Ian McKenna: Price then quality, or quality then price? Here’s how much it matters

One of the core principles at the heart of Consumer Duty is the focus on delivering value. This creates a need to consider more than just price. The regulator recognising this is an important move, particularly when it comes to protection.

Before 31 July, most protection advice was driven by the Financial Ombudsman’s view that unless an adviser could demonstrate good reason why not, they should always recommend the cheapest plans available.

I always believed this approach was flawed. If you are buying insurance to protect the people you care about the most and your own financial future, I think most would want a good product rather than just a cheap one. Indeed, I would argue this would be a far better consumer outcome.

When you look at analysis that starts with quality and adds price, a far broader range of insures are selected

For many years, some insurers have focused on offering rock bottom prices, even if their underwriting standards are more exacting and fewer cases are likely to be accepted at normal rates. Legal & General and Aviva are two companies that very much come to mind – although the latter does also play, to some extent, at the higher quality end.

In order to avoid a price war which can only be achieved by cutting back benefits to clients, most insurers have focused on the quality of their product, so much so that most plans today are far superior to the equivalent a decade ago.

Consumer Duty demands all advisers make sure their protection advice process now includes quality and price evaluations to arrive at an assessment of value.

But there is an interesting question to ask: Does it matter if you explore price first then quality, or quality then price? Data from two services shows this can make a very significant difference to the range of insurers selected.

For many years, some insurers have focused on offering rock bottom prices, even if their underwriting standards are more exacting

IPipeline’s Solution Builder software includes a product features report, which allows an adviser, after producing their price comparison, to select up to five contracts that can then be compared against up to 10 different quality features.

By comparison, Protection Guru Pro initially creates a quality analysis to which price is then added. The system then produces an analysis showing the best quality product, the cheapest and either the best product within a particular budget or another contract the adviser might select.

The table below shows that when price is the first assessment criteria, a far narrower range of insurers are selected for the report.

The same five insurers – Legal & General, Aviva, Zurich, Royal London and LV= – are selected as the most popular providers, albeit in different order across life protection, critical Illness and income protection.

When you look at analysis that starts with quality and adds price, a far broader range of insures are selected, with Vitality being most popular for life and critical illness and AIG, Guardian and British Friendly also coming into the mix.

This analysis was based on over 60,000 product searches carried out during 2023, so the sample is certainly large enough to be statistically sound.  

It is not hard to see the extent to which the UK protection market is dominated by a very small number of players. This is also reflected in volumes of new business written.

Other Protection Guru Pro data has identified that 85% of clients, given the choice between the cheapest plan and a better contract, opt for better plans, resulting in a £6 increase in premium, on average.

These findings make a strong case for comparing quality before price to achieve better outcomes. Once a client has seen a price comparison, they will fix the lowest price in their mind as a cost, whereby looking at quality first the adviser can present a more balanced assessment in line with Consumer Duty.

Ian McKenna is the founder of Protection Guru