ProtectionJun 24 2016

Term & Health Watch

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Total sales of protection products increased by a modest 0.9 per cent in 2015, according to the latest Term & Health Watch from Swiss Re. But while some products fared significantly better than others, with sales in other areas sliding, the protection industry still needs to take action to safeguard its future.

First, though, the good news. Over the course of 2015, 107,302 income protection policies were sold, representing an increase of 10.7 per cent on sales during 2014. This is particularly promising as it builds on a sales increase of 6.7 per cent the previous year.

IP sales boost

Part of the reason for this uplift in sales must lie with the Seven Families campaign. Led by the Income Protection Task Force and funded equally by 20 insurance industry companies, this replicated the payment and support that seven individuals would have received if they had taken out income protection before they suffered a long-term illness or disability.

Although only around 10 per cent of its 700 press cuttings were in consumer publications and understanding of income protection among the public had increased by 4 per cent at its midpoint, Kevin Carr, a spokesman for Seven Families, says the campaign’s influence on advisers has been key to sales growth.

“Advisers have really engaged with the campaign,” Mr Carr said. “The case studies help to bring the need for income protection to life and it gives them something to discuss with their clients.”

The key role advisers play in income protection sales can also be seen in the figures. In 2015, less than 0.5 per cent of sales were direct, whereas directly authorised firms accounted for almost four out of five of the policies sold.

Another product that has seen strong performance in 2015 is whole-of-life, with sales increasing by 7.3 per cent. This growth was driven by the guaranteed acceptance plans, which are often targeted at the over 50s and account for almost 90 per cent of the market. Sales for these plans rose by 7.4 per cent in 2015.

The fully underwritten non-linked product has also performed well in the whole-of-life market. Commonly used for inheritance tax planning, sales increased by 8.2 per cent in 2015 with the average sum assured just a shade over £100,000.

Critical condition

However, while these products may have bucked the relatively flat trend, the fortunes of others were far from flattering.

Possibly the most concerning were sales of critical illness insurance. Swiss Re’s figures show that sales fell by 7.6 per cent in 2015. This decline was largely down to a drop in sales of cover written as a rider to a term assurance policy. This product alone saw its sales fall by 9.7 per cent.

The poor showing of accelerated critical illness cover also dragged down term assurance sales. While the number of term life-only policies increased by 2.4 per cent, add in the sales of policies that include critical illness cover, and there was a 1.8 per cent decline in total new term assurance business.

Ron Wheatcroft, technical manager at Swiss Re, points to the Mortgage Market Review, as being responsible for these falls.

“This has addressed the short-term affordability piece, but by making the mortgage process longer, protection and the long-term resilience of the mortgage arrangement has been forfeited for many borrowers,” Mr Wheatcroft explained.

In addition, although the numbers involved are relatively small with just 387 policies sold in 2015, unit-linked whole-of-life was the product with the biggest drop in sales.

These were down 46.1% on the previous year. This reflects the decline of the bancassurance distribution channel, where this product was most commonly sold.

Income protection gap

Even some of the good news stories are not quite as positive as the headline figures suggest. For example, in spite of a healthy double-digit increase in sales, the number of new income protection policies sold in 2015 was still a long way off those from 10 years when the figures were roughly double.

The type of policy sold has also changed. Short-term policies that give up to five years’ protection now account for 38 per cent of new business. Chopping back cover in this way can make it affordable, but it does risk leaving policyholders facing difficult decisions if they are still unable to work at the end of the payment term.

Mr Wheatcroft said the fall in sales is again largely due to the decline of the bancassurance sales channel. “The bancassurers would often sell income protection to protect a mortgage. As this distribution channel has disappeared, so have income protection sales,” he explained.

Alarmingly, this means the UK is definitely Europe’s poor relation when it comes to protecting income in the event of long-term illness or injury.

Of the €750bn (£596bn) a year disability protection gap Swiss Re indentified across 13 European countries, the UK has the largest shortfall, with its gap totalling £200 billion a year.

Turning it around

With every area of protection in need of an injection of interest, the industry is looking at ways to revitalise everything from the way products are promoted to their design and benefit structure.

For starters, Emma Thomson, life office relationship director at LifeSearch, believes insurers and distributors must do more to engage with consumers to regain their trust and to promote the benefits of protection.

“Marketing for these products by insurers is low, which is part of the problem, but not enough consumers are being made aware of the need for protection by distributors either,” Ms Thomson said.

“Fewer banks discussing protection, the lengthy mortgage process and more consumers looking to buy online have all contributed to this situation.”

Ironically, revitalising the bank distribution channel may prove to be beneficial for all distributors. In spite of the reputational damage they suffered as a result of the losses sustained during the credit crunch, research by Swiss Re found that consumers still regard their bank as a trusted source of financial advice.

Whether or not this distribution channel is forged by the banks themselves, or through links with advisers, the fact they control a significant portion of the mortgage market make it a good way to put protection in front of consumers.

Reluctant purchase

While it is easy to blame the banks for lower sales of protection, Peter Chadborn, director of Plan Money, believes there is a more fundamental reason the numbers are down.

“Protection is a reluctant purchase for consumers, but it is also a reluctant area of advice for advisers. Advising on protection is much more of a chore than other areas of business,” he said.

As an example, while it is relatively easy to see how much work may be required to arrange a pension for a client, with protection, this can be difficult to judge. A client may have health issues that make them an unattractive risk, requiring an adviser to approach specialist insurers.

Similarly, the cover they require may be too expensive, so protection is taken off their shopping list altogether. Therefore, finding a simpler model of cover that suits advisers and consumers may make protection feel less of a chore.

For the adviser, this might mean a simpler application process such as that offered by UnderwriteMe, while for consumers a less complicated product may prove to be more attractive.

“We should be making it simple enough for a consumer to click and buy. An advised sale is the ideal, but I would rather someone bought something simple online than nothing at all,” Chadborn added.

While there were some areas to applaud in the 2015 sales figures, with protection products still failing to appeal to clients, remedial action is certainly required. Putting protection back on the adviser and consumer agenda must be the priority for the next 12 months.