"With Consumer Duty requirements now in place, making sure customers’ financial wellbeing is a top priority is at the forefront of conversation."
With Consumer Duty requirements now in place, making sure customers’ financial wellbeing is a top priority is at the forefront of conversation. Coupled with the impacts of the cost-of-living crisis and mortgage crunch, safeguarding customers’ finances has never been more important - and protection policies have a key role to play in this space.
Where does protection come into play?
Consumer Duty essentially means that customers should receive communications they can understand, products and services that meet their needs and offer fair value. Simply put, they get the customer support they need, when they need it. These requirements are supported by several cross cutting rules. These rules require firms to act in good faith, avoid causing foreseeable harm, and enable and support customers in pursuing their financial objectives.
When it comes to protection, this essentially means that when a customer gets a mortgage (most likely the biggest financial commitment of their lives), brokers need to make sure that they are aware of all the options available to them that would safeguard against any financial loss associated with redundancy, ill health, bereavement, and more.
Let’s put this into context. In May 2022, 24%, or 12.9 million, of UK adults had low financial resilience, meaning that they would be likely to experience financial difficulty should their circumstances change. In fact, this figure has increased by a further one million since February 2020. This was largely due to increased living costs, with 15% of adults heavily burdened by their domestic bills and credit commitments.
The economic climate has experienced significant change over the last few years, so while these figures aren’t surprising, it does highlight that customers need our support more than ever. Protection policies - such as income protection, critical illness, life insurance - can each play their part in safeguarding customers’ finances. They act as a safety net against a host of challenging circumstances that could increase the potential of their finances being impacted.
Having open conversations
It’s essential that brokers have all-important protection conversations with every single customer. Rather than framing it at the end of the conversation, which could be interpreted as an optional extra, place it at the forefront. It’s just as important as their mortgage, after all. There are countless ways you can open up this conversation, as every customers’ needs will differ. Have they recently undergone a change in circumstance and their policy needs updating? Have they considered reviewing their current policy where there might be a gap? Or do they have no cover in place at all?
Many customers will have a limited understanding of protection policies and their true value. This further highlights the importance of education and prevention. You’ll need to outline the risks associated with not having the appropriate cover. It may be difficult to broach initially, but your customers will benefit from having a realistic conversation about potential vulnerabilities they may face. Any information and claims about policies also need to be presented in a clear, accessible manner, making sure that it is easy to understand.
Providing suitable options
As brokers, we need to offer products and services suitable for customers, providing clear information about products, terms, and conditions. By doing this, we make it easier for customers to make informed decisions.
With this in mind, it’s important that we ensure customers are aware of the risk of not taking protection and aware of all that is available to them when undertaking a significant financial commitment such as a mortgage. This applies at whatever point customers are in their homebuying journey, whether they’re a first time buyer, remortgaging, or going through a product transfer.
Certainly in the case of the latter two journeys, circumstances may have changed since your customers took out their original mortgage - they may have had a child, gotten divorced, or recently been promoted/changed jobs. This in turn impacts their financial wellbeing, as their income and outgoings will alter depending on how their circumstances evolve. With this in mind, we need to make sure we’re offering customers the most suitable policies that align with their needs at that current time.
In this ever-changing economic climate, the significance of protection policies in securing customers' financial stability cannot be overstated. Education and awareness are essential to help customers understand the true value of protection policies, and outlining the risks associated with not opting for adequate coverage. By offering them tailored, suitable options and clear information, brokers can empower customers to make informed decisions about their financial wellbeing.
