People buy insurance to protect themselves against future events which may not happen, but that if they did would prove punishingly costly.
Cat insurance? Check. Mobile phone insurance? Check. Home contents insurance? Check. Income protection or critical illness cover in case you cannot work… not so much.
For as long as I can remember, experts have warned that the vast majority of us are under-insured. A recent report published by Royal London estimated a protection ‘gap’ among homeowners of as many of 5.2m people, who have no plan or protection cover in place to cover their mortgage repayments if they become too ill to earn.
While we think of nothing in insuring our belongings, we have to be coerced to insure ourselves. Indeed, Alan Lakey, partner at Highclere Financial Services, says that protection is a product that is ‘sold’ and not ‘bought’.
Only two people last year booked appointments with Mr Lakey to purposefully discuss income protection. He estimates that 96 per cent of all sales of critical illness accompany a mortgage.
Most of the industry also agree that more needs to be done to boost appeal to customers, ensure policies provide adequate protection against the illnesses and issues that befall customers, and to remove any lingering sense that it will not pay when needed.
The problem is that over the last decade or so the protection industry has made a number of positive changes, but industry experts state this has not made an iota of difference when it comes to sales.
Kevin Carr, Protection Review chief executive, says changes made include more product advertising, insurers publishing and promoting pay-out statistics, partial payments for critical illness and, critically, a move to ‘own occupation’ for income protection.
Protection adviser Lifesearch launched a guarantee in February that it will only recommend ‘own occupation’ income protection cover that will pay out if the customer is unable to do their own job, following negative press on products based on more abstract life ‘activities’.
‘Activities of daily life’ policies attracted quite a bit of criticism in recent years, following a high profile case against Scottish Provident.
Almost three years ago, Chris Hargreaves, winner of a Financial Ombudsman Service case against Scottish Provident over an ADL clause in his protection policy, launched an e-petition on HM Treasury to ban “fluffy definitions” in protection insurance policies.
“In the past, lots of insurers and advisers went down the ADL route but that has now changed. One of the big instigators for change was Chris Hargreaves. He did more with his onslaught on Scot Prov than we could ever have achieved. Own-occupation is the only way forward,” says Mr Lakey.
Addy Frederick of LV adds that a number of providers now only offer own-occupation income protection cover, which allows policyholders to make a claim if injury or illness prevents them from working in their current occupation.