When it comes to the taxi-driver test, protection insurance just doesn’t hit the mark.
After missing the last tube I’ve endured many conversations about house prices, the stock market and the rising cost of car insurance.
Similarly, when admitting I write about finance, I’ve been quizzed by friends about mortgage deals and credit card offers. I have, on occasion, been button-holed by older relatives wanting to tell me how scandalously their endowment or pension has performed.
But I’ve yet to be asked by anyone about whether I think they have sufficient life insurance, nor whether critical illness cover is a better bet than income protection.
The closest you get to this topic cropping up in ordinary conversation is the thorny issue of payment protection insurance – usually after some cold-caller has wrongly suggested a colleague could reclaim thousands of pounds.
It’s odd really, because this week, while discussing falling protection sales, I was told that PPI “wasn’t really protection insurance”. Apparently it sits in a different regulatory box.
Of course, you can’t argue with the fact that these policies have failed to provide any meaningful level of consumer protection. But I think this attitude illustrates the gulf between the industry’s view of what it sells, and their customers’ understanding of it.
Until this narrows, and the industry improves the way it communicates the benefits of protection insurance, then the downward trend we’ve seen in sales is likely to continue.
In fact, when you think about it, this fall in sales seems surprising and may mask more serious problems in the industry.
Given the economic difficulties and uncertainties in the job market, I’d have thought more people would be buying this type of cover. But it appears that premium increases caused by gender neutral pricing and life office tax changes have put a brake on sales.
This would indicate that a significant proportion of the one million life policies, 500,000 CIC policies and 100,000-plus IP policies sold each year aren’t to “new” customers, but are simply re-broked business that is being churned around the industry no doubt fuelled by the commissions paid.
It seems unlikely that new parents buying life insurance for the first time, or someone who has been made redundant and has lost valuable death-in-service benefit would be put off buying a life or critical illness policy because it is £30 more expensive last year. Surely they wouldn’t be aware of the price rise?
Is there any prospect of the market expanding? Well until prices fall, the rebroking market has been stopped in its tracks.
But there are two other ways sales could increase, although I’d argue only one would benefit consumers.
There are clear signs that the mortgage market is picking up, supported by low interest rates and the Government’s Help to Buy scheme.
If people are borrowing more, then they should have more protection to cover these debts. However, in the last housing boom, rising mortgage sales did not always go hand-in-hand with increased protection sales. Mortgage brokers could make bigger margins more quickly by arranging home loans, rather than bothering with fiddly underwriting.
But the other side of the coin is the prospect that less scrupulous advisers will turn to protection sales as an easy way to turn the commission tap back on, which has been turned off by the RDR. The regulators have made it clear they are keeping an eye on this – and it’s likely at some point in the future these commission payments will be banned too.
Some might argue that it’s far harder to missell life insurance or critical illness plan. You don’t get too many widows or cancer survivors arguing about a £50,000 payout.
But the lesson of PPI is that this is a market that can easily be skewed, by poorer quality products, higher commission payments and a bundling of these policies onto other products.
Let’s hope no one in the industry adopts such a quick-fix approach to boosting sales. It’s the wrong way to attract attention.
Emma Simon is a freelance journalist