Providers have shared their support for the protection gap discussion paper released by the regulator's Financial Services Consumer Panel this week, which called for better cooperation between industry players to help consumers with inadequate protection insurance.
Published on Thursday (6 September), the panel called for cooperation between regulators, product providers, reinsurers, lenders and intermediaries to provide better outcomes for their customers by developing less complex products designed for a "modern labour market".
It found there was no "silver bullet" to address the protection gap but warned the benefits of products like income protection were hidden behind "complex choices and caveats in the small print" which put people off.
While the panel admitted the market had seen some product innovation, it found progress had not been translated into widespread take up and little change had taken place in the past three decades - leaving consumers vulnerable to life events.
Paul Avis, marketing director at Canada Life, said he welcomed the panel’s report, but said the research had offered no surprises with regards to the industry’s protection gap.
He said: "Clearly the need for a simpler product is something we all align to and the paper offers some great research with the need to simplify income protection at the front and centre of their request."
Mr Avis said a simplification of income protection, as identified by the FSCP, could be achieved by addressing two issues - state means testing of an individual’s benefits entitlement, and clarifying an employee’s entitlement from the workplace.
He said: "Consumers are under the misinformed belief that the state will provide in the event of loss of income, but it is complicated to clarify that position in an environment where benefit entitlements cause confusion.
"To achieve the goal that no person is ever left worse off financially as a result of having protection, income protection must be completely de-linked from any means testing for universal credit - then an adviser can be clear with a client in guaranteeing a protection payout will have no impact on their benefit entitlements."
Johnny Timpson, protection specialist at Scottish Widows, said the paper’s findings aligned with what was already being asked of policy makers, namely that as part of the mortgage, remortgage and further advance process, it should be mandatory to have protection discussions.
Mr Timpson agreed that employees needed to be made more aware of their workplace income replacement benefits, welfare entitlement and provision, and said educational support needed to be made available to the self- employed, those working in the gig economy and those on fluctuating incomes.
He said: "We look forward to working with the FSCP to improve consumer trust in, access to and outcomes from appropriate financial protection advice, products plus support and rehabilitation services."
In its recommendations, the panel also called for product providers to explore whether critical illness insurance could be extended to cover mental health and still remain affordable, recognising that AIG Life implemented such cover to its policies earlier this year.
The panel found that whilst AIG Life's conditions for a mental health claim were limited, it was "encouraging" to see at least one provider widen its conditions covered by critical illness policies.
Sue Helmont, head of marketing at AIG Life, said it was pleasing to see the paper mention AIG’s inclusion of severe mental health problems to its critical illness policy.
Ms Helmont said: "It is going to take a combination of simplicity, expertise and affordability to make protection insurance compelling to everyone who really needs it.
"Of course there is no silver bullet but the Financial Services Consumer Panel’s findings on consumer understanding of critical illness were encouraging - it is also clear income protection insurance is ripe for disruption."
rachel.addison@ft.com
