ProtectionFeb 9 2015

ABI lobbying for welfare reforms to boost protection

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ABI lobbying for welfare reforms to boost protection

The Association of British Insurers has told FTAdviser it is lobbying for legislative changes to the way welfare is delivered to boost the provision of income protection through the workplace, as efforts continue to halt a slide in sales of what is seen as a critical financial planning product.

Helen White, head of protection at the ABI, said in general the trade body is looking for “some kind of legislative action from the next government or a future government that will lead to reforms in the welfare system and will make greater use of income protection insurance through the workplace part of that solution”.

Ms White said at this stage it was “deliberately not being more specific” about what it was seeking and “we are just not saying at this stage you must legislate for A, B, C”, but was simply aiming to “contribute to the conversation”.

She explained: “What we and others are saying is that there needs to be more radical reform of the welfare system. It needs to involve greater personal responsibility and an effective partnership relationship responsibility between what the state provides and what individuals do for themselves.”

The comments come after Nick Homer, group protection manager of Zurich UK Life, told FTAdviser in a video interview his preference for future changes to legislation would be to introduce tax advantages for employers who offer the benefit.

Mr Homer said he would rather see “a carrot more than a stick” used to increase take-up of group income protection plans.

One other protection industry figure spoken to by FTAdviser suggested that tax relief was a key thrust of discussions, adding that the industry was putting forward the financial case that income protection saves the welfare budget and could do more with the investment of tax relief.

In November Ms White published a blog post on the ABI website stating that the state saves £120m a year from the 11 per cent of working families who have taken out private insurance, or whose employer provides it for them.

She continued: “If the 60 per cent of households who would not get adequate support from the state all had the same, the Treasury would save a total of over £660m, and those households would be better protected against the unexpected loss of income.”

Ms White told FTAdviser new research is due to be published this week regarding savings made by the Treasury as a result of income protection insurance.

Figures published by Swiss Re last spring showed a continuing decline in sales across all protection products, with term assurance down 17.4 per cent, critical illness 20.5 per cent, income protection 24.4 per cent and whole-life cover 20.5 per cent.

Data for 2015, which will be published in the coming months, are expected to show a similar trend.

Debates last year across the sector focused on extending automatic enrolment-style reforms to ‘nudge’ people into taking out workplace protection, a suggestion which was put forward in a report backed by the ABI itself and was championed by others including Legal and General.

Ms White said that the context for the ABI’s work was to do with enormous pressures on the welfare system as it exists, in that it is no longer economically viable.

She said that in particular, the ABI believes that if you can increase the use of income protection through the workplace then you can have a much bigger impact than just persuading people to buy it.

“Trying to deal with these behavioural and psychological barriers, we believe that it has to be done through the workplace now. What we are not saying at this stage is that there must be auto-enrolment into income protection insurance.”

ruth.gillbe@ft.com

Additional reporting by Ashley Wassall