The same message seems to come out repeatedly from the protection sector: people will simply not buy the products.
For years, the industry has been battling to increase claims payouts, improve underwriting and adapt to people’s healthier lifestyles, but all to little avail.
Sales for the full year to 2011, according to the Association of British Insurers, indicate that the product is just not being picked up.
The amount of regular premium individual protection policies sold has fallen from £894m in 2005, to £762m last year. According to Swiss Re, only 12 per cent of people the company surveyed had critical illness policies last year, and just 7 per cent had income protection. By comparison, 36 per cent had life insurance.
The problem, according to protection experts, is that people do not like to plan for the worst. In the same way that people do not like to sign pre-nuptial agreements before they get married, so they are averse to thinking about their own mortality, or indeed a life-threatening illness.
Phil Jeynes, head of account development of PruProtect, said: “With protection products you’ve got to put yourself in the worst case scenario, and it’s not much fun. People don’t wake up in the morning and think ‘I’ve got to sort my protection cover out’, because they’re not very sexy products.” Investment products were usually higher up the list, he said, because they are “aspirational”.
Richard Verdin, director of protection of Aviva, said it went deeper than this.
He said: “We have an optimism bias, which is why people eat food that’s bad for them and don’t save in pensions. People think if nothing is wrong with them now, why should they take action?”
It is this aspect into which the insurance industry should be tapping.
Mr Verdin said: “We fail to recognise what’s really going on in customers’ heads. I don’t think it’s the fact that people have been put off, and I don’t think anything’s wrong with the products.
“We need to move to the next level and understand what it is that people are doing to put off the decisions. The most important thing is to recognise that all the things the industry has done over the past 10 or 15 years hasn’t done anything to grow this market.”
Attempts
The industry has made a few attempts. A few years ago there was the plan by Tom Baigrie, chief executive of Lifesearch, who tried to launch the Consumer Protection Insurance Engagement Campaign. This was intended to get a campaign off the ground to try to promote the importance of taking out a protection product. Unfortunately, this foundered on the inability of those involved to find a way of funding the project.
More recently, Aviva ran a television advertising campaign trying to make the point of what taking out an insurance policy could mean if a loved one dies and the family’s income goes. This received a wide range of responses. Quite a few viewers complained, as the adverts were broadcast around Downton Abbey, and were considered by some to be out of keeping with the series, showing a customer who had lost his job because of an accident.
Another attempt, more recently, by the ABI protection strategy committee is planning to create a protection “space” which people can visit to find out about the product. After about nine months of discussion, an agreement has been reached, and funding has been agreed to get something off the ground.
For Mr Verdin, who acknowledges that the Aviva advertisement received “a lot of credit and some criticism”, the protection industry has to change the way it communicates its products.
He said: “It’s saying that when something bad is happening, everything else doesn’t have to fall apart.”
One of the big sources of help, perceived by some is the role of the financial adviser. Mr Jeynes said: “We’re 100 per cent committed to the intermediary market because that’s the best way to get across what the market is and what’s most suitable. We already know all the customers because they’ve got a bank account and they have had to invest for a pension and they almost definitely have a mortgage.
“Before you talk about investing your money and getting some growth and retirement planning, first of all, make sure that whatever happens to you those plans are put into place.”
Problem
However, according to an adviser, it might be IFAs who are the problem. James Brooke, wealth architect of Altior Vita, said: “I think for a lot of advisers it’s difficult to advise on because they don’t believe in it for themselves. They don’t have it themselves so why should the clients get it?
“The second thing is the way the analysis is done. These days it’s focused on investments and tax and pensions and funding retirement, and all that sort of thing, and it doesn’t really see what the situation would be in how much money you would have if you were to go ill for a prolonged period of time.”
Mr Brooke said that the kind of question advisers should be asking is, if the parent died suddenly, how much money would the child have to live on and would the family be able to keep the same standard of living.
He said: “One of the most overlooked solutions is simply family income benefit. It’s much cheaper than a single lump sum policy.” He added he was an advocate of protection policies because they paid out.
He said: “It’s much easier to say to the client ‘How much money have you got, and how much do you need to invest?’ and away you go.”
But the challenge is what happens when the income that investment came from is under threat. Mr Brooke added: “The adviser needs to make him aware of the need for protection.”
Melanie Tringham is features editor of Financial Adviser
