Protection policies have not been at the forefront of the adviser agenda in recent years. The pension freedoms are still evolving, defined benefit transfer activity is arguably reaching worrisome levels, and a fresh slew of regulation looms.
In the background, Brexit negotiations have, thus far, produced little more than question marks for the UK economy and clients’ prospects. As such, it is unsurprising that business protection in particular, regarded as a niche pursuit by advisers with a more holistic approach, has spent little time in the limelight.
But major workplace changes appear to be driving significant growth in this market, catching the attention of intermediaries seeking new business – or perhaps leading them to consider the option for their own firm.
The total business protection market is difficult to size, but sales for relevant life cover – a policy for individuals that can be paid for by their employer – have proved robust. As Chart 1 shows, total sales came to more than £10.7m in 2016 as a whole.
Observers now believe an increasing number of intermediaries are adding business protection products to their toolkit, with two main changes attributed to the expansion of the market for such offerings.
First, the number of possible clients has grown as the UK’s working population appears to embrace its entrepreneurial spirit.
A record 5.5m private sector businesses were in existence at the start of 2016, and this trend appears to have continued. In the first half of 2016, nearly 343,000 new businesses registered with Companies House compared with 608,110 for the whole of 2015, which proved to be a record year.
An expansion in the number of business owners creates a greater base of potential corporate clients. At the same time, engagement with advisers from this community appears to be on the rise as a result of another major development: auto-enrolment.
Opening the door
As Money Management’s annual survey of auto-enrolment notes this month, the workplace pensions scheme now applies to the smallest firms as well as larger operations. Companies with fewer than 30 scheme members, and those without PAYE schemes, have had to begin auto-enrolling employees in the past year.
These changes have a number of consequences, including putting more companies into contact with advisers and potentially opening the door to discussions about other products and services.
“Since auto-enrolment started and it has got down to the smallest firms, that has increased meetings with business owners and helped drive the market,” explains Andy Simmons, a business protection specialist at provider Vitality.
“Talking [to business directors] about their pension is a way to talk about the other risks to their business. Different types of brokers have been getting involved in business protection. There’s more wealth managers, employee benefits and investment advice firms who are starting to get involved.”
The insurance used by businesses can come in many forms. Relevant life plans, which are not strictly regarded as business protection but are available to employers, are designed to pay a lump sum if the person covered dies or is diagnosed with a terminal illness while in employment.