Protection needs change, with everything from marriages and mortgages to parenthood and promotions affecting the amount and type of cover needed. However, once they have taken out a policy, many protection customers never hear from their insurer again.
Unfortunately, this can cause all sorts of problems. As well as leading to underinsurance, as protection needs tend to increase, it can mean that some policyholders forget they have cover altogether.
This is something Johnny Timpson, protection specialist at Scottish Widows, has observed in his work with Macmillan Cancer Support.
Mr Timpson says: “The charity gets more calls about the financial impact of cancer than it does about the condition itself.
“As part of the support offered, they will go through a caller’s bank statement and direct debits with them to see where they can make savings. Far too often this will reveal they have a protection policy they had forgotten about.”
As well as forgetting they have a policy, there are also instances of policyholders not understanding what protection their cover offers. For example, Emma Thomson, chairperson of the Protection Distributors Group and life office relationship director at LifeSearch, has heard of customers who have called to cancel income protection policies they can no longer afford as they are too ill to work.
Ms Thomson explains: “There will be people who are entitled to make a claim, but fail to do so as they, or their family, are not aware they have cover. This needs to change.”
To address this, the Finance & Technology Research Centre (FTRC) Protection Forum and the Protection Distributors Group are calling on insurers to introduce an annual statement to remind policyholders of the cover they have taken out.
In much the same way that pension, investment and mortgage companies send out annual statements, the protection version would contain details such as the type of policy they hold, the sums insured and the additional benefits they can use without needing to make a claim.
Ian McKenna, director at the FTRC, says: “The protection industry needs to make it interesting and engaging for consumers. By giving them more information, customers will be able to make better decisions about their cover.”
A handful of insurers have been sending out annual protection statements for many years. Zurich started doing this in 2007, but Old Mutual holds the record, having introduced them in 1980 in its Skandia days.
The number is growing, too, with recent converts including AIG Life, which introduced an electronic statement in July, Royal London, which started a 5,000-customer pilot in July, and Scottish Widows Protect, which introduced them last November having already done so for bancassurance customers for more than 10 years.
However, while this is a positive trend, there are still many insurers that do not provide regular communications to policyholders. Without this flow of information it can also be difficult for advisers to step in and provide an annual statement directly to their clients.