Challenges: do safe replacement business cases exist?
It is possible that they do. Having said that, an adequate assessment of the risks is required. We are writing about this in detail for our subscribers in our quarterly life report, but the issues that are coming up for advisers tackling the questions and challenges of replacement business are these:
Underwriting - obviously, but issues of time to complete it and client fatigue through the process should be considered before a recommendation is made.
Projecting price variations - as every insurer revises life prices annually, typically, and health prices more often.
Age of policy - the longer it has been in force, the more likely it is to be a poor quality wording compared to a modern contract, but also, the more likely the client has pre-existing health conditions that will not pass underwriting without some rating impact
Costs of change - these are not limited to the premium payable. They must include the time required to get underwritten and the risks associated with the underwriting of a new contract, even if, say, benefit stand-down periods are waived by the insurer.
Pass backs - as most adviser insurers offer extensive pass-backs a policy that is close in score to another may quickly enjoy a pass back which could make that score even or nudge it ahead.
Value of change - to be considered alongside cost of change, value of change is broader than, say, money saved. Harder to evaluate is benefit gain - and how long that gain may be sustained.
Purpose change - possibly the most reliable reason for a change, it is not considered frequently enough: if the purpose for the cover is significantly different, wholesale changes that transcend underwriting issues may beat other considerations.
Circumstances change - advice on reduction of cover due to pressure of budget is still advice to remove some cover. It may not be covered adequately and advice risk may be acquired if the question of alternatives to reduction are not adequately considered. If the client then returns to re-purchase cover that was cancelled, say, six months prior - this may amount to replacement in the eyes of the regulator.
Inspired by one of our excellent research advisory board members who called me to talk about replacement business they have seen in the market. Many thanks, we thrive on your feedback and calls.