Dr Marius Barnard, who invented critical illness cover in 1983, died this November. This sad news poignantly reminded us just how much the UK protection industry has developed over the past 30 years.
Even so, it has still had to negotiate its fair share of sticky patches, and that includes the last couple of years.
According to Swiss Re’s Term & Health Watch 2014, sales of critical illness cover in 2013 fell by 20.5 per cent over the year before. Over the same period sales of income protection fell by 24.4 per cent, term assurance by 17.4 per cent and whole-of-life by 20.5 per cent.
These falls might be due at least in part to uncertainty caused by the introduction of gender-neutral prices, as well as to price rises resulting from changes to the way life assurance funds are taxed. However, I suspect that anyone hoping for a spectacular bounceback when Swiss Re reports on 2014 sales next April is going to be disappointed.
The big dampener on protection sales this year has undoubtedly been the mortgage market review introduced in April. Some commentators had expected this to boost sales as a result of mortgage advisers worrying about regulatory repercussions if they did not have the protection conversation with their clients. But there has been no real evidence of this happening.
In my view MMR has had the opposite effect. Now that the process for securing a mortgage is much more rigorous, it is harder for advisers to mention protection until right at the end, if at all. As an unintended consequence, I suspect mortgage providers have set new guidelines and processes more stringently than the FCA ever intended. And until mortgage advisers get used to them, or providers relax their processes, protection will continue to be forgotten or treated as an add-on feature left to the end of the mortgage sale.
On top of that, with the new regulation making mortgages harder to get, the actual number of people with mortgages needing protection has dropped. However, I expect these sluggish sales patterns to prove no more than temporary. And 2014 has thrown up plenty of positives to turn our attention to.
Particularly exciting is a growing momentum in the debate around whether protection can in some way be linked to pension auto-enrolment. The lower than expected opt-out rates from people auto-enrolling in company pension schemes have been encouraging. And the idea that further down the line employees could be given the option of directing a small proportion of their pension contributions towards protection instead certainly seems to have mileage.
Also especially welcome has been the Association of British Insurers’ increased interest in the role that income protection should play in society. The body’s briefing paper Welfare Reform for the 21st Century aims, in particular, to raise awareness of what the state will – and will not – provide, and of ways families can set up their own financial safety net.
Latest research for the ABI by the Centre for Economic and Social Inclusion shows that 10.8 million households – which is more than 60 per cent of working families – would get little or nothing from the state. And they would face a one-third drop in their income if the main earner had to stop work.
Yet, as Helen White, head of protection at the ABI, has been keen to point out, our welfare system has been based on a fundamentally flawed assumption that those households recognise this and arrange provision privately.
Other interesting areas for development include providing for long-term care needs and the wrap and protection markets joining forces to offer inheritance tax planning products.
In short, although 2014 is not going to go down in history as the year the protection industry broke any sales records, in the fullness of time it could certainly be seen as a watershed in which a wave of new ideas and initiatives paved the way for future growth.
Jennifer Gilchrist is senior product development manager of Scottish Provident and Bright Grey
