Budget income protection: could this be the saviour the stagnating income protection market needs? I think so. If brokers are citing affordability as the main objection around the sale of IP in general, things are looking pretty ropey for the market, come December.
The industry is set for massive price changes on 21 December when the European Court of Justice gender ruling comes into force.
It is widely expected that premiums are set to increase, which adds further pressure on affordability of the long-term IP contract. So, we may well see the rise of budget income protection plans because full-term IP is simply not affordable for all clients. When we are conducting a review of a client’s protection needs, along with IP we also need to consider life insurance to cover mortgages and rent, extra cover for the family and critical illness cover. Budget IP can certainly help you meet the needs of your clients across a suite of products, by offering a more cost-effective solution.
As a product, IP is getting some good PR at the moment, with Aviva and Unum taking prime television slots for advertising. Raising awareness is great, and both providers have a short-term payout option within their plans, so we know there is a market for them.
The ads seem to have captured the imagination of the public, with enquiries for the product increasing. However, for the market to grow there needs to be more word of mouth, rather than just television and media campaigns. People are natural followers, so if it becomes the norm to have IP, because everyone else has it, you will find more and more people taking cover. How will this happen? If the IFA world starts to sell more of them, of course.
As a mortgage broker in the early days of my career, I was in the unknowingly unfortunate position of being tied to one insurer. Since being whole of market, I see the massive problem this causes the protection world. Why? Because tied agents are trying to shoehorn a product to meet a client’s needs, when the product is not right for the client.
I am not talking about mis-selling here, but income protection is a typical example of this. Not all IP providers are in the market for the same clients. So, those advisers who are selling policies to higher-risk occupation classes on ADL definitions are simply selling, in my opinion, poor quality contracts that will be difficult, if not near on impossible, to claim on.
The other choice is that the adviser explains to the client that they do not have the products that can help that client, and sends them on their way to an adviser who can – not very likely.
So, the client either gets a plan that is not right for them or does not get one at all. If tied agents do not have a route to market for budget IP, this is going to affect how many consumers are told about the policy. I do not know what the answer is here, but if the market is to grow; those that are passionate about the product and understand it need to get out there and sell it properly.
Credit
As a product, IP, in my opinion, does not get the credit it deserves. Yes, it can be complicated but, honestly, is it really too much to ask that an adviser actually learns about the products on offer so they are fully informed to talk about it with their clients? I think if truth be told, it is not sold enough by advisers, and in the past has been left to the banks to sell sub-standard products which leave the insurance industry with more bad press.
So if budget IP adds another dimension to this already complex market, is this another reason for advisers to shy away from it?
I hope not. Insurers are always going to have a feature added on here, or a benefit taken away there, in order for their contract to gain a competitive edge, so what is the answer to simplifying the market?
It is great to see new websites by other industry experts that try and decipher the products for advisers and consumers – this certainly makes the market that little bit more user-friendly. But should we not be taking delight in the fact that this complex market needs the help of an IFA to source the right product?
Although a consideration, we should not be selling merely on price, unlike the online world where the word “cheap” dominates.
We are selling on quality of contract, claims stats and the extra benefits provided by insurers, so is it really too much to ask that we understand our products?
After speaking with many of the insurers the average claim on an IP policy is five to seven years. Research published in 2010 by Nice explains that the longer someone is off sick the less likely they are to return to work. In fact, someone who has been off sick for six months or longer has an 80 per cent chance of being off work for five years.
The chance of someone on incapacity benefit getting back into employment is even worse: those claiming for 12 months will, on average, continue to claim for eight years. After two years, they are more likely to die or retire than return to work.
Is a two-year budget plan enough? Maybe not, but something is better than £90 a week government benefit. Up to five years certainly covers many of the claim periods and with some insurers the cover is back in force and ready to claim again after one month back at work.
What conclusion do I draw from this? Well, although the best advice is to recommend that the benefit is paid until retirement, maybe five years is enough after all.
I cannot help but wonder whether those who are claiming beyond five years are doing so because they know they can. Would they have been able to get back to work after five years if they knew benefits were stopping? With a focus on rehabilitation services, in order to get the claimant getting back to work earlier, having a plan with limited payout does seem to fit nicely.
IP is a great product, when sold properly, and by giving clients the option of a limited payout period we are giving consumers more choice, which can only be a good thing.
Sarah Fullaway is director of Derby-based Oviso
