Protection report: Keeping it simple

This article is part of
Protection - August 2013

The fact that the product was omitted from the initial list of simple government kite-marked savings and insurance products unveiled by the Treasury in March pretty much provides confirmation there is a way to go before we have got there with simplified IP.

There is still hope that a simplified version of individual IP will be included in a subsequent suite of products that carries a Treasury seal of approval to boost consumer confidence. The Association of British Insurers is due to report back to the Treasury in the autumn on work it has been undertaking to this end. But I do not think anyone should be holding their breath; we need to make sure the final product is fit for purpose, providing simple cover that can be understood by the masses and therefore can genuinely provide confidence in financial services.

In my view, if the government is to maximise the potential benefit that IP has to offer in terms of reducing the burden on the welfare state, it will have to be prepared to indulge in a little give and take. In particular it needs to address the thorny issue of some people having their means-tested benefits chopped back as a result of receiving IP payouts.

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The fact that you can lose out in this way at the claims stage is clearly not a great sales angle and, disappointingly, did not seem to be something that the Sergeant Review of Simple Financial Products was able to influence. The idea of the simple products regime is to enable consumers to make an informed choice without advice but we need to consider how they can do this for IP if it involves having to factor in a state benefit system they may have little understanding of?

Anyone who saw Greg Clark, financial secretary to the Treasury, speaking at the Insurance Day Summit in May would have been left in no doubt as to the importance that the government purports to place on the insurance sector in terms of its part in the UK’s social fabric and its contribution to our long-term economic prosperity.

Mr Clark said: “In the same way that the insurance industry has risen to meet the key challenges of the past, I am encouraged to see the industry playing its part in addressing the important challenges of our own time.

“If we can collectively find the best ways to maximise this contribution, it will be good for insurers, good for consumers and good for Britain.”

Nevertheless, despite rousing references to working together to drive forward meaningful change and delivering outcomes which can advance the wider public good, I could not help noticing that this speech did not appear to contain much about what the government could itself do to help the insurance industry.

Partnerships need to be two way and, even if the government falls short of granting consumers the tax relief or other such incentive they should be entitled to, surely finding a way in which IP policyholders are not penalised by means testing could prove an effective concessionary starting point?