Closing the income protection gap with help from Uncle Sam

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Increasing the take up of income protection is a tough nut to crack, not only in the UK but also around the world. Last year, research conducted by the Centre for Economic and Social Inclusion for the Association of British Insurers found that increasing IP coverage from its current level of 11 per cent of the UK working population to the US level of 27 per cent would generate additional savings to the Exchequer of up to £180m a year. So is the US doing anything different to the UK in promoting IP and, if so, could we do something similar?

An independent body to educate consumers

The US has a non-profit organisation that was set up to raise public awareness of insurance. Life Happens was established in 1994 by seven insurance companies and is now funded by contributions from over 140 insurance companies and financial services firms in the US, in proportion to the amount of insurance business they write.

LifeSearch chief executive Tom Baigrie is in contact with Life Happens and thinks that bringing this sort of model to the UK would be a sensible and relatively low cost way for the industry to do something about low take up of IP.

“It uses the money it raises not so much to campaign but to produce social media content, tools, quizzes and stories of people’s claims for use by the industry in marketing itself,” he says.

Baigrie says consumers usually react to marketing by insurance companies with scepticism because they know it is biased towards that particular firm. But Life Happens is impartial, with no bias towards any insurance company.

“It allows the whole market to have an objective centre of content. It’s a rallying point to an industry that will always struggle as people will always want to spend money on other things. Fundamentally, we need to make consumers aware of what income protection does,” he says.

Building on Seven Families

For Baigrie, the UK’s best effort at doing this is the Seven Families initiative but he adds it needs to be taken further, with insurance companies driving things on.

Royal London senior product development manager Jennifer Gilchrist also thinks Seven Families could be the start of something bigger. “It is almost the start of something collaborative. It’s not a privately run initiative and it features real life people, so we could build on something there. It has been a huge success. It’s not provider led or influenced; it’s about trying to bring alive the importance of financial security with real people,” she says.

AFH group head of advice Austin Broad says: “Real life drama gets bums on seats and the media has a part to play in engaging people to understand the risks and challenges around IP.” But he fears that financial constraints and the need for the entertainment factor that often comes with media coverage could potentially detract from the educational message.

It’s all in the name…

There is a debate in the protection industry around whether IP should be renamed. The argument follows that IP is confusing and often mistaken for payment protection insurance, so it suffers from the same negative perceptions.

Direct to consumer brand There head of proposition Trevor Horne points to consumer research it carried out, which showed people were indeed confused by the name.

“Many thought it would cover redundancy and people also confused critical illness cover with income protection,” he says. The firm called its income protection product “too ill to work cover” – something simple and self-explanatory.

Similarly, Canada Life Group Insurance marketing director Paul Avis thinks IP should be renamed “extended sick pay”. “This would avoid confusion with occupational sick pay. It does what it says on the tin,” he says.

There are also calls to follow the US in naming IP “disability insurance”. However, according to JLT Employee Benefits principal Tristram Hawthorn, this does not accurately describe what the product does in the UK any more than its former name, permanent health insurance. For him, IP may be the best name the industry can come up with.