We have seen change and speculation affect the protection sector of late, challenging providers’ commitment to and investment in protection and raising concerns for distributors. However, we see a great future in the market, albeit not for all players.
Facts supporting the argument that protection is dying are compelling. In the last five years, new annual premiums have flatlined. The mortgage market – the major sales trigger – has collapsed, the competitiveness of premiums has further intensified and the retail distribution review will result in possibly more than 30 per cent of advisers exiting the industry. Protection is also capital-intensive, with capital strains of around 30 times a monthly premium.
This dire prognosis is driven by legacy mindsets, products, systems and processes. Is it really that bad?
Protection has enormous potential. According to Swiss Re, the protection gap has increased to £2.4tn for lump sum and £900bn for income protection. Consumers have more than £1.46tn of personal debt, equating to twice average earnings, and are recognising their personal responsibilities. More than half the adult population have no protection and those with cover invariably have only one policy that pays an inadequate sum assured on death. The risks from serious illness, occupational disability and unemployment are much greater than death.
The future of the protection market depends upon fresh thinking and strongly aligned distribution partnerships. Embracing technology – to simplify and lower the costs of sales of distributors and providers, as well as opening up compelling cross-selling opportunities – is the key differentiator.
The best provider systems transform the sales process so that applicants can receive an immediate decision online and allow distributors to get real-time information on the pipeline process without calling the insurer. This significantly reduces costs across the value chain.
Technology can improve provider and distributor performance but the value is added with multi-benefits. The best of the best providers use one application process to render the purchase experience seamless and low cost, making protection a genuinely valuable customer, distributor and provider proposition.
The future also lies in consumer-driven innovation. Customers must be at the heart of any new proposition and they invariably assume our products confer greater peace of mind than they do.
How else could one explain the fact 55 per cent of critical-illness total permanent disability claims are declined? Legacy thinking is to improve the TPD definition wording, whereas fresh customer-driven thinking is to understand the underlying cause of the problem.
Protection is evolving and providers with the right mindsets and technology can see it has a great future.
Martin Werth is managing director of Fortis Life UK