Income underpins all of life’s financial plans from raising a family and paying the mortgage through to saving for retirement. But, while income protection enables someone to safeguard this key component, it has so far failed to appeal to consumers.
Although figures from Swiss Re’s Term and Health Watch 2013 show that sales of individual income protection grew by 8.7 per cent last year, the number of people with cover, either through an individual or a group policy, remains low, with estimates suggesting the penetration rate is only somewhere between 8 and 9 per cent. Furthermore, developments such as Unum’s decision to stop selling its individual product in March 2012 indicate the sorry state of the market.
There are many reasons for the public’s lack of appetite for income protection. As well as the commonly held beliefs that a long-term absence is unlikely to happen to them or, that if it does, their employer will take care of them financially, Roger Edwards, managing director of Roger Edwards Marketing, says the industry must also take some of the blame. He explains: “Insurers have had to make the product increasingly complex to compete but it is this complexity that is causing the market to decline. The industry has to move away from this if it wants to win consumers’ confidence.”
The latest product developments from Bright Grey and Aviva demonstrate that there is interest in taking this step. In mid-October Bright Grey launched a new product designed to make it easier for new customers to claim by enabling more people to have own occupation cover.
Rather than basing a claim on the individual’s ability to perform work tasks, the plan offers two income protection definitions – own occupation throughout the term and, for those unable to get this definition, own occupation for one year followed by an assessment against seven serious illnesses including cancer and terminal illness. If the policyholder fails to meet these definitions, their ability to work will be assessed against nine everyday tasks such as walking, sitting and getting in and out of a car. If they are unable to complete at least three of these, their benefit payment will continue.
While some people will need to fall back on this three-pronged approach, based on a sample of previous applicants, Bright Grey estimates that 95 per cent of people will qualify for the most generous own occupation definition. Among the occupations that will now be covered are tractor drivers, welders and industrial plant drivers.
This drive was taken a step further later in the month when Aviva announced that it would write all individual policies on an own occupation basis. This definition will apply throughout the life of the policy and the duration of any claim.
Taking this step has enabled an additional 90 occupations to be covered under its own occupation definition. Among those that now qualify are postal delivery people, fitness instructors and music teachers. Additionally, it has also been able to extend it to people who work less than 16 hours a week.