The biggest reason new concepts are not being brought to market is a lack of confidence that advisers will change their behaviour.
Having started life in the financial services industry as a clerk for one of the largest life assurance companies in the UK, protection has always been my first love. Unfortunately, it only takes a cursory glance at Royal London’s recent State of the Protection Nation report to conclude the UK public does not share my feelings.
Of course, this could be down to the fact that protection – whether life assurance, critical illness or income protection – is not exactly an aspirational purchase. Let’s be honest, there are a great deal more interesting and, dare I say it, sexy financial products out there.
The likes of Isas, pensions and so on are all undertaken with a view to enhancing the client or their family’s future. Protection represents the one product a client hopes never to benefit from.
I have no doubt that this is a contributing factor to the under-insurance of individuals in the UK. Why else would:
- Forty per cent of homeowners with a mortgage have no life cover, with 71 per cent having no critical illness and 81 per cent no income protection?
- Individuals with children under 18 feel they have no need for protection (25 per cent for life cover, 40 per cent for critical illness and 51 per cent for income protection)?
- Fifty-five per cent of consumers say they could manage without an income for six months and 42 per cent a year, when 18 per cent and 13 per cent respectively only have enough savings for these periods?
- Twenty-nine per cent of consumers say protection is too expensive, while not having any idea of the costs?
But if we really want to understand the reason for this, perhaps we should take a closer look at the relevant parties: clients, providers and advisers. When it comes to clients, I have never been convinced by the often-quoted objections of “it will not happen to me” – this is, after all, easy to disprove – and “insurance companies won’t pay out” (this being patently untrue as claims statistics will bear out).
As for providers, the UK offers some of the most competitive premium rates to be found anywhere in the world, combined with a breadth of products that should meet most client requirements.
A number of commentators, including me, have criticised providers in the past for a lack of innovation; shaving a bit off life assurance rates and adding critical illnesses that no one had ever heard of, never mind claimed on, at one point being their limit.
However, this is no longer the case. Indeed, innovation has come in myriad forms:
- A comprehensive range of added benefits;
- Premium discounts for leading a healthy lifestyle;
- Limiting critical illness coverage to make the contract more affordable;
- A form of critical illness with relevant life plans;
- Pre-payment of the sum assured on a whole-of-life in the event of a care need.
There are others but I would suggest the industry would have introduced more innovations if it was not for the last relevant party: advisers.
The biggest reason for providers choosing not to bring new concepts to market is a lack of confidence that advisers will change their behaviour; that they will embrace new ideas, identify clients for whom they are suitable and have conversations that may lead to a sale.
The irony is that the development of new products does lead to new opportunities in respect of existing clients for whom traditional products may not have been previously appropriate or desirable.
Alternatively, they could represent a different opportunity where protection may previously have not been considered.
Protection may not be aspirational for clients, but it should be for advisers.
Advisers know the importance, value and uniqueness of protection when it comes to safeguarding their clients’ financial goals.
If a change of behaviour is required, however difficult or uncomfortable it may be, it should be embraced first and foremost by advisers for their benefit and their clients’.
Tony Mudd is the divisional director for development and technical consultancy at St James’s Place