The default position of protection commentators is the market is in need of reform, and is perhaps even broken. But I now see our collective business as making decent progress overall.
For a while now my firm’s internal data has been showing quite clearly our customers are becoming more receptive to the product that will be our most important in the future, and now the Association of British Insurers has confirmed the trend as far wider. Beyond that, there is a surge of newly energised investment in protection from the biggest players in the general insurance and banking sectors, and of late it seems the mortgage broking fraternity have got over the mortgage market review to the point where they can now focus on delivering their shareholders the extra revenues protection can bring. We are doing alright.
It is our best product, income protection, that the ABI reports as growing. It may be the smallest of the three key product types, but I see it as our future because it pays out far more often than pure life policies, and is much more certainly good value every time than critical illness cover can be.
If you ask any Lloyds of London broker they will tell you the key factor that leads to their many individual markets growing or shrinking is claims. More claims equals more sales. That implies the root cause of protection’s failure to grow overall is the happy truth that far fewer folk are now dying before old age, a trend which will surely continue. People’s desire to spend money insuring against catastrophe is the inverse of their certainty it will not happen to them. Paid claims undermine that certainty, so to grow our market long-term we need more claims and that needs more IP policies in force. With lower early mortality rates comes the need for consumers to protect themselves against the rising likelihood of non-fatal morbidity. And IP does just that.
So while the increasing focus on protection from the wider financial services community is good news in the short term, what will grow the market longer term is steadily developing IP into our future lead product. Currently the zeitgeist is all in the direction of technology and simplicity. That has led almost all, bar a few visionaries, to focus on term life as it is there that improving health allows ever simpler underwriting and transaction.
For now, rethinking IP seems quixotic to most insurance company strategists, who see a small market. Basing their projections on current realities firms cannot see any profit in it, so try instead to create a USP in the far bigger term life market, despite the fact it is shrinking and thus ever more competitive and less profitable. Or they look to grab the easier profits from CI.
But there are those asking what would happen if they invested in the market of the future. I would like those ABI statistics to nudge insurers and those re-energised allies to develop mass market IP strategies serving consumers’ changing employment and health patterns, because that will generate more claims. Better products, say a combination of IP and CI with life cover thrown in, or new fintech solutions might enable progress. But the first step is promoting and marketing of what is good enough already, as success there will pay for the development of better in the future.
Tom Baigrie is chief executive of LifeSearch