Make the case on Government backing for income protection and we will listen. That is the key message to come out of the party conference season as far as the protection community is concerned. If providers and the Association of British Insurers are serious about getting income protection on the political agenda, then we need louder lobbying, better research and more strategic thinking.
Comments made by a very senior Department for Work and Pensions figure to a Money Marketing journalist at the Conservative Party conference last month reveal just how far the industry has to go if it wants to get a better deal for income protection, whether group or individual, and whether through auto-enrolment or tax breaks.
The source basically pointed out the fact that only 7 per cent of the workforce are covered, and concluded that if there is no real demand for it, it can’t be that great.
If you compare that to pensions, you could argue 7 per cent is quite a good figure, given there is no tax relief available for individuals taking out the plan. How many people would be tying their money up until age 55 for the privilege of eventually buying an annuity if there was no tax relief on offer?
Protection providers need to draw clearer parallels with the pensions sector to ram home their point. The Government has spent around £360bn on tax relief on pensions over the last decade. How much more productive could UK businesses be if even a tiny proportion of that sum had been used in tax incentives targeted at companies not currently offering income protection or absence management services to their staff.
Long-term sickness costs UK businesses around £3.1bn a year, according to a recent CEBR report for Unum. And a Demos report for the same insurer two years ago concluded that nine out of 10 Britons would lose 66 per cent of their income if they became long-term ill, because the UK has some of the lowest levels of state and private income protection in the world.
Cost to business, the human cost to those individuals who see their life shattered when things go wrong and the cost to the state, both through benefits paid, lost tax revenue and an increased burden on an already overstretched NHS, should all add up to compelling reasons for the Government to do more on income protection.
We need a greater public debate on how group income protection providers can pick up this gauntlet cast down by the DWP. Harmonisation of the benefits system, equal treatment of individual and group benefits and simplification of the tax system should be on the agenda.
And the industry needs to work out what it really wants. Obviously compulsion, flowing from the 2018 review of auto-enrolment, with a 0.5 per cent contribution going into IP, would be manna from heaven for providers. But we haven’t even got compulsion yet, so how could IP be included in soft compulsion, without insurers getting worried about selection issues.
Another question is whether the industry has to go down the simple products route before it is allowed to get anywhere near compulsion. Given the fact that the only IP insurer to try to sell direct through the workplace has pulled its offering, is this actually a blind alley? Again, the argument could run ‘you wouldn’t sell many pensions through workplace platforms if there was no tax relief or employer contribution, so don’t expect to sell much IP that way, however simple the product’.
On the other hand, does the Government need to feel the comfort of seeing a simple IP product, even if no-one will buy it, in the way it needed to feel comfortable with stakeholder pensions before it would have been able to contemplate auto-enrolment?
It took years of debate before the Turner consensus that led to auto-enrolment was built. IP providers, with a couple of notable exceptions, need to turn up the volume if they want to be heard.
John Greenwood is editor of Corporate Adviser