ProtectionJun 4 2014

Necessity is the mother of invention

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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.

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”.

But despite this positive step he urges providers to make terms clearer, and warns his peers to avoid policies with “variables”.

“Policies with variables such as ‘own or suited’ and ‘any occupation’ should be avoided in the majority of cases.

“Friends Life, for example, has a best doctors option giving you access to the top healers upon claim. Many other insurance companies, as well as friendly societies, actively seek remedies to make claimants better as it is in their interest to stop the payments.

“If insurance companies want to regain trust they should remove terms that are open to interpretation, as well as marketing critical illness policy conditions like progressive supra nuclear palsy, which are statistically irrelevant.”

In spite of scepticism from some industry figures that 2014 had so far brought very little in terms of innovation, Sarah Fullaway, director of Oviso, is encouraged by what she describes as a period of “very positive changes”.

Of particular note, she says, were “significant enhancements” to critical illness policies, which had helped remove ambiguity around claims in many major illnesses, and the increased number of added value benefits being introduced throughout the sector.

The most eye-catching advancement that she had witnessed of late was PruProtect’s changes to its Vitality product, which she says gave clients the control to engage in healthy living while being rewarded with upfront discounts.

“Added value benefits are a big deal now as consumers look for more ways to get better value,” she added. “Insurance is often seen as lost money if a claim is not made, so this sees consumers being able to enjoy savings and benefits while not claiming, which is a big win in my opinion.”

Top three protection picks

Critical Illness: PruProtect’s Serious Illness Cover

One adviser says this product represented a “great development” that had influenced other providers to incorporate partial payment elements in their policies.

The plan offers policy terms from five to 50 years and either reviewable or guaranteed premiums. In total, Serious Illness Cover covers 166 conditions on the Comprehensive Cover plan and 102 conditions on the cheaper Primary Cover plan.

Income Protection: LV Budget Income Protection

According to one adviser LV “stands out” as the best income protection product provider, with its 24 month payout option “great for clients with a limited budget”.

This particular plan offers deferment periods of four, eight, 13 and 26 weeks, and can cover a maximum of 55 per cent of gross taxable earnings. The minimum policy term for this product is five years.

Life Insurance: Ageas Protect Real Life Cover

Ageas Protect Real Life Cover is selected by one adviser because it did not contain a “terminal illness clause” and came with “added benefits”.

The product consists of life cover and living cover, with the latter feature combining elements of income protection, recuperation cover, critical illness cover, and child and partner carer’s cover.