28th November 2024

The Hidden Differences Between Adviser and Direct-to-Consumer (D2C) Protection Plans

Many advisers know that companies such as Barclays, Direct Line, Nationwide, Sainsbury’s, and Santander offer single-tied protection plans designed by major insurers like AIG, Aviva, or Legal & General. However, they may not realise that the quality of these plans can differ significantly from those available through advisers—even when offered by the same insurers.

It’s not uncommon to encounter consumers who proudly declare they have an excellent protection plan with Aviva or L&G. What they often don’t know is that the products offered directly to consumers, either by insurers or aggregator sites, are generally simplified and often inferior versions of the plans marketed through advisers. 

Comparing D2C and Adviser Plans

Subscribers to the CI Expert critical illness comparison service frequently inquire about one of its standout features: the inclusion of D2C plans in the comparison system. This allows advisers to directly compare these offerings with the more comprehensive adviser-focused plans.

It’s worth clarifying that there’s nothing inherently wrong with insurers marketing simpler plans directly to consumers or via aggregators. Similarly, consumers are free to purchase whichever products they prefer. However, as Professor Jim Gower, the architect of the original Financial Services Act, famously argued in 1986, Consumers should not be made fools of but should be allowed to make fools of themselves.

This philosophy is evident in the design of many D2C plans. Simpler designs, fewer options, and shorter brochures are all tactics aimed at reducing consumer confusion and increasing purchase rates. However, this simplicity often comes at the cost of comprehensiveness. Plans designed for advisers typically:

• Offer broader coverage, including higher payouts for additional payment conditions.
• Include enhanced children’s critical illness cover.
• Provide better options for add-ons like total permanent disability (TPD).

Aggregators: A Mixed Bag

The growing popularity of aggregator sites has brought critical illness plans to the forefront of non-advised sales. CI Expert’s Critical Thinking 24 survey highlights this trend, showing that platforms like Compare the Market and Money Supermarket feature products from a mix of D2C and adviser-supporting insurers.

Interestingly, a review of these platforms shows that core plans from adviser-focused insurers often compete on price with D2C-only brands, such as Virgin Money and Budget. In some cases, D2C plans can even appear more expensive despite offering fewer features.

Further scrutiny reveals key omissions in aggregator-listed plans:

• Exclusion of TPD: Plans often lack this vital component.
• Limited children’s cover: Frequently absent or significantly scaled back.
• Interest rate assumptions: With reducing cover plans, insurers use varied interest rate assumptions (e.g., Zurich defaults to 8%, while Vitality’s SIC1 uses 5%). Consumers are often unaware of how these assumptions impact coverage adequacy over time. 

Importantly, because these purchases are non-advised, consumers have no recourse to the Financial Ombudsman Service if their plans later prove inadequate. 

Implications for Advisers

Non-advised sales continue to grow, leaving many consumers with low-quality plans—lacking TPD, children’s cover, and rarely written in trust. Advisers have a unique opportunity to educate these clients. By using comparison tools, advisers can demonstrate the superior value of adviser-supported plans and guide clients toward more robust protection. 

Consumer Duty principles mandate regular reviews of all protection plans, including those consumers have purchased independently. Advisers must seize this opportunity to highlight gaps in coverage and ensure clients are fully protected—no matter how they initially acquired their plans.

Alan Lakey, CI Expert

Protection