Q&A: Advisers are missing a trick with business protection

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
Q&A: Advisers are missing a trick with business protection

Business protection may not be a household name but when the All England Lawn Tennis Club protected its Covid-stricken championships with £1.5m of pandemic insurance in 2020, its benefits became clear. 

The club behind the famous tennis tournament, also known as Wimbledon, is said to have received a £170m insurance payout after it had cancelled the year's event due to the pandemic.

This meant it could continue to pay its staff and keep operations going in preparation for the following year's event, the shape of which was by no means certain. 

If the pandemic has taught us anything, says Roy McLoughlin, associate director at Cavendish Ware, then it is that neither we nor our business are indestructible. 

Yet business protection sales, made up of a suite of products including business interruption insurance, key person cover, and other succession planning policies, are underwhelming. 

According to Swiss Re's Term & Health Watch report of 2021, a mere 12,000 business protection policies were sold in 2020 – 43 per cent less than in the previous year when it was 21,060. This year had already marked a two-year decline in policy sales. 

Yet, the opportunity is "massive" to serve smaller businesses, the report stated. According to Office for National Statistics data, there were 1.4mn businesses in the UK in 2021, and just 8,000 employed 250 people or more.

McLoughlin talks to FTAdviser In Focus about the struggles and opportunities for advisers in selling business protection. 

FTA: To what extent is there a business protection gap and what are the consequences for UK businesses? 

RM: The gap is vast. There are abut 2.5mn businesses in the UK and that is an expanding group. But there are just over 20,000 advisers and even if they were all doing protection it wouldn’t divide by 2.5mn very well. So what you’ve got is a service issue more than anything else.

As a consequence, the number of policies written is woefully short. This is a particular problem for smaller businesses, which make up the vast majority of businesses in the UK. A lot of the larger ones may have relationships with employee benefits companies.

The big problem, like with individual insurance, is the perception that ‘it won’t happen to me’, whereas we know that statistically, unfortunately, there is much more of a chance that things will happen to people and where businesses are smaller, paradoxically, they are more reliant on protection because there are fewer people to do that person’s job or to replace that business.  

FTA: You have previously said advisers are “intimidated” and “scared” when it comes to selling business protection. Can you elaborate?

RM: Scared is probably a little bit over the top, but you’re dealing with owners of businesses some people feel are of a certain ilk, where they might be a bit more nervous about talking to them – the managing director, the finance director, the HR director.

There is an element, and we see it all the time, of advisers shunning away saying, ‘I don’t feel comfortable with that sort of person’ and we need to have the faith and confidence that it doesn’t matter if you’re talking to the guy in the post room or the woman that’s the CEO, you should have the same levels of confidence.

What surprises people when you break into this world, [is] the respect and the desire for the advice. It’s much easier than people think.

FTA: Are advisers missing a trick when it comes to selling business protection?

RM: 100 per cent. This is an area where there is basically no competition. It’s a great place to be, plus, generally, business protection sticks to the books. So you don’t have some of the lapse problems that some of the individual protection advisers sometimes have.

It’s a viable and lucrative business model that opens up doors to other levels of financial advice. It’s good for wealth management and also group opportunities because you tend to be talking to decision makers who, as well as looking at some of the key people at the top, will also want to protect their staff and that leads to chats about group protection.  

FTA: Is there an opportune time to sell business protection, for instance, combined with other advice?

RM: There isn’t a good time but there isn’t a bad time either. But it’s very important that the adviser arms his or herself with certain facts, for example about what happens when small businesses get into trouble. You need anecdotal evidence, having some of those stats to hand is vital.

But also in terms of timing when a business sets up, from day one it’s as good as a year down the line because weirdly the exposure at the start of a business’s life is arguably bigger than later on. 

FTA: What about the products themselves?

RM: They are not overly complicated but you have to learn them. Once you’ve learnt them you realise that they are exactly the same as protection products, just for businesses.

Cost wise, often customers are very surprised as to how good value for money they are. The alternative is basically to self-insure. Stats show the cost of not listening to us is more costly than the cost of listening to us. 

FTA: What about payout rates?

RM: They are all phenomenal, way into the 90 per cent. If you look at the reason for why they don’t pay out sometimes they are all very easy things to explain, such as non-disclosure. You hear that argument [about low payout rates] all the time but it’s nonsense. 

FTA: Would you say there is an education deficit among the industry and consumers?

RM: Big time. This is where we need the insurance companies to provide much more in terms of courses, supporting material, live cases [and] case studies.

There is some but there’s not enough out there. Unless you work for somebody like St. James's Place who’ve got the training facilities, we are very reliant on our insurance company cousins. 

FTA: What has coronavirus taught us about business protection? AELTC famously benefitted from business interruption cover. Has uptake changed post-pandemic?

RM: What Covid – one of the saddest things you’ll ever experience – has done is it’s changed the mindset and made most people realise they are not as indestructible as they thought they were before. That is as relevant to a company as it is to an individual.

One of the things that undoubtedly has come out of Covid is a search for a solution to a problem that people can now relate to, such as people being off ill long-term, people dying, in a way they could not before.

The other thing that came out of Covid is our attitude to mental health – that was a taboo subject, I’d like to think it isn’t anymore.

And therefore people are looking for a solution to mental health in the workplace, and we have the solution because there are products that can provide the help and assistance in the event of your staff having mental health issues. People are now open to conversations they probably weren’t open to before. 

carmen.reichman@ft.com