Protection gap is all in the mindset
Developing a deeper understanding of behavioural economics could mean a greater market advantage.
It was the great Harvard marketing professor Ted Levitt who pointed out in the 1960s that “every major industry was once a growth industry. In every case, the reason growth is threatened, slowed, or stopped is not because the market is saturated. It is because there has been a failure of management”.
The protection market in recent years has slowed, stopped, and since 2003, has been shrinking. Notwithstanding the volatility we might witness in the next year or so, it is difficult to identify a reason why the market would reverse its drawn-out decline.
Most commentators appear to believe that the protection market will grow post RDR. However in my experience, commentators are wrong as often as they are right. Certainly some segments will prosper, others will not and it is too close to call if the end result will be positive or negative. The balancing items to increased adviser focus and interest are:
* There may be fewer advisers/sellers in total because of RDR.
* The removal of income minus expenses system and the introduction of genderless pricing means that new business premiums will rise – putting at risk a lot of the estimated 20 per cent to 25 per cent of the broker term life market which is re-broked policies.
Some segments of the advice market will prosper post-RDR, others will not and it is too close to call if the end result will be positive or negative
The market potential is clear, articulated as the percentage of people with families and other commitments who have no form of financial protection – and of course the now famous ‘protection gap’.
Really it does not matter whether the ‘gap’ is one, two or three trillion pounds, or whether it is 40, 50 or 60 per cent of those who should do something but do not. What really matters is why people do not plan and then buy financial protection, and what we as an industry are doing about it.
Casting around for answers and undertaking no small amount of research I have hit on what constitutes the most significant part of the answer to our ‘problem’ – and therefore what it is we need to do differently.
Why many who should, but do not, buy financial protection products can be explained by an appreciation of how the human brain is wired. It is therefore my contention that the protection gap is in a large part the result of a management gap.
By this, I mean a management gap in our industry’s understanding of both the psychological and physiological aspects of how the mind works, specifically when it comes to numbers, money, health, life, death and risk in general.
Mr Levitt also observed that management often fails because it focuses on product not customer. Fortunately (or unfortunately for some) our products are not the reason people are not buying in the numbers they should. Our products are, in the most part, of a very high quality and work very well. Just look at what they do for customers at claim – our moment of truth.