Under-insurance proving to be a long-term UK problem: Swiss Re
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Mr Higginbotham, UK chief executive of the re-insurance giant, said the challenge for the insurance industry was to explain to consumers how insurance can alleviate the financial burden on their families and dependents in difficult times.
He said: “Under-insurance is proving to be a long-term problem in the UK. Simple life assurance cover is not expensive. For example, a healthy 35-year old male non-smoker would only pay £2 per week for £100,000 of life cover to age 65.”
His comments came as Swiss Re published its 36-page Term and Health Watch 2012 report, which showed the UK’s income protection gap has increased by 46 per cent over the past decade to £190bn from £130bn.
The UK’s life assurance protection gap also jumped to £2.4 trillion in 2011 from £2 trillion 10 years previously. This gap amounts to £100,000 a person, with under-insurance greatest among single parents, couples with children and those aged 35 and under.
However, the report’s authors reported a stable view of the long-term protection market, with insurers and intermediaries optimistic of future growth.
Ron Wheatcroft, co-author of the report, said this optimism is rooted in regulatory and legislative changes that will drive IFAs towards protection to help bridge their cashflow when they lose commission on investment sales after the retail distribution review.
Mr Wheatcroft added: “We also expect the outcome of the mortgage market review to place a greater emphasis on the use of financial products to protect and repay mortgage loans.”
Increases in new critical illness sales and whole life business offset a decline in new term assurance sales and income protection policies, the report’s data found.
New term assurance was down 3.4 per cent and income protection policies fell 0.2 per cent, but critical illness and whole policies saw an upswing of 3.1 per cent and 7.9 per cent respectively.
Mr Higginbotham added that growth in critical illness policies reflected good communication from providers to consumers and IFAs about the rise in the rate of claim payouts, which improves consumer and intermediary confidence in the product.
However, he warned: “The tougher conditions and changes coming in the market mean we will have to adopt the highest possible standards to satisfy more demanding customers and a regulator prepared to intervene at an earlier stage.”
Mark Loydall, director for Leicestershire-based Cambourne Financial Planning, said: “Some advisers will concentrate more on protection because of RDR.
“The EU’s age equalisation rules are also coming in, which advisers are talking to clients about. However, we should never forget client’s individual needs because most are under-insured.”