Protection has come under increasing scrutiny over recent months as industry figures have called for the government to take more responsibility in the protection space, with the aim of helping to increase sales of the product.
In May last year, Paul Avis, marketing director for Canada Life, called on politicians of all parties to put protection on the agenda by encouraging a form of auto-enrolment for group income protection.
Earlier this year, Mr Avis reiterated this position in an email newsletter to members, saying that some for of auto-enrolment for protection could help alleviate the welfare state burden.
According to statistics from Group Risk Development, overall only 50 per cent of employers understood what group life was in November 2014, and 56 per cent of what the research described as the ‘target group’ did not have any cover, compared to 24 per cent who did for all staff.
In February this year, the Association of British Insurers told FTAdviser that it is lobbying for legislative changes to the way welfare is delivered to boost the provision of income protection through the workplace.
At that time, Helen White, head of protection at the ABI said that in general the trade body was looking for “some kind of legislative action from the next government... [that] will make greater use of income protection insurance through the workplace part of that solution”.
FTAdviser has spoken to a number of key industry figures to see what measures they would like to see implemented to help boost protection.
Helen White, ABI
Revisiting the ABI to ascertain the full spectrum of organisation’s focus, part of the message from Ms White was that the government is under a great deal of pressure to justify and reduce welfare spending, particularly for those who might one day be able to work again.
“The state and insurers can partner to reform the welfare state in a way that costs less and delivers more. The majority of UK households are unaware of the level of support they would be entitled to form their employer or from the state should they be forced to stop work due to illness or injury. In most cases they overestimate the state safety net.”
She adds that research undertaken by the Centre for Economic and Social Inclusion has shown that if up to 60 per cent of working families were covered by income protection insurance through their employer or individually, this would save the government £660m and provide households with a far better replacement rate of income.
“As well as the better replacement income that income protection insurance provides, it helps individuals to recover faster than they otherwise would with state support through rehabilitation and supporting them when they return to work. This would benefit not only the individual and their family, but the employer, the exchequer and the economy.”
Ms White also says that the ABI believes the next government should introduce measures to promote the use of income protection insurance through the workplace, ideally by the end of next parliament.
“The government also needs to make it much easier for households to understand how much support the state will give them if they become too ill to work, and what they can and should do to top up state support.”
Ron Wheatcroft, Swiss Re
Ron Wheatcroft, technical manager at Swiss Re says that the easy way for protection to be boosted by the government would be to ask for some generous tax incentives, adding however that it is necessary to stay realistic.
“The ways in which state and private provision interact, particularly around disability, can be complex. The resulting confusion and uncertainty can be a barrier to taking action.
“The next government should address these, including the potential disincentive to insure long-term disability risks, where, in some circumstances, private provision can leave individuals no better off than relying on state provision. This has to change.”
Mr Wheatcroft adds that a solution that is sustainable and works well was needed, whether someone has their own policy or is covered in an employer scheme. He said it is important to have a dialogue that is inclusive of the whole market.
“The next government will have to continue reducing the welfare spend. Services are increasingly unaffordable and the trend is set for more responsibility to fall on citizens who are able to do so to provide for themselves. We need clear messages to that effect.
Mr Wheatcroft added that savings levels into pensions are inadequate and will need to increase.
“As one simple example, part of each pension contribution could be used as an insurance premium to ensure that the pension contributions would not stop when someone is long-term sick and unable to work.”
Deepak Jobanputra, Vitality Life
For Deepak Jobanputra, deputy chief executive officer of Vitality Life, there is a real opportunity for greater engagement between the government and the protection industry this year, and auto-enrolment style soft compulsion is an option that should be considered.
Mr Jobanputra says that given the demographic and related fiscal challenges expected, it is clear that the government will have increasingly difficult choices with welfare provision.
“We have an election coming up and whichever government succeeds would be welcomed by the insurance industry to promote greater individual responsibility. The government could take a bold step by insisting on some form of soft or hard compulsion to ensure society takes some level of personal responsibility for their financial commitments.”
He adds that examples of this could be a requirement to protect one’s mortgage or to at least be risk-assessed for protection insurance, allowing individuals to make a conscious decision of whether to protect their lifestyles of whether they wish to self-insure.
“A debate on compulsion should be considered; after all motor insurance is compulsory. The considerations for protection human beings, although different, could adopt similar principles to help build a stronger and more resilient society.”
Emma Thomson, LifeSearch
For Emma Thomson, life office relationship director at LifeSearch, income protection policies not only provide financial support in the event of being unable to work due to sickness or accident, but rehabilitation forms a key part of the support provided, helping claimants to get back into the workplace wherever possible.
“It’s time government worked closely with our industry, recognising the value we can make to society, and to help us to reach out to more of the British public in order to protect more individuals and families.
“With pensions auto-enrolment there is a clear message that we all need to take more personal responsibility to provide for retirement.
“It’s debatable whether auto-enrolment for protection like the Australian model is appropriate for the UK, but at the very least those who do take responsibility for their own finances in the event of sickness or premature death should be encouraged and incentivised, not penalised.”
Ms Thomson adds that tax relief premiums would also help to make these policies much more affordable and therefore attractive to consumers.
“I’d like to see the next government begin to address these issues soon after taking office, with change occurring as soon as possible. We’ve seen how fast things can change with the announcement on annuities in the last Budget, so change can happen where there is a will to do so.”
ruth.gillbe@ft.com
