Income protection needs a complete overhaul to reverse falling sales, says Defaqto.
Its report, Income Protection Insurance 2007 – A Time For Action Not Words, says insurers must simplify their products to close the estimated £175m income protection gap.
Defaqto says different ways of treating occupations and inconsistency in applying benefit limitations are stifling the product because they make it difficult for portals to produce accurate comparative quotes.
The report says: “Income protection insurance is a perfect example of a plan that does not treat customers fairly. We believe that continual tinkering will only make things worse and the industry should break the mould and start again. Doing nothing is no longer an option.”
It says an uncomplicated low-cost product is required for simple and non-advice channels where income protection is sold alongside a primary sale while financial advisers require a more advanced plan.
It adds that income protection could benefit from the loss of consumer faith in payment protection insurance as a result of Competition Commission and FSA investigations.
However, Unum says the income protection industry has made rapid progress which is not reflected adequately in Defaqto’s report and claims radical change is unnecessary.
Unum corporate services director Joanne Hindle says revised application processes, online submission facilities and teleunderwriting have cut processing times significantly and income protection rates are now very competitive.
Hindle says: “Radical change in an industry that has already advanced so far is to a large extent unnecessary and may simply confuse users and lead to further uncertainty.”
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