The start of another year is often a time when people take stock of their lives. Some people look at how much they are earning and take action to increase their income by changing jobs.
Others seek to increase their income by switching money in deposit accounts to maximise their returns. Some may even look longer term to what they hope to live on in their retirement and review their pension plans.
This focus on income is logical and understandable but what is not is the apparent lack of motivation by many people to protect their income now in the event of illness or disability making them unable to work.
January is named after the Roman god of doors and is portrayed with two faces looking both backwards at the last year and forwards to the next year.
Income protection insurance has for too long been viewed looking back. It has for some time sat in the shadows of critical-illness cover and been a product that has offered significant market potential but never quite rea-ched it. We must now look forward and a door is opening that may assist.
The uncertainty around the future of guaranteeing critical-illness premiums could give the impetus required as the market starts to consider alternatives. Looking back on income protection is no longer relevant.
The dominant driver in the life and health protection market today is the buoyant housing market. It has to a large extent driven critical-illness cover sales in recent years to the levels of success they currently enjoy.
That success is in no small measure down to the simplicity of the message to customers – “funds available to repay a mortgage on suffering from a critical illness or condition” has massive customer appeal.
It must be in this same area of expenditure-based cover that income protection solutions can make progress. But the product structure has not changed fundamentally for decades.
This then is the challenge for today's product designers – make income protection appeal to advisers and customers in the straightforward way that critical-illness cover does, providing an answer to the question: How would you meet your mortgage repayments if you were unable to work?' Tomorrow's alternatives
When considering alternatives the following issues must be addressed:
The current product is neither inclusive enough nor accessible to the majority of customers.
Customers have shown their liking for lump-sum benefits by buying critical-illness cover in such big numbers. Income protection has to demonstrate that a monthly benefit offers customers value for money.
Different approaches by providers at the point of claim when dealing with other benefits or deductibles such as the treatment of any state benefits can be confusing to customers and not helpful when making comparisons.
To date, budget plan app-roaches have not genuinely worked. In many cases, hav-ing that feature actually enc-ourages a customer to select the normal full benefit plan alternative all the way through to retirement.
Claim payment periods need reconsidering. Many customers do not see the benefit of a potential payment period of 40 years or more as they cannot envisage themselves being unable to work for that length of time.
A maximum benefit period of, say, three to five years with a final lump-sum payment for customers still claiming at the end of this period could resolve this concern. It would also have the added advantage of widening access to income protection.
Progress has already been made on some plans to widen accessibility for customers in occupation groups three and four by offering own-occupation cover for benefits that are in payment for two years before switching to a functional assessment test (FATs) definition.
Income protection consistently suffers from being perceived as a small market which does not command the att-ention and focus of bigger sectors. This view could change as pressure mounts on criticalillness cover.
The open door of 2004 offers opportunities for income protection to really take steps forward. This will require concerted action and commitment across the marketing mix to be successful.