Advisers need to stop focusing on ‘mortgage protection’ and better educate their clients on the need for insurance, according to protection adviser Jiten Varsani.
Speaking at a protection seminar last week (May 2), Mr Varsani, adviser at London Money, told a room of his peers that in order to close the ‘protection gap’ customers need to fully understand the need for protection and see it as more than a mortgage add on.
The protection gap — the difference between the level of cover currently held by UK consumers and the amount they would need to be fully covered — currently sits at more than £2trn according to Swiss Re figures.
And advisers have their part to play to reduce that gap, Mr Varsani said.
He said: "If we do not do enough to educate the clients about why they need the cover, then that’s a problem.
"There’s been a focus on ‘protecting your mortgage’ within the industry because it’s often seen as an ‘add on’ that is needed when you make a big commitment like buying a house.
"But there’s more to protection — there needs to be a fundamental shift where advisers focus more on protecting a consumer’s whole life, not just the house."
Mr Varsani stated he thought the protection conversation needed to start with "what do you want from your policy" rather than "how much does your mortgage cost".
He stressed that income protection often fitted with a client’s needs more closely than a life policy lump sum pay out and gave more customers the peace of mind they were looking for with a policy.
Misconceptions in the industry also played a part in the way customers misunderstood insurance, he said.
He often found customers thought the industry only paid out between 75 per cent and 80 per cent of claims, when recent figures showed insurers actually pay out closer to 97.3 per cent of claims.
To show that insurance providers "really care", Mr Varsani said advisers needed to push some of the value add services most policies now provide.
This included ‘best doctors’ — which can give the client access to the top doctors for whatever condition the client was suffering from — and early intervention services that can help people return to work more quickly.
He said: "Until advisers start showing consumers that most of the protection industry does care and explaining that it’s more than covering your mortgage, we’ll never change conceptions and the protection gap won’t close."
But Sebastian Riemann, of Libra Financial Planning, said there was a balance to be struck to obtain good value for money from the clients' perspective.
He said: "I think we can all agree that some protection is better than none and simply focusing on protecting one element of a client's needs is insufficient in the whole.
"However, there is always a balance to strike to obtain good value for money from the clients’ perspective. And let's not forget that each and every client is individual, so applying one size fits all will simply not be appropriate."
He added: "It is therefore important to remember why some brokers focus on certain elements of the protection needs of a client. While many will concentrate on say inheritance tax planning or mortgage protection, all they are effectively doing is prioritising on behalf of the client.
"In an ideal world, all clients would prefer to have all the risks mitigated, but this isn’t typically affordable. Couple this with many having to stretch their budget to be able to purchase their homes, a difficult conundrum is presented and needs have to be prioritised.
"Something is always better than nothing and [focusing on mortgage protection] is a fantastic way to start a conversation and help to build a client's knowledge over time. Education is key and the more people that have a better understanding of the options available, the smaller the protection gap is likely to be."
imogen.tew@ft.com
