In Depth: Why are people not buying protection?

We have reached that point in the new year when claims statistics relating to various protection policies are being released by many providers across the sector, with percentages of pay-outs ranging from the mid-eighties to the high nineties.

But quite aside from the annual discussion over claims stats and who does and does not reveal their figures, the protection industry continues to struggle with modest sales.

A recent survey by Ageas found that people were more likely to insure their pets than to have critical illness cover. In the income protection space, the consensus is that sales figures paint a picture of an industry in a parlous state.

But why should this be, given that the majority of people are reliant on their wage to keep up with their bills?

One reason for the low take up of income protection could be the collapse of the mortgage market, according to Will Kentish, head of income protection for Aviva.

“Often when you take out a mortgage, you will take out income protection. About half of income protection sales were with mortgages.

“However, people are not taking out mortgages at the moment... [and] whether the mortgage market will return as it was before is to be debated.”

Ian Smart, head of product development at Bright Grey and Scottish Provident, paints a more downbeat picture, admitting that the market has been “contracting for years”. He believes there are lots of mis-understanding about what income protection actually is.

“I don’t know why as it should be the first cover anyone considers, but a lot of people who took out payment protection insurance thought this was income protection so they thought they had cover but it was not income protection.

“The low uptake is down to confusion between PPI, critical illness cover, income protection etc. People do not understand the difference between them. That won’t do.

“People are more likely to have other kinds of insurance such as phone insurance, pet insurance, house insurance... yet people can’t insure themselves. The risk is obvious as without real income you won’t be able to pay for other kinds of insurance.”

Opportunities for advisers

Despite the difficulties in the sector, Mr Smart emphasises that there are opportunities for advisers in this market as income protection has been a “very much undersold” product.

He adds that recent noises from the government on the welfare state shake-up might be an “ideal opportunity” for advisers to point out that the government may not look after individuals as it perhaps once would.

“Things will change and people will have to be more responsible for welfare. Some people have taken that on board in difficult financial times but it will be a slow process. In ways, it’s the best time for a while to start pushing this need for income protection.