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Taking cover

Norwich Union recently decided to withdraw some of the unemployment-only cover that it underwrites for Paymentshield and Select & Protect and the move has brought concerns that unemployment cover will be increasingly difficult to find in a worsening economic climate.

NU will no longer be offering unemployment cover sold by Paymentshield via British Insurance or through Select and Protect at moneysupermarket.com. It has confirmed that accident, sickness and unemployment cover is still available through both channels.

An NU spokesman told Money Marketing: “If we are entering a recession, insurers have to manage their risks. We have got to look at our whole portfolio and the risks associated and act on behalf of our existing customers to make sure that as an insurer we are performing good business practice.”

Figures from the Office for National Statistics show unemployment rose by 164,000 between June and August, reaching 1.79 million. Many brokers have seen a rise in demand for protection products.

Paymentcare.co.uk has noted a surge in demand for unemployment cover. Managing director Shane Craig says: “We are being bombarded with enquiries from all sectors and the common theme is that people are finding the cover offered by high-street lenders exorbitantly expensive.”

Highclere Financial Services partner Alan Lakey believes insurers will tighten the criteria for cover and will also put up premiums.
“I think they will do what they did in the mid-1990s, where certain occupations would not be considered, such as miners, IT and aerospace. Companies want to pick and choose the type of people they take on.

“It seems unfair that insurers want to give customers an umbrella when the sun shines and take it away when it rains. They are more interested in making money than protecting their customers.”

Lakey adds that big providers such as NU withdrawing from some distribution channels does not engender trust in the protection industry.
He says insurers tend to manage their business by monitoring the amount they take on. When they reach their limit, they put up rates to deter new customers – a trend he expects to see increasingly over the coming months.

He does not believe any players in the income protection industry will pull out of the market but he thinks more claims will be inevitable.

He notes: “If you look at any recession, there is an increase in psychological illnesses and it is this side of IP that has caused a lot of concern over the past few years but I do not think that will lead to insurers leaving the market.”

He also feels that IP providers may make subtle changes to policies, such as reclassifying certain occupations as higher risk.
CBK Colchester principal Peter Chadborn says if a leading provider such as NU is limiting the channels it sells unemployment-only cover through, then it could signal the start of a trend.

He explains: “It is yet another example of insurers not wanting to take risk. Instead of withdrawing it from these channels, they could just price it differently.”

But he thinks it is unlikely that insurers will withdraw IP products as there is a lot more brand loyalty in this part of the market.
“It would be a brave step to withdraw income protection because it would undermine the credibility of their other products. It is much easier for an insurer to withdraw unemployment cover than IP because it is not so damaging to their reputation.”

People who work in financial services will be affected by insurers tightening their occupation criteria and Chadborn says they will find it more difficult to get unemployment cover.

“Anything related to financial services, retail and the services industry in general are bound to be hit. Insurers are not going to want to take on that risk at all. Even if they do get unemployment cover, it has a reputation for being difficult to claim on.”

Research from moneysupermarket.com found that recent applications for payment protection insurance policies were dominated by people employed in the finance and business sector, with 39 per cent of all applications from this sector.

The second-highest number of applications came from people in the construction industry, accounting for 16 per cent of applications.
Moneysupermarket.com head of protection Emma Walker says: “More concerning is that a tenth of people would only buy a PPI policy if they felt their job was under threat.

“The best time to buy a policy is when you least expect to need it. The small print will usually reveal insurance of this kind is void if the policyholder is aware of impending unemployment. Even if the sector you are employed in has seen mass redundancies, you could be tarnished as ‘high risk’.”

Master Adviser IFA Roy McLoughlin is not surprised by NU’s move and says the last thing they want is to be deluged with applicants in the current climate.

But he claims it is a kneejerk reaction and thinks it would have been more sensible if the company said it would stop covering certain professions.

Adding that it is rare for insurers to offer standalone unemployment cover these days, he urges customers to look at other options such as IP because they offer more comprehensive cover.

“Mortgage brokers have nothing to sell so they are being retrained to sell protection and the most obvious route for them is to sell income protection. Hopefully, sales of IP will go up as a result but I don’t think premiums will rise – it is more likely there will be a price war in the IP market.”

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