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.”
Annual statements
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.
Ms Thomson says: “We do send more generic communications to our clients, but unless an insurer sends us policyholder information, we would never know if they had made any changes to their cover. After four years, when clawback ends, we would not even know if the policy was still live.”
Communication benefits
There are plenty of benefits associated with sending out regular protection statements. For starters, it helps to ensure that clients’ cover keeps pace with their lifestyle. Flagging up the current sum insured and the guaranteed insurability options enables policyholders to increase cover for life events such as having a baby, getting married or taking on a larger mortgage. It is also a good excuse to remind policyholders of the benefits that are included with their policy.
As an example, Paul Roberts, head of protection at Old Mutual Wealth, points to the intensive care benefit on his firm’s critical illness insurance. This pays out the full value of the plan after someone has been in intensive care for 10 days.
“Very few people would remember every benefit they have, and even fewer would remember what was included on a loved one’s policy. By providing a regular statement, you help customers gain a better understanding of what their policy does,” Mr Roberts explains.
This also extends to added value benefits such as second medical opinion services and helplines that are commonplace on protection products. These can often be used by the policyholder and their immediate family, and are available regardless of whether or not they are making a claim. It also feeds into the treating customers fairly regime.
Nick Erskine, head of intermediary sales at AIG Life, points out: “We need to do everything we can to ensure that cover is really clear for our customers. They understand what they have bought on day one, but it is unlikely they will consider it again unless you remind them. This creates more trust and helps to build a better relationship.”
Consumers would also like to receive an annual statement. Research conducted by mortgage and protection adviser L&C Mortgages found that 95 per cent of those surveyed would be interested in receiving a statement each year, with 76 per cent saying they would like details of the free services included on their policy.
Fighting resistance
In spite of this support from customers, there is some resistance to adopting annual protection statements. This centres on fears that, once reminded, some policyholders will cancel their cover. While it is inevitable that some people will do this, the insurers who issue annual statements say it should not deter others.
Mr Timpson explains that when statements go out the firm receives calls from some policyholders asking whether they need the cover.
He adds: “Some will cancel, but in the main it is a good opportunity to have a dialogue with a client. We find that a much greater number will increase the sum assured or take out new cover.”
Another concern comes from distributors, with some arguing that allowing an insurer to send communications directly to policyholders will compromise their relationship with the client.
However, insurers are keen to ensure that advisers also benefit from these annual statements rather than being cut out of the process.
As examples, AIG Life includes advisers’ details on its statements and Scottish Widows Protect sends summaries to advisers and their clients to prompt annual review meetings.
But there are obstacles here too. Legacy systems can make it difficult to introduce statements and, where clients have not engaged with their insurer for some time, their details may be out of date.
Next steps
There is also debate about the format used for these statements, with insurers split between putting paper statements in the post and sending out emails.
While those in favour of paper argue that it makes them easier to find in the event of a claim, the flexibility of electronic statements is their key advantage. This method makes it easier to deliver messages graphically and, by using links to additional content, policyholders can be directed to relevant information.
Ms Thomson says it might also be prudent to add another means of communication into the mix – text messages. While emails and addresses change, people tend to hang on to the same mobile phone number. Sending a text alert to let them know a statement is on its way might help to overcome the issue of outdated contact details.
There are also calls to make the statements more frequent, with Mr McKenna pointing to the pensions dashboard as a potential role model.
He says: “In the next few years, consumers will be able to access a holistic view of their pension savings. If they can see their retirement savings, but protection is still invisible, where are they likely to invest their time and money?”
While a protection dashboard might be some way off, annual statements deliver significant benefits to consumers, advisers and insurers. The protection industry needs to ensure it takes this first step in customer engagement.
