Signs tide is turning as protection gap narrows

Signs tide is turning as protection gap narrows

Long seen as a reluctant purchase, protection has been marred by years of consumer doubt as to whether insurers will pay out when needed, despite the now commonplace publication of favourable claim statistics by providers. 

At the Association of British Insurers’ annual conference in February, the trade body’s chairwoman, Amanda Blanc, said a lack of trust in the insurance industry remained one of its highest priorities.

She said: “Clearly we are concerned about the lack of trust. The financial crisis had quite an impact on financial services, but insurance companies didn’t actually fall during the crisis, they did quite well. Yet we are still perceived as being less trustful than the banks. So we clearly have a lot of work to do in terms of trust.”

But it would seem the tide is finally beginning to turn and the so-called ‘protection gap’ is slowly but surely closing, with policy sales on the up. In the first nine months of 2018, fintech company Iress reported the number of protection applications submitted via its transaction portal had grown by 22 per cent, reaching more than 500,000 in the period. 

Income protection performed particularly well, with sales for the nine months increasing by 36 per cent compared with the previous year’s figures. But term life and multi-benefit products also saw sizeable boosts of 33.6 per cent and 29.9 per cent respectively, as Chart 1 shows. 

Iress suggests sale volumes in the second and third quarters of a year are typically lower than the first, but the trend was bucked last year with August proving a particularly strong month for new protection business.

Cultural shift

It is widely agreed the growth of the protection market cannot be attributed to a single factor. The market is complex, both in terms of processes and the fundamentally emotional nature of the protection conversation.

Talk of serious illness and death can still be an intensely uncomfortable conversation for both consumers and advisers. So it has taken a team effort between providers, intermediaries and individuals to shape protection into something of a financial planning normality.

Jiten Varsani, mortgage and protection adviser at London Money, says education has played a major role, alongside technological advances, in helping increase protection sales in recent years.

He says: “Education is key to increasing engagement between advisers and clients. To date, no prospective client has ever contacted me for protection advice because they heard we have great systems in place to make the buying journey easier. They contact me because they have heard and understood the need for bespoke professional advice.”

Mr Varsani agrees the industry is again recognising the importance of protection advice, with firms reviewing their propositions and recruiting protection specialists.

“Selling a bit of life and critical illness to cover the mortgage is not protection planning – focusing on the wider collective needs of a client’s requirements is key to help bridge a protection gap that runs into the trillions of pounds,” he says.