators, cancellations, complaints and customer regret,” before it could support the widespread adoption of a secondary life proposition.
The PDG also called for "enhanced vulnerability safeguards and outcome monitoring; greater clarity around adviser responsibilities, referral arrangements and customer disclosures; independent assessment of valuation methodology and fair value considerations, and continued engagement with regulators regarding any future regulatory framework for the sector."
As a result, the PDG’s position is currently "one of cautious engagement," recognising that while there are "potential benefits that innovation in this area may bring for some consumers," it “has not yet seen sufficient evidence of the safeguards, governance and outcome monitoring necessary to support wider adoption."
