Income protection is arguably the most important type of protection cover, as we are all more likely to be off work due to illness or incapacity for a prolonged period of time than either dying or becoming critically ill during a predefined term.
It’s also the most undersold type of protection. Why is that?
An insurance product that replaces an income if you are unable to work is a brilliantly simple concept. But its fatal flaw is that the products are overly-complex and they are reluctantly sold to an apathetic audience.
All three of these issues; complexity, reluctance and apathy, must be addressed if we are to see any meaningful increase in the sale of this type of protection.
Industry experts will perhaps argue that the products are fine, and we should instead focus our efforts on consumer education. But that’s simply not the case.
I would not be surprised if many advisers shy away from recommending income protection because the amount of commission received will often not cover the work involved in tailoring the most appropriate recommendation.We need to go back to the drawing board with income protection.
I had the pleasure of listening to a talk a while ago by Pete Trainor who works at a firm called Nexus – which is apparently a “human focused digital company” (do yourself a favour and look him up).
Something he said struck a chord with me. He challenged the audience to do better things rather than do things better.
When I think of income protection, I think of Mr Trainor's challenge. There’s no real point in tinkering around the edges of a complex proposition in the hope of making it a bit better.
Instead, we need to fundamentally rethink the proposition and challenge ourselves to come up with something better – something different.
We need to see some proper disruption to shake the cosy protection status quo.
The complexity exists, primarily, because of the variability of product types. The qualifying criteria for a successful claim is often different from provider to provider.
The period when a payment kicks in also varies, as does the percentage and basis of salary, and the longevity of payment. There are still also differences between lump sum payouts and regular “income replacement” payouts in terms of how they impact state benefits.
All of these variables make income protection hard to compare and explain to someone who has no knowledge of our industry or a comprehensive understanding of their protection needs. And so people invariably choose the path of least resistance and buy something that is perhaps inferior, but simpler.
There is also an advice remuneration consideration here.
I would not be surprised if many advisers shy away from recommending income protection because the amount of commission received will often not cover the work involved in tailoring the most appropriate recommendation. And unless clients are willing to pay fees, this can be an unprofitable advice service.
There also remains a huge misconception that people already have adequate income replacement provision with a combination of employee benefits and statutory sick pay.
The Financial Services Consumer Panel recently published research looking at the consumer experience of income protection. Its findings are unsurprising and generally in line with what I’ve said above.
The panel is keen to kick off debate and collaboration with interested parties in the protection industry to address some of these barriers.
If we all approach this discussion with an open mind, and a willingness to adapt, together we might find a way to make income protection easier to understand for consumers and to recommend for advisers.
Perhaps we will find a way to do better things rather than doing things better. And perhaps we will find a way to properly address the much talked about, but rarely addressed, protection gap.
Mark Locke is communications director at the Lang Cat
Read more about income protection by reading this Guide to the changing face of income protection.
