For years, the industry has been battling to increase claims payouts, improve underwriting and adapt to people’s healthier lifestyles, but all to little avail.
Sales for the full year to 2011, according to the Association of British Insurers, indicate that the product is just not being picked up.
The amount of regular premium individual protection policies sold has fallen from £894m in 2005, to £762m last year. According to Swiss Re, only 12 per cent of people the company surveyed had critical illness policies last year, and just 7 per cent had income protection. By comparison, 36 per cent had life insurance.
The problem, according to protection experts, is that people do not like to plan for the worst. In the same way that people do not like to sign pre-nuptial agreements before they get married, so they are averse to thinking about their own mortality, or indeed a life-threatening illness.
Phil Jeynes, head of account development of PruProtect, said: “With protection products you’ve got to put yourself in the worst case scenario, and it’s not much fun. People don’t wake up in the morning and think ‘I’ve got to sort my protection cover out’, because they’re not very sexy products.” Investment products were usually higher up the list, he said, because they are “aspirational”.
Richard Verdin, director of protection of Aviva, said it went deeper than this.
He said: “We have an optimism bias, which is why people eat food that’s bad for them and don’t save in pensions. People think if nothing is wrong with them now, why should they take action?”
It is this aspect into which the insurance industry should be tapping.
Mr Verdin said: “We fail to recognise what’s really going on in customers’ heads. I don’t think it’s the fact that people have been put off, and I don’t think anything’s wrong with the products.
“We need to move to the next level and understand what it is that people are doing to put off the decisions. The most important thing is to recognise that all the things the industry has done over the past 10 or 15 years hasn’t done anything to grow this market.”