New sales volumes of individual protection policies have changed very little in the last ten years, with around 1.5m new term assurance policies sold, of which roughly one-third includes critical illness cover. It is easy to assume that 2016 will be another year where similar results are recorded, yet we are seeing further signs of a positive outlook which could lead us to deliver the protection cover people so desperately need.With half of the UK adult population having a protection gap for life cover alone, there is much to do.
We have seen a number of product providers entering or re-entering the long-term protection market: surely a good sign that market confidence and prospects are growing. We are optimistic that in 2016 this will increase levels of protection cover rather than the market carrying on with similar business levels just spread further across more providers.
With improved propositions for consumers who prefer to purchase cover directly without advice, the market is better-positioned to focus on helping those who, so far, have been happy to do nothing at all. We have also been pleased to see greater interest among intermediaries in arranging mortgage-related life and disability protection as part of the house purchase process.
April 2016 will see a further drop in the Pension Lifetime Allowance, falling from £1.25m to £1m. As lump sum death in service benefits written through registered pension schemes count towards the Lifetime Allowance, there will be more interest in keeping lump sum life cover outside the pension tax environment. This should mean that sales of new Relevant Life Policies continue to increase as advisers seek tax-efficient ways of structuring life cover for their clients. At the same time, it is also likely that more employers will use Excepted Group Life policies to provide life cover for their workforce.
We look forward to the government’s response to consultation on pension taxation, expected on Budget Day. As most employer-sponsored life cover is still written under pension arrangements, this could lead to some restructuring of life cover depending on the taxation choices the government decides to adopt.
As auto-enrolment staging extends to smaller employers, this could be a good time to begin discussions about the wider business need. Further workplace provision of death and disability cover for the workforce is one option but how many employers facing auto-enrolment staging have any protection in place if a key employee dies or becomes long-term disabled?
In 2015, we published data showing that the UK has the largest shortfall in disability protection in Europe – an annual amount of £200bn. With further cuts to welfare provision likely, this presents an opportunity for the industry to meet some of this shortfall and we may, at last, see the growth in self-provision through income protection policies which has eluded us for so long. The 7Families initiative has been received so well and we should build on this. Real life stories showing how people have been impacted and how we can help them are more powerful than statistics alone.
We need to work with government to present rational arguments to help remove disincentives which, depending on household circumstances, could inadvertently limit the value of income protection cover when a claim falls due.
The decision to defer the introduction of the Care Cap until 2020 was disappointing. This means that it will be some time before financial services firms can start playing a full role in the funding of care costs. This is not good news as we are presented with statistics almost on a daily basis showing how care costs will grow. While the need to save more for later life is self-apparent, there is scope for insurers to do more to deliver a package of investment and protection products to meet care costs. It has been encouraging that some product providers have introduced care-style benefits but it is important that we keep the dialogue with government going if we are to provide the financial support that people will ultimately need.
Ron Wheatcroft is technical manager of Swiss Re UK
