Necessity is the mother of invention

This article is part of
Protection Gap - June 2014

The UK may be recognised as one of the economic powerhouses of Europe but when it comes to protection insurance it is still considered to be in the dark ages.

Despite years of campaigning from industry figures to raise awareness on the necessity of cover, figures show that the sector has still fallen short in its efforts to convince more people to get protected.

For many the Retail Distribution Review presented an opportunity to reverse this negative trend, with regulatory changes to charging structures at the end of 2012 met with renewed hope and expectation that protection products would rocket in popularity.

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To date, however, it seems that the added lure of commission has not been sufficient enough to convince the majority of intermediaries to change their stance on these divisive products.

So what is it that has put so many people off protection? Aside from a lack of awareness and trust in providers paying out claims, one of the main issues said to be holding the sector back was a lack of credible insurance products and positive innovation.

Damage limitation

According to Peter Le Beau, co-founder of Protection Review, the protection market is in a “very unhappy place” due to “very little development” and “unwieldy” underwriting processes.

While he applauds past improvements like own occupation and ‘added value’ features like best doctors and red arc, aside from a lack of education he says the main thing inhibiting progress is advisers going for “easy sales” and avoiding laborious underwriting measures used by providers.

“Basic-term cover is extremely good value but people might be put off by an unwieldy underwriting process.

“Much could be gained by underwriting innovation and this will be a game changer when we see the application of wearable technology and things like Underwrite Me to the customer journey, which needs to be much shorter and much less frustrating.”

Tom Conner, director of Drewberry Insurance, agrees that there had not been any “game changing developments in product design” over the past year but credited some improvements as a sign of hope for things to come.

“There have been some improvements, particularly with more critical illness products incorporating partial payments and more insurers willing to offer own occupation income protection to a wider range of occupations.

“These are very positive moves as they help to lower the number of declined claims and improve the widespread misperception that insurers do not pay out.”

Goodwill gestures

For Kusal Ariyawansa, principal at Appleton Gerrard, the public’s tendency to associate insurance companies with “immediate suspicion” is fuelled by high costs, refusals to pay and an overuse of financial jargon.

To regain trust he claims insurance companies need to be more innovative and continue to introduce additional benefits like partial payments on critical illness policies.

These “innovative ideas”, launched by the likes of LV, PruProtect and Aviva, enable clients to claim for non-serious conditions and receive up to £20,000 without affecting the overall sum assured, which Mr Ariyawansa credits as “goodwill gestures” that demonstrate insurance companies “actually care”.