A YouGov survey, carried out on behalf of Friends Life in the first quarter of this year revealed some startling figures on the often cited protection gap.
Of 2,031 people only 4 per cent have income protection, 7 per cent have critical illness cover and 22.7 per cent have life insurance.
Interestingly, data from Swiss Re’s 2013 insurance report revealed that 81 per cent of people believe employers have a role to play in offering some kind of protection.
This emphasises that people do have an appetite for some kind of protection, but want to access it in an easy way. The problem is, the same study found close to half of employers did not think they had a role to play in provision of protection.
This has led to the the likes of Canada Life calling on the government to introduce auto-enrolment semi-compulsion for protection cover, to force the hand of those that do not see the value in the products and prevent them falling back on the state.
Bringing peopel closer to insurance
Emphasising the scale of the issue is the figure for the shortfall in necessary protection believed to exist, which experts put at £2.4trn. This is “so large as to be incomprehensible to most of the population”, Louise Colley, Aviva’s protection director says.
So what does the ‘protection gap’, a term coined by Swiss Re, actually mean?
According to Ron Wheatcroft, technical manager of Swiss Re, the actual protection gap number is a moot point and that is the reason why Swiss Re has not published this figure since 2012. “The focus needs to be about bringing individuals closer to insurance”, he says.
The big question is what are the implications of not having protection in place? What would it mean to get ill, not be able to work and not have an income? What would it mean for your family if you were no longer there and they didn’t have your pay coming in?
Mr Wheatcroft says: “These implications should speak a lot clearer than any theoretical protection gap. If it vital to understand the consumers’ perspective.”
According to Phil Jeynes, head of account development at PruProtect, the main reason people do not buy insurance is because “we don’t make it interesting enough”.
He cites the lack of compulsion demanded by Canada Life, stating that unlike car or home insurance it is not compulsory “so we have to raise impetus for people to take action”.
“In the past, advertising for protection has been infrequent and scare mongering. ‘What would people do if…’ being the common theme and this is a real turn off to most people.
“The key to bridging the gap is to make protection cover more engaging, linking it to their day to day life, encouraging healthier living and giving cashback and rewards all contribute to making protection a policy which people are keen to talk about, rather than one they begrudgingly buy and leave in a forgotten drawer.”
Of course, the ‘it won’t happen to me’ mantra also exists but there are also misconceptions within the market. Aviva conducted some research in February 2014 and found that of 1,200 people who had not bought protection, around a third said it was too expensive.
Ms Colley says: “That is shocking given that many people can purchase life cover for very little and prices now are the cheapest they have been for many years.”
A further 27 per cent said they didn’t think they needed it, 7 per cent said they did not want to think about dying, 10 per cent said they simply had not got around to it and another 12 per cent said they did not believe it was important.
Ms Colley says misconceptions can be debunked by raising awareness and educating people about the benefits of insurance “but this is a long-term goal”.
She says: “As an industry we need to keep working to ensure that more and more people –generations now and in the future – understand the benefits of protection.”
What is the industry doing?
Commentators agree that the recently launched Seven Families campaign, which is run by Peter Le Beau from the Income Protection Task Force, is the most important initiative currently in the market.
The campaign is designed to raise the public’s awareness s of living with a disability where an accident or strife has happened.
The insurers, who will each be contributing £20,000, will be funding a project where a number of families are given a year’s worth of protection and the add-ons that accompany this such as family counselling.
Around a dozen insurers are involved, including Aviva, Friends, Scottish Widows, LV=, Zurich, Unum, Exeter Family Friendly, Pacific Life Re, Ellipse, PruProtect, British Friendly and Ageas.
Kevin Carr, chief executive of Protection Review and managing director of Kevin Carr Consulting, said the 12-month campaign is set to launch in September 2014, adding this will boost those families’ monthly income by £1,000 to £2,000.
Nick Jones, marketing director for Exeter Family Friendly, says: “The Seven Families initiative recently launched by the IPTF is a fantastic, innovative concept to build consumer awareness of income protection.
“To make these forms of cover interesting and important to families today, we accept that simply ‘selling’ often won’t work. Consumers need to learn from the experience of their peer group what not having cover could mean and how these risks can be minimised cheaply and easily.”
Mr Carr adds: “If this becomes a success, it could be an annual or biennial event. There is no reason why PMI or others can’t run a similar model, however let’s see if the model works first. We will be measuring various things including consumer understanding.”
According to Mr Jones, the industry needs to work together to share positive information and stories and “let conversations build online”, and then “we can finally build interest and demand in what we do”.
It’s about trust, as Mr Jeynes adds that publishing claims statistics is a “great way to show the public that the industry puts its money where its mouth is”.
Mr Jones says the key is to make protection something “that is too important to ignore”, agreeing that publishing claim statistics prove that insurers will pay out in the vast majority of cases.
However, advisers are to some degree more consumer –facing than providers so they need to be educated so they can put the message across to consumers how important protection is.
Ms Colley says: “It’s all very well telling people about the benefits of protection, but when people can see just how real claimants’ lives are affected in a positive way, knowing the financial matters are taken care of, this makes the argument extremely compelling.
“We have just developed two short films of real Aviva critical illness customers who have claimed on CI policies to help advisers understand this very point.”
Mr Jeynes add that advisers need to talk about it to all their clients, whether they are seeing them about mortgages or investments as protection “fits perfectly with all those scenarios”.
