Understanding consumer attitudes to protection is key to driving up sales. But as the latest research from Protection Review’s research arm The Syndicate shows, the insurance industry still has a lot of work to do when it comes to winning the public’s trust.
Its study has found that although consumers recognise insurance as the most robust support strategy if they were unable to work for longer than six months as a result of illness or accident, confidence in the sector remains low. Just one in five people trust insurers, with this only rising to one in four among those with protection.
Instead, when asked where they would turn for financial support if they were unable to work, respondents placed their partner (42 per cent) and their savings (38 per cent) in the top two positions. Protection only managed to muster eight per cent of the vote.
However, the research also found that many respondents significantly overestimated how long their savings would last. For example, those with between £5,000 and £10,000 tucked away expected this to last 10 months on average. Based on average net monthly income, this would leave them with a monthly shortfall of more than £1,500.
Having overseen the study for several years, Jo Miller, director of research at The Syndicate, is not surprised by this year’s findings.
“There is evidence of a rainy-day mentality, but people still do not want to go into any detail about the possibility of being unable to work long term,” she explains.
“It is positive that consumers can see the value of insurance but insurers need to find ways to turn this into sales.”
Disclosure conundrum
One area where there appears to be a barrier to sales is disclosure, with The Syndicate’s research highlighting something of a contradiction in the public’s view. While more than half of those surveyed felt medical conditions should be disclosed at application stage, a significant proportion of respondents believed claims should be paid even in the event of non-disclosure.
To illustrate this, the research used an example of a life insurance claim for someone who did not disclose they were a lifelong smoker when they took out the cover. If they had died in a car accident, 64 per cent of those surveyed said the insurer should pay the claim in full, with just 11 per cent saying it should not pay anything.
The reaction changes where death is a result of a condition linked to smoking. If it is caused by a heart attack, 29 per cent believe the claim should be paid, with 21 per cent saying it should be declined. But even if they died from lung cancer, 18 per cent would still be in favour of a full payout.
Ms Miller believes this could be due to the contract mentality. “Consumers believe that if they have been through the application process and taken out cover, they have a right to a payout if they make a claim,” she says.
“Insurers need to be clear about the ramifications of non-disclosure at the outset, but this does feed into consumer mistrust.”
Fairer settlements
As well as ensuring greater clarity at application, a number of other options could help to address this issue.
Proportionate payouts can be considered where non-disclosure has been uncovered. These work in a similar way to the application of the average clause on general insurance. As an example, were someone’s premium to be doubled if they disclosed they were a smoker, the claim payout would be reduced by 50 per cent.
Stephen Crosbie, protection director at Aegon, says this can work in some situations. “We will pay a proportionate benefit in some instances of non-disclosure, but it is not something we would publicise as we do not want to encourage people to do this.”
There are obvious pitfalls to adopting this approach more broadly. As well as encouraging people to withhold details of any health problems to secure a lower premium, it also leaves people facing uncertainty around the size of a potential settlement.
A non-contestability period has also been suggested, most famously by the Law Commission back in 2007. In this scenario, once a policy had been held for a number of years (typically two or five), all claims would be paid unless the policyholder had made deliberate or reckless mistakes.
This approach does have support and is standard practice in other markets such as the US, but it is not an option favoured by Roy McLoughlin, associate director at Cavendish Ware. “It would be a mess, pushing up premiums and creating confusion around when claims can be declined,” he explains.
“It is much better to be upfront about non-disclosure when someone is taking out cover. If you explain it properly, they understand.”
Value statement
Another barrier is the perceived value of protection products. More than half of those surveyed said they did not like paying for a product they might never need, with 53 per cent saying they preferred to top up their savings than take out protection.
That consumers only value protection when they need to use it supports the introduction of added-value services such as counselling and advice, rehabilitation and second medical opinions. These are now commonplace across the industry, enabling policyholders and their families to benefit from a policy without having to make a claim.
But while popular with insurers, Mr Crosbie notes the usage of these facilities remains disappointingly low among customers. “Consumers do not see insurers as the first port of call for these services,” he says.
“They are more likely to use an employee-assistance programme, the NHS, or Citizens Advice. This is a shame as it could really help to increase trust in insurers.”
Annual statements could also raise the perceived value of protection. Several insurers, including AIG and Royal London, have launched annual statements in the past 18 months, detailing a customer’s level of cover and why they might want to consider topping it up.
Some resistance remains, with the main argument focusing on the potential for a reminder to simply result in the policy being cancelled. However, Ms Miller believes it would be a positive step for the industry.
“If a customer does not hear from their insurer from year to year, they are much more likely to get rid of their cover in a financial spring clean,” she says. “Reminding them is a good excuse to flag up all the added-value services they can use.”
Higher profile
More industry-wide work is also required to change public perception of protection. For instance, Mr McLoughlin says the sector needs to keep highlighting the high percentage of claims that are paid every year.
Last year, this figure stood at 97.8 per cent across individual and group protection, representing total payments of more than £5bn. “Insurers often ask me why they should bother publishing these statistics when consumers think the figure is closer to 50 per cent,” Mr McLoughlin adds.
“Stop, though, and people instantly become suspicious. The industry is slowly moving in the right direction with consumer confidence, but we need to keep telling them how protection can benefit them.”
A good example of this is the Seven Families campaign, which may have played a part in the 9.8 per cent uptick in sales of individual income protection reported in Swiss Re’s ‘Term and health watch 2017’.
Understanding how consumers view the protection industry is an important step in increasing take-up. But, with contradictions over how they expect insurers to handle non-disclosure and issues surrounding trust, the industry will need to consider a long-term approach.
BIG NUMBERS
88%
Proportion of people who believe insurance would offer support if they were unable to work for more than six months (The Syndicate)
19%
Percentage of consumers that trust insurers (The Syndicate)
48%
Do not trust an insurer to pay a claim(The Syndicate)
55%
Do not like paying into a product that may not be needed (The Syndicate)
25%
Have experience of being off work due to illness or accident (The Syndicate)
