Simplified Products

The Treasury has launched a new set of simplified products. Well, it was nearly a launch because there are no actual products yet – quite a significant missing ingredient – as you will probably agree.

We know what sort of products will be included as per the recommendations of former regulator Carol Sergeant and her review.

They are an instant access savings account, a 30-day notice savings account and of more interest in this neighbourhood, a life insurance product.

There are some pretty obvious reasons why the protection industry might dismiss this development as an unimportant one or at least of only passing interest.

First the history of kite-marked, simplified and catmarked products is a very mixed one. The CAT standard Isa was the first product of its kind in financial services but sales of the few funds adhering to the one per cent cap were pretty poor.  The CAT standard mortgage if anything did worse. It saw one of the few big lenders to offer the mortgage realise mid way through that it didn’t actually meet the requirements and quietly withdraw from the scheme. The Sandler suite of products didn’t really make it out of the starting blocks. All along, IFAs, the main distribution channel, were left out of the equation mostly on grounds of cost. Primary advisers – remember them – were meant to be able to sell stakeholder products possibly at some lower regulatory standard of suitability. The proposal, as we all know, didn’t make it past the first RDR consultation paper.

The second reason for the industry to be a bit cynical is that it is quite difficult to see the value added to consumers, where life insurance is concerned. It is pretty simple already. With the other strand, some banks do play some silly games with bonus introductory rates, but even here, you might argue the products are missing a trick by not looking at cash Isas, many of which are competitive but only for the first year.

However, here are three reasons, why it might be worth keeping at least one eye on the initiative.

1)       Simplified products did have some impact. Stakeholder pensions came

out of the kite-marking initiative. The pensions did not fly off the shelves without advice factored in, but they certainly had an impact on personal pension charges, admittedly with the regulatory intervention of RU 64.

2)       It is clear that these products are only a starting point. This

feels like a gradual introduction which extends to other products. It could be simple income protection or CI next and as such that could put pressure on providers to adapt their existing ranges.

3)       There is one big difference with these products. The initiative is

going to involve the British Standards Institution, an already recognised kitemark with some traction with the public. This could be the big difference and the cleverest part of the initiative. While previous simplified and kitemarketing initiatives almost seemed to run contrary to industry marketing and distribution practices, is it beyond the bounds of possibility that some providers might actively seek out kitemarking for their firms and products. Something from the BSI may confer much more of an advantage than something from the Government. That could be a significant difference. It might even appeal to advisers.

I wouldn’t write off this initiative just yet.