Statistics will tell you that we are experiencing a dramatic slowdown in protection sales throughout the UK. Declining state provision and an increasing cost to the employer of providing cover means that individuals are expected to shoulder more of the risk. But they have so far failed to rise to the challenge.
According to Swiss Re, there is a 2.3tn life insurance gap and a 300bn critical-illness cover gap in the market. A company that can tap into even a tiny percentage of this will have hit the jackpot. The Holy Grail for protection providers and advisers is a strategy to help them find the people within this group who just need a little bit more persuasion to encourage them to buy protection.
For too many years, the protection market has relied heavily on the mortgage market to generate activity. A house is probably a person’s most valuable asset (or biggest liability) but it is not the only thing that needs protecting. Advisers who want to sell protection are selling themselves short if they only approach customers with a mortgage.
One of the major draw-backs about insurance is that no matter how you look at it, insurance is not sexy. No one likes to think about the worst happening and they resent companies trying to scare them into buying insurance. We need to accept as an industry that not everyone is going to buy protection. Some simply cannot afford it but there are a significant number of people who can and would buy it and the trick is finding and targeting those people.
Segmentation is key. Experience tells us that the key target markets for protection are people between the ages of 35 and 55, with medium to high incomes and often with young families. Another demographic growing in importance are people approaching retirement who may find that their existing protection is reaching the end of its term or who are leaving company pension schemes where valuable life cover has been provided.
What is interesting is that when you start segmenting, it becomes clear that target customers have different triggers. Protection typically is a “reactive” buy. Customers do not generally tend to buy it unless they have gone through a significant life event that highlights the need to protect their income, wealth or family. These triggers can, of course, be related to the mortgage market, for instance, buying a first home or moving house. But other significant triggers are linked to increased responsibility such as the birth of a child, a new job or promotion. A bereavement or injury to a relative or work colleague can also trigger an emotional response and causes a customer to see the need for cover.
Understanding your customers, from where they live to how they shop and what they read forms the basis of developing propositions, marketing them and ultimately selling them. Understanding the way in which customers access products and how they choose between them is also important.
Advisers need to think about the key principles of marketing – right product, right place, right price, right promotion. The right product is essential. Many of the current offerings have limited appeal to customers and need to be refreshed. The adverse press commentary in terms of declined and disputed claims is hurting the industry and its future but fairer products will help to change that. The rest of the Ps are predominantly about customer understanding and insight.
Protection has a huge potential market and there are some people who are more likely to buy than others. Targeting the right customers is about identifying the most likely of these customers and removing as much of the element of chance when selling to them.
Advisers will be successful if they engage in this sort of consumer insight and put it at the heart of their business.
Paul Cowman is head of proposition and market strategy for insurance at Prudential