Protection  

Beginning a new year in income protection

It is not really a great idea to ask someone who earns his living from consultancy to write an article predicting the future. Most consultants would only give you their best estimate when you have hired them, but I am made of more ethical stuff, so this is my take on protection marketing in 2015.

The protection industry has been the poor relation of the financial services industry for as long as I can remember. The industry focuses more on profit than need, so servicing the investment whims of those with money will always be more important than selling vital products to those whose lives could collapse without them. I am not sure who cares about this, but I think it is a very serious situation, and one that will always lead to protection being an afterthought in the financial planning process.

So the challenge for the industry in 2015 is getting products to customers more effectively, without long delays and causing potential customers to give up in the process. The phrase of the moment is ‘customer journey’. It describes how insurance buyers arrive at the point of purchase, and that journey is improving – if the customer is fit and well, and does not present risk to the insurer. But woe betide the customer who has any illness, or carries too much weight, or is not in fact a pretty near-perfect specimen. The top-of-the-market rates that are technically available are not meant for this person, and whereas 95 per cent of lives would have got top rates twenty years ago, only between 60 per cent and 70 per cent of lives will get them now. As rates improve, underwriting tightens, and as the key obstacle to an insurance sale is the amount of underwriting done and the issues it throws up, this is a problem that companies will have to solve in 2015. We will see increasingly mechanised underwriting, hopefully shorter forms to complete and a lot of focus in cutting out delays in the process. It is delays, with the chance to cool off or reconsider the process, that cause so much of the drop-off in completion rates.

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I come from a very simplistic school that suggests that some cover for most people is better than none. I still expect insurers to sell a fair amount of term assurance, more critical illness cover than they should and less income protection than is appropriate. So many people do not buy any cover, that I am delighted to see people putting any cover in place.

One concern I have is that it is possible, even common, for many people to take out mortgages without having proper insurance protection in force. This is an inevitable consequence of making it easier to sell mortgages than it is to sell protection. Again mortgage advisers will understandably, though regrettably, be quite prepared to do this and it leaves so many families deeply exposed to the risk of death or serious illness of the breadwinner. My hope is that in 2015 something will be done to address this very serious risk. But my expectation is that nothing will actually be done because protection does not rate very highly on the agendas of most in the industry.