Following enquiries from member firms and media, the Protection Distributors Group (PDG) has recently reviewed the proposition offered by We Buy LIFE Policy (WBLP), which seeks to create a secondary market for certain life insurance policies.
The PDG believes innovation has an important role to play in improving client outcomes and reducing unnecessary policy lapses.
There are circumstances in which a client 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.
For that reason, the PDG does not oppose the principle of a secondary market for life insurance policies. However, the PDG believes 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.
Having reviewed the current proposition from WBLP, the PDG’s view is 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 notes that the proposition currently operates outside the FCA regulatory perimeter. While this does not make the model inappropriate, it does mean that advisers considering involvement should 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 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.
Before the PDG could consider supporting wider adoption of this type of proposition, we would expect to see:
- Evidence-based assessment of consumer outcomes beyond simple comparisons with policy lapse.
- Consumer testing demonstrating clear understanding of the transaction and its consequences.
• Meaningful management information covering conversion rates, vulnerability indicators, cancellations, complaints and customer regret.
- 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.
- Continued engagement with regulators regarding any future regulatory framework for the sector.
Our current position is therefore one of cautious engagement. We recognise the potential benefits that innovation in this area may bring for some clients; however, the PDG has not yet seen sufficient evidence of the safeguards, governance and outcome monitoring necessary to support wider adoption.
As an organisation representing quality protection distribution and one that exists purely to improve what the protection market does for its customers, the PDG will continue to support innovation while advocating for the highest standards of client protection and client outcomes.
