Increasing take-up of protection is a key objective for the insurance industry, with insurers and advisers constantly exploring ways to reach out to consumers. But a recent discussion paper from the Financial Services Consumer Panel aims to move the debate on.
The paper, ‘Understanding the protection gap’, is based on consumer research and discussions with industry representatives. It found that protection products were too complex, leaving many consumers vulnerable to the effects of catastrophic life events such as early death or long-term illness.
Among the areas the report highlights as potential barriers to take-up are the complexity of product choices, caveats in the small print, and clunky application and underwriting processes. Although it acknowledged some product innovation had taken place, it also found products had changed very little in the past 30 years.
Unfortunately, with the modern workforce more likely to be self-employed or have a volatile income, this means there is a widening chasm between product design and consumer needs.
Teresa Fritz, a member of the FSCP with responsibility for leading the project, explains: “Consumers do worry about not being protected, but while they understand critical illness insurance, they find income protection confusing and poor value for money. There is no one silver bullet that can solve this, but we need to kick-start the debate to find some solutions.”
Meeting consumer needs
One of the report’s key recommendations is the development of simpler products that meet the needs of the modern workforce. It suggests these products would be simple industry-wide umbrella protection plans, which could be accessed through the workplace, affinity groups or privately.
Ms Fritz says these products would need to be flexible: “With so many people self-employed, we need something that can adapt to their changing lifestyle. There are a few niche products out there that are more suitable for these individuals, especially from the friendly societies, but we need to develop something that is more mainstream.”
To enable this, the report proposes that the FCA put together a working group consisting of consumers as well as industry and government representatives, to re-examine the proposals put forward in the Sergeant Review of simple financial products.
This is welcomed by the protection market. Vincent O’Connor, senior business development manager for protection at Royal London, says: “The report gives us some food for thought and it could be the catalyst for product innovation.”
Back to basics
A review of products and consumer needs is also welcomed by Paul Avis, marketing director at Canada Life Group Insurance. He says the protection industry should undertake a root-and-branch review of the market, starting with something as basic as product names.
This is supported by research undertaken by Canada Life. It found that when employees were presented with alternative names for group risk products, only 11 per cent wanted to keep the names group IP and group CI, and just four per cent were happy with group life assurance.
Mr Avis says: “Rather than using names such as term assurance and life assurance, it should be called life insurance and employee life insurance. This is an absolute requisite to engage with consumers.”