Could auto-enrolment offer the protection industry its best opportunity to close the protection gap?
The £2trn gap has shown no sign of closing and, with protection sales tailing off this year, it is in danger of getting worse.
Recent research from Aegon shows that there are four main reasons for people not to take out protection, price, complicated products, a complex application process and lack of confidence in providers to pay claims.
Aegon UK Protection Director John Wilkinson says: “These barriers are preventing people from actively ‘wanting’ protection forcing the protection gap to continue to widen, but our story doesn’t end here.
“It’s easy to identify the protection need, but the conversion of a customer ‘need’ to a ‘want’ for protection has always been difficult.”
But as consumers show no signs of taking out protection unprompted but with no direct salesforces left and adviser numbers reducing under the RDR and many advisers preferring to concentrate on pension and investment business, is the workplace the one real option for boosting the take up of protection and closing the protection gap.
Zurich recently announced the launch of a study of the best ways to incentivise greater take up of protection. The company points out that only 9 per cent of the UK working population has income protection in place, compared to around 30 per cent of the workforce in the US.
Zurich UK Life chief executive Gary Shaughnessy says: “Across the UK we remain hugely under insured and we are more likely to insure our pet than our ability to provide financial support to our families in the event of illness.
“We need a greater public debate about how we can encourage wider coverage. The cost to business, the cost to those people whose lives are turned upside down by illness, and the cost to the state, including an ever-increasing pressure on an already overburdened NHS, mean the current state of affairs is unsustainable.”
Platforms and workplace wrap have often been touted as a potential way for boosting the take up of protection.
But despite the recent announcement from True Potential that it would join Zurich and Nucleus in offering investment-linked protection through its platform, the presence of protection on platforms is still far from widespread.
Recently, however, the protection industry was given an interesting invitation by the DWP. Speaking at the Tory party conference, a DWP official challenged the protection industry to demonstrate that adding income protection to the auto-enrolment would be of widereaching benefit to employees and the Government.
Speaking to Money Marketing, a senior DWP official said: “If we are to see movement on Government involvement then we want to see evidence on it beginning to grow substantially. Why don’t employers want it? Insurance firms and employers need to come up with a coherent story to get us to do it.”
The lobbying has already started with Zurich, L&G and Unum all working seperately to research the role of income protecton in auto-enrolment and workplace protection industry body Group Risk Development says that employers are supportive of the idea.
Research for GRID shows that 52 per cent of employers are in favour of adding income protection to auto-enrolment, while 24 per cent of employers say they have already increased their general spending on corporate benefits in line with the increase in costs brought about by auto-enrolment.
Group Risk Development spokesperson Katharine Moxham says: “I am heartened to see that employers are broadly positive about pension auto-enrolment and are receptive to the potential for extending auto- enrolment into other areas of the benefits package.
“Businesses are coming to recognise that they are the ones to facilitate greater personal financial responsibility and resilience prior to retirement as well as afterwards and group risk protection benefits have a major role to play in ensuring that the UK workforce is adequately protected from the financial devastation that death or disability can bring.”
Clare Harrop, Legal & General Special Protection Manager
With auto-enrolment impacting more than 25,000 employers in the first half of 2014, it’s important businesses start planning now for these changes, especially as implementing plans can typically take months. With this new focus for advisers and employers, other needs are coming to the forefront.
This is an opportunity for advisers to offer business clients a full health check to ensure they are fulfilling their legal requirements and are making their business as resilient as possible.
Most business owners would probably be surprised and a little confused at the variety of products that are available to them. The most important thing is for them to have an expert adviser who can lead them through the maze and ensure they have the right products for their needs and the needs of their employees.
Research confirms that auto-enrolment is prompting business owners to look at other aspects of employee benefits. Group protection, business protection and relevant life plans can provide valuable protection against situations that can seriously impact business performance, as well as benefits that can help attract and retain quality staff.
A Group Risk Development study in October 2013 found that, besides supporting auto-enrolment into group risk products, 38 per cent suggested they would consider setting up these products alongside pension auto-enrolment.
And according to our research, death of a business owner ranks as having the biggest impact to a business, higher than premises burning down. Yet over half don’t have any suitable protection in place.
This is particularly alarming when 12 per cent predict their business would cease trading immediately as a result of losing a business owner or key worker.