Why are we failing to embrace protection?

Jeff Prestridge

Jeff Prestridge

Someone last week described the nation’s disengagement with protection insurance as a national scandal.

On reflection I think he was being a little overdramatic as we supped caffeine-ridden coffee together (I thought it was the role of journalists to sensationalise, not industry experts) but the fact that this invaluable form of insurance remains off the radar of most adults is a mystery. It should not be the case.

Maybe it is not sexy enough. Maybe payment protection insurance – yes, a national scandal – has blotted the copybook of all forms of protection insurance. Maybe it is not a priority at a time when household budgets, despite a recovering economy, remain under considerable pressure.

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Maybe most financial advisers are not enthralled by its complexities (it can be messy to arrange) despite the splendid work done by some such as Alan Lakey of Highclere Financial Services and Drewberry Insurance to demonstrate its importance.

And maybe the industry is pretty useless at promoting the value, preferring instead to appeal to people’s greed by promoting sexy investment funds rather than simple and cheap life insurance. Only Aviva seems to want to promote it with a series of adverts currently running on national radio networks and promoting the importance of family protection (they are actually quite good).

But the facts speak for themselves. Last year, give or take the odd policy or two, a paltry 120,000 new income protection policies (individual as opposed to group) were sold, a million life policies were bought and 500,00 critical illness contracts were initiated. Hardly figures that suggest the nation understands the value of protection insurance. And one further statistic for those who think I am making a protection insurance black hole out of a puddle: the market for IP insurance alone is estimated to be between 20m and 25m consumers. Currently there are just more than 3m policies in force.

So how do we ensure the nation is alive to the importance of this insurance and builds it into the household budget?

Well diluting some of the misconceptions surrounding protection insurance should be a priority. Research conducted in the summer indicated that many consumers still think that such cover is a waste of money with claims more likely to be rejected than accepted. One piece of research suggested consumers thought only 38 per cent of CI claims were paid, whereas in reality more than 90 per cent of claims were accepted.

Of course it does not help when companies such as Friends Life play hardball and deny a claim, only for it to have to pay up when the Financial Ombudsman Service gets involved. I still get annoyed about the case of Nic Hughes, who died in October 2012 before the Fos agreed he should have received a £100,000 payout under his combined CI and life insurance policy with Friends Life. More than 63,000 people signed a petition – including Stephen Fry – demanding that the insurer play fair. As one protection expert told me last week, this case set back the protection insurance industry three years. Thank you Friends Life.