Income protection is regarded as a priority purchase by those in the industry, but unfortunately the public does not share this view. Take-up of income protection remains low with estimates suggesting that as little as 10 per cent of the working population has cover through group and individual schemes.
The latest sales figures do little to suggest this is set to change. Although there was a slight uptick in Swiss Re’s figures for group income protection as pensions auto-enrolment pulled more employees into group risk schemes, the individual product saw its new business figures nosedive in 2013.
The reinsurer’s research found that, while the number of people covered by group policies increased from 1.96m to 2.04m last year, sales of individual income protection fell by 24.4 per cent to just 90,794 new policies.
Some of this decline can be explained by changes in market conditions. The introduction of gender neutral pricing in December 2012 coupled with the new ‘I minus E’ taxation rules created a flurry of activity earlier that year as advisers rebroked cover to secure better deals for their clients. “These figures show you just how much new business was really rebroked policies, with the Swiss Re report estimating that, in 2013, as much as 85 per cent of sales were genuine new business,” says Phil Jeynes, head of account development at PruProtect. “It is a sobering thought though that there are more people working in the protection industry than there were individual policies sold last year.”
Seven Families initiative
In a bid to raise awareness of income protection and increase sales, the Income Protection Task Force (IPTF) has developed a new initiative, Seven Families. First proposed in 2013, this was formally launched in May in partnership with the charity Disability Rights UK.
The initiative aims to help seven households, which will be selected by Disability Rights UK, where the breadwinner is unable to work due to sickness or accident. They will then be provided with the support they would have received if they had taken out income protection.
This support, which is expected to start in September, will include a replacement income of around £20,000 for a year but also rehabilitation and case management. This is designed to help the individuals regain their health and, where possible, return to work either in their old job or in a new role that reflects their capabilities. In addition, the IPTF also expects to be able to offer free financial advice to the families from IFAs supporting the campaign.
Peter Le Beau, chairman of the IPTF, explains the objectives of the initiative. “It is not about attacking welfare benefits or pushing income protection; we want Seven Families to highlight the financial vulnerability of families. We also hope it will demonstrate how good rehabilitation is at helping people return to work. Once we have proved the value of income protection we will introduce the product into the conversation.”
Achieving publicity will be key to the initiative’s success. As well as promoting Seven Families to the media, the IPTF intends to run a social media campaign using Facebook and YouTube to follow the families.
Campaign reaction
The project has already received a good response from the industry. As well as support from Red Arc and Best Doctors, who will be providing the rehabilitation and case management services, Mr Le Beau says that between 15 and 20 insurers including Aviva, Friends Life, Scottish Widows and Zurich have already committed to back the initiative. This requires them to contribute £20,000 to help finance it.
Support has come from both the individual and group income protection insurers. For example, group risk insurer Ellipse is among those that have pledged support. John Ritchie, chief executive of Ellipse and a representative of Munich Re, explains, “It is a very important initiative and I am very optimistic about what it will achieve. It is time the industry properly explained what it does.”
While the IPTF has had no problems gathering enough support to kick off Seven Families, it is also aware that the emotive nature of the campaign is likely to attract criticism too. In particular, there are concerns about how the families will be selected, with sceptics suggesting that only individuals who have a good chance of returning to work will be chosen.
Mr Le Beau is keen to dispel this, pointing to the fact that, although the type of illness and circumstances will be taken into account, the families will be selected by Disability Rights UK. “We do hope to be able to help some people get back to work, whether this is their own job, on a part-time basis or into another role. We also recognise that this will not be possible in all cases, in exactly the same way that it is impossible to get all income protection claimants back to work,” he explains.
There are also concerns about the nature of the initiative, with critics pointing out that at the end of the year these individuals and their families will have the support withdrawn. But, while this is the case for the financial support, the IPTF intends to continue to provide case management support and ongoing financial advice where appropriate.
Further momentum
While Seven Families is a good way to highlight the importance of income protection, the industry recognises that this alone will not result in greater take-up and many are planning marketing campaigns to support and capitalise on the coverage it will get.
For example, at Ageas Protect, head of marketing and propositions Steve Casey believes there is an opportunity to demonstrate how flexible income protection is. “Income protection does not have to be tied to someone’s salary. It could be used to protect a mortgage if someone is unable to work,” he says.
“I also think that the increase in sales of limited payment term products demonstrates that more people are taking it out instead of payment protection insurance (PPI) and we could do more to support this move.”
He would also like to see more work around the application process to make it easier to take out cover. This could include slicker underwriting but also improvements to the quotations provided through the intermediary portals.
More awareness campaigns are also important, especially as the reputation of income protection has been tarnished by the misselling scandal in the PPI market.
Focusing on some of the differences from PPI is one option. As an example, although many consumers believe that insurers will wriggle out of paying claims wherever possible – as was the case with many PPI policies – only a very small percentage of income protection claims are declined. While the group market paid 82 per cent of claims in 2013 according to Group Risk Development, figures from the Association of British Insurers (ABI) show that 91.1 per cent of claims on individual policies were accepted in 2013.
Unsurprisingly, the insurers are keen to promote this as it will help to build trust in income protection and the IPTF is looking at how it works with the ABI going forward.
Steve Payne, managing director for UK protection at Friends Life, also believes that more industry-wide initiatives will help to reassure the public about the reputation of the market. “We are not going to be able to boil the ocean with the Seven Families campaign but it is a great start, especially as it shows how we can work together,” he says. “Doing this helps to generate new ideas and ensures we present a strong, joined-up message to the public.”
Whether or not the Seven Families initiative does result in an increase in sales of income protection remains to be seen. But, with it highlighting how the product can help families remain financially independent and support them back into the workplace, it is an important first step in changing the fortunes of the protection market.
