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Protection at a premium

With redundancy rates rising thanks to Lehman Brothers, Bradford & Bingley, Lloyds/HBOS et al, questions are being asked of those providers offering protection against unemployment. Are they offering enough advice on the product? How well positioned are insurance firms to deal with the imminent influx of redundancies? And will providers start cherrypicking a client base, swerving to avoid those working in the financial sector?

To date, unemployment cover has existed primarily in ASU cover or as an add-on or part-of-a-menu product. It is commonly outsourced and added to protection contracts as an option. Advisers would recommend income protection, PPI, MPPI and ASU cover in the event of redundancy or job loss. Yet more recent products offer UC as part of a plan alongside equally important components for a guaranteed term.

One example is LV=’s mortgage and lifestyle product which allows the policyholder to claim as often as necessary, offers cover for accident, sickness and unemployment, with level mortgage payment protection and the choice of level or index-linked living expenses protection.

However, LV= head of protection Chris McFarlane notes several considerations before UC is added to the mix.

He says: “There is clearly a customer demand for UC but you want to make sure that the provider has the capacity and expertise to manage risk and deal with the administration.

“If you are writing UC, you have got to make sure that you get the right price for your risk and the right acceptance. Each provider has to look at its target market and confidences and, of course, TCF is a core part of that. Some providers will not have the skill, expertise or risk appetite in-house to deal with unemployment.”

The benefit term is also something of a hindrance for UC. Terms differ depending on the provider but typically they tend to be limited to one year, considerably less than LV=’s 36-month cap.

According to McFarlane, research by LV= found that advisers disliked the traditional MPPI product which allows the provider to tamper with the term agreement.

Like LV=, PruProtect exceeds the one-year mark and offers cover for two years, as do Paymentshield, Woolwich, Assurant and a handful of others.

PruProtect director of protection development Kevin Carr says: “The term tends to be limited as the state does not wish to encourage people to be off work for too long.”

While providers fear nothing in continuing to offer UC, consumers could be caught in a catch-22 situation if providers choose to decline an application because the applicant works in the financial sector, explains Aegon PR manager Mark Locke. Equally, Locke says, “before knowledge” could lead to a claim being declined.

He adds: “If you know you are in danger of being made redundant, there is a possibility that any subsequent claim may be declined due to that foreknowledge.

“However, if nothing is immediately pointing to your job being at risk but you are generally a bit concerned about the economy, then it is always worth looking at the options available. In the current climate, it is very important that people seeking protection against redundancy get advice.”

Consumers could also suffer if providers increase premiums slightly depending on their occupation, says Lifesearch policy adviser Matt Morris.

“There does not seem to be a reason why a provider would shy away from providing such cover as it only pays out for 12 months at most. However, it would |not be a shock to see premiums rise over the coming months.”

Despite the risk of a rise in premiums, the general consensus in the industry is that if ever there was a time to highlight the importance of protection, this is it.

Direct Life & Pensions Lifequote key accounts manager Phil Jeynes says: “As always, the advice for protection in general is to regularly review your arrangements and ensure you have adequate cover. There is no reason to believe that other types of cover would be any harder for those working in financial services to take out in the current climate.”

CBK Colchester principle Peter Chadborn says: “Current conditions emphasise the need for regular advice. I would encourage all advisers to try and position themselves as being available to provide regular advice for their clients as opposed to just reacting and waiting for the client to come to them. People are naturally worried about redundancy so this is an opportunity to generate more business.”

One question that remains unanswered is why some providers exclude UC from their offering. Carr puts it down to “profit margins, perhaps perceived claims hassle or perhaps reputation by association with PPI”.

Bright Grey product director Roger Edwards says the firm stopped selling UC three years ago.

He says: “A couple of years ago we were reviewing our product distribution and looked at what was success- ful and what was not and we took the decision to remove unemployment. As a long-term insurance provider, we have to outsource the unemployment element to a general insurer. It was an overhead we had to pay for but was not bringing us any reward.”



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