But, as sales remain resolutely flat, the protection industry is questioning whether publishing this data is the best way to promote the benefits of taking out cover after all.
The claims statistics certainly make reassuring reading. According to the latest figures from the Association of British Insurers (ABI), the percentage of claims paid for term assurance, critical illness insurance and income protection during 2013 were 98.4 per cent, 91.8 per cent and 91.1 per cent respectively.
These statistics also point to huge improvements in the chances of getting a payout. For example, ABI figures show that 10 years ago, 20 per cent of critical illness claims were declined.
But while these figures give insurers and advisers plenty to shout about, the message is failing to get through to consumers.
Although Swiss Re’s Term & Health Watch 2014 relates to 2013, when the market was recovering after all the gender directive activity at the tail end of the previous year, it shows a significant decline in new business across the board. Income protection sales slumped by 24.4 per cent, critical illness by 20.5 per cent and term assurance by 17.4 per cent.
Consumer sentiment
Research among consumers highlights some of the issues. First, although statistics are being published by individual insurers and the ABI, the public already has preconceived ideas about the percentage of claims that are paid.
This was illustrated by Protection Review research from 2013. It found a significant gap between perception and reality, with consumers believing that only 38 per cent of claims were paid each year.
Some of the blame for this must lie with payment protection insurance (PPI). Although the nature and claims payment records of PPI is very different, the similarity in names means that protection products such as critical illness insurance and income protection also suffered reputational damage when the PPI mis-selling scandal broke.
While the protection industry has taken steps to distance itself, with the banks still sitting on billions of pounds of reserves to settle liabilities and the claims companies continuing to push their services, consumers’ confidence in protection of any form remains seriously dented. Dougy Grant, protection director at Aegon UK, says this public perception is affecting sales. “Consumers see insurance as a dirty word, which is a shame. We must do more to ensure they understand the benefits.”
A difficult message
Alongside the seemingly unshakeable association with PPI mis-selling, research conducted earlier this year by Aegon UK highlights another reason why consumers’ view of the protection industry is so poor. It found that 77 per cent of consumers did not know these statistics were published, with only 32 per cent of them saying they had discussed claim rates with their adviser.
As a result, the claims history of the provider was considered the lowest influencing factor among those who took out cover. Instead, price was found to be the top consideration followed by product features.
There are a number of reasons why these statistics are failing to get through to consumers. For Steve Casey, head of marketing and propositions at AIG Life, the problem is that cold statistics do not sit well with what is often a very personal purchase. “The insurance industry is using a very analytical solution for what is really an emotional question,” he says. “I would prefer to see more positive case studies, such as the Seven Families campaign, to convey the importance of the product.”
In addition, while insurers’ marketing departments might obsess about their claims statistics, in keeping with Aegon’s findings, not all advisers see them as a key message for their clients. Alan Lakey, managing director of CI Expert, is fairly blunt about his use of claims statistics with his clients. “I never talk claims statistics with my clients and they never ask about them,” he says. “Clients trust me to take into account factors such as the insurer’s service record and reputation when I make a recommendation: they do not need to know these statistics.”
He also believes the statistics only tell part of the story about protection claims. “A claims paid figure of 90 per cent looks great but a cynic would still point out that one in 10 claims are declined,” he adds. “The reality is that the 10 per cent that are declined are likely to be split between non-disclosure and the policyholder not meeting the definition. The industry could do more to stop non-disclosure but we cannot stop someone with a broken leg putting in a claim for total permanent disability.”
Time for change
There is appetite for addressing the issues with claims statistics. A recent poll on Protection Review’s website found that just
7.69 per cent of its readers, which include advisers, insurers and reinsurers, wanted to maintain the status quo when it came to publishing claims statistics. A further 4.62 per cent said they would be happy to stop publishing them altogether, leaving the vast majority, 87.69 per cent, keen to carry on using them but work together more to promote the key messages.
A number of ways forward are under discussion. For example Aegon’s Mr Grant is keen to work more with advisers to help them promote the high claims rates. This would also include providing them with more detail around the claims declined as well as those paid.
Providing more detail is a step welcomed by Emma Thomson, life office relationship director at LifeSearch. “Consumer trust is far too low; having an open approach to producing claims data that includes details of how many claims are paid and what policyholders are claiming for as well as explaining why a small proportion are declined can only help to restore consumer confidence.”
This is a step that some insurers have already adopted. For example in 2014 Legal & General published details of the number of income protection claims it had paid; the conditions that triggered claims; and a breakdown of why claims were declined.
Providing this finer detail serves two purposes. As well as educating clients about the reasons a claim might be declined, and thereby helping them to avoid making a similar mistake, by highlighting why people claimed, it also brings in the emotional element craved by AIG’s Mr Casey.
Beyond protection
Another strategy for those looking to get the message out is to expand distribution beyond the traditional protection adviser. Mr Grant explains, “Protection is the cornerstone of all financial planning so we need to encourage advisers to raise it in every client conversation, whether it is about a mortgage, investments or a pension.”
This approach is gaining traction. For example, earlier this year, mortgage network Pink made it compulsory for all of its advisers to discuss income protection as part of the sales process. It argued that, as clients were subjected to stress testing on their ability to meet loan repayments if interest rates increased, it made sense to check whether they would be able to afford it if they were too ill to work.
Insurers adopting this broad-brush strategy have also seen success. Last year, as a result of promoting protection to its investment advisers, Aegon saw a 75 per cent increase in sales of protection through this channel. As a result of this success, Mr Grant is now looking at ways to promote protection across Aegon’s own customer base.
Presently, just 400,000 of its 1.8m customers have protection, in spite of the fact that many would find their financial planning goals jeopardised if they were unable to work or suffered a serious illness.
While the protection industry has worked hard to improve the number of claims that are paid, with this message failing to get through to consumers, a more creative approach to gaining their trust is definitely required.
