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The meaning of life

Perhaps knowing our healthcare needs should be met by the NHS has persuaded us that life will always be a case of happy families but the £2.3trn protection gap continues to pose a problem as UK consumers scale down their purchases of life insurance, says Liz Mancini

Life insurance isn’t exciting. It’s not sexy. It’s dull and boring and depressing,” says Lifesearch head of protection strategy Kevin Carr.

The protection gap has been estimated by Swiss Re at £2.3trn for the last three years but the number of life insurance policies taken out continues to decline.

Swiss Re figures show that the number of new whole-of-life policies dropped by 5 per cent to 205,532 last year from 195,141 in 2005. Sales of term insurance showed a slight increase of 3.7 per cent but this must be put in context of a 10 per cent fall the year before.

The Association of British Insurers’ figures echo the downturn in sales figures, with the number of new whole-of-life policies falling to 177,000 in 2006 from 270,000 in 2002.

Falling sales have been blamed on anything from laziness among consumers to lack of competition between life insurance companies but some issues could be related to attitudes towards all types of health and life insurance.

Other countries, such as South Africa and the US, have much higher take-up rates of life and health, insurance than the UK.

South Africa has the second highest take-up rate for life insurance behind Taiwan and premiums totalled $26bn in 2005, according to South African life insurer Discovery Life.

Chief executive officer Herschel Mayers says: “People in South Africa see life insurance as a long-time need. People here usually take out whole-of-life insurance whereas in the UK I think more people take out term insurance.

“People take out wholeof-life insurance because they know the need for life coverage and they know that whole-of-life covers them for all of their lives. They may not need coverage as much as time progresses but they still know how important it is.”

Mayers believes that competition is more prominent in South Africa compared with the UK. He says: “The competition in the market for life insurance is fierce. There is always fighting for better product designs and better distribution categories.

“Although health insurance is seen as very different from life insurance here, people see both as a very important necessity.”

It must be noted that the South African market is deeply divided and Mayers is careful to point out that large numbers of South Africans are still on incomes which are too low to include life insurance as a necessity.

He says: “The lower income population would see other things as more important to invest in, such as food, clothing and keeping themselves healthy.”

Another market that has a much higher take-up rate than the UK is the US. The number of policies sold each year is dropping but the size of the market is still huge. In 2006, the individual life insurance market was worth $129trn and the average life policy is worth $255,861.

US life insurer Metlife vice-president of international communications Peter Stack says: “Life insurance plays an important role. Everyone knows the importance of being covered. However, it depends on how long it has been active in certain countries. It depends how much people appreciate savings, pensions and financial planning.

“Consumer research has shown that most consumers in the US and UK have a clear view that they need coverage and they know why they need it. There is just a hesitance to act on it.”

Stack recognises the competition in the US as being similar to South Africa. He says: “The US has a mature life insurance market where all major markets and companies compete fiercely.”

The question remains. Why aren’t UK consumers more concerned about life insurance? There are a variety of opinions, from a possible mindset that the UK takes care of its people without the need for insurance to plain laziness and an unwillingness to act.

Lifesearch head of protection strategy Kevin Carr says: “It is mostly due to apathy, I’m afraid. As awful as it sounds, many people think: ‘I don’t benefit from this. I don’t get the money.’ It is for your family but it is true. It doesn’t make anyone happy to talk about it.”

CBK principal and co-founder Peter Chadborn says: “Life insurance is a long-term aspiration and it is not a subject people here like to think about. People do not like to sit down with their families and say: ‘OK, what’s going to happen if I die?'”

Chadborn believes there is a widespread attitude of disillusion in the UK about taking out life insurance. It occurs to most only when an event occurs, such as a wedding, birth or taking out a mortgage.

He says: “The attitude in the UK about life insurance is a lazy one. In many people’s minds, it is a default option. If you take a first-time buyer and ask them what is their perception of life insurance, many people will shrug.”

Chadborn and Carr agree that the healthcare system in the UK is exceptional and therefore could be a contributing factor to the decline in life insurance sales.

Carr says: “People think: ‘Oh, it won’t happen to me.’ This is mostly based on the NHS, as then they think they are taken care of. People in the US and South Africa take more of an interest in life insurance. That is definitely not the case in the UK.

“The NHS is such a big reason. We have a good healthcare system in the UK. For some companies, employees’ families get up to four times their salary when they die. Many people feel as though this is enough and that they do not need anything else.”

Chadborn says: “There is definitely the mindset in the UK that if something goes wrong, someone will take care of it. We have the NHS as well as the benefit service that tells them that they won’t starve, so it’s OK.”

Carr also blames a difficult application process for many people in the UK not bothering to get life insurance. He says: “The process is not easy. It is basically 30 pages of an application to fill out, then waiting to find out from someone how sick you might get in future. They certainly do not make it easy for you.”

According to Chadborn, the best solution is education on the adviser’s part. He says: “Not enough people take out life insurance because there is a lack of education. It is the job of the adviser to bring up subjects they do not want to talk about.”

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