Bridging the gap

The protection gap has gained high visibility in our industry over recent years, it is currently quoted at £2.4 trillion, according to Swiss Re, and with many of the usual catalysts to protection purchase showing negative indicators there are no signs of it closing in the immediate future.

The visibility for protection products outside our industry is virtually non-existent, to the extent that the man on the street would probably confuse the protection gap with the Mafia and an unwelcome cliff top demise. I use the Mafia as a parallel since it has probably proved easier to fix that problem than it has to remotely begin to address the real reason that the protection gap exists.

There are a number of possible reasons why the protection gap has continued unabridged; however they are not, in my opinion, those that are most commonly cited in the industry or media.

For example, most protection products are cheaper than they have ever been, so contrary to popular belief logically that cannot be the killer issue. Similarly, protection products have developed over the years but the fundamental need for life cover, income protection and critical illness remains unchanged so that cannot be the main issue either.

The purchase process has, meanwhile, improved over the years with advances in tele-underwriting and the move towards more self-disclosure and lifestyle underwriting. The result is that the duration of the sales process in its entirety is coming down and becoming much less of a barrier than ever.

If we want to identify the cause of the gap we need to take a look at the market, or for that matter any market. Our economic textbooks tell us that a market is "a meeting of willing buyers and sellers" and therein lies the real problem for the protection market; there are too few willing sellers and even fewer willing buyers.

Willing sellers have declined year-on-year with the reduction in direct sales forces and remuneration levels do not make protection a particularly attractive sale for an IFA either when you consider the time that needs to be spent on the sales process. The result is that protection is frequently only being sold to willing buyers when they are interested in acquiring something else that gives rise to a protection need, that is a house purchase. The rest of the time they are left to their own devices.

So, the major problem is clearly access and effective distribution, but what can be done to resolve this?

Well, there are a number of moves afoot that should help the industry to finally change this situation. Firstly, basic financial awareness will soon be part of the GCSE mathematics curriculum. Whether that leads to a pipeline of actuaries or just a better informed potential purchaser of financial services will take years to determine, but it is a first step. It will at least provide some knowledge to offset the head in the sand "it wont happen to me" syndrome which seems to be part of the current UK attitude to protection provision. It will also be a step on the ladder to trust and understanding.