Income Protection  

Why income protection is evolving

  • List the common causes of income protection claims.
  • Describe how income protection is evolving beyond the core insurance product.
  • Identify the role of critical illness cover and how to look beyond the claims statistics.

The target market tends to be 30 to 40-year-old higher earners, in low-risk, non-manual occupations.  

Blue collar IP tends to be offered by specialist friendly societies – for example, The Exeter, British Friendly and Holloway, plus LV – pricing is not based on occupation, premiums are age-costed (where premiums can start lower, but go up with age/risk) and shorter waiting periods (in some cases, day zero).

The target market is similar in age range, if a little younger than for white collar, and tends to be people in more manual occupations with variable earnings, in particular those who are self-employed.

Common causes of IP claims

There is a marked difference between the definitions of conditions that can trigger a claim between policies written more recently and older policies that are now likely to be seeing claims.

A good example of this is the definition of a disability that leaves a claimant unable to work.

Where newer policies simply say the policyholder is unable to carry out their ‘own occupation’, older policies can include more challenging definitions such as ‘any suited occupation’, or ‘work tasks’, or ‘activities of daily living’.

Nonetheless, the main causes of all IP claims remain consistent.

According to the ABI and including data from the specialist friendlies, the top cause is musculoskeletal (30 per cent), followed by mental health (9 per cent) and cancer (7 per cent) – with claims for mental health showing the greatest year-on-year increase in terms of number and value.

The top three causes of claim – all IP claims paid (ABI figures) are:

  1. Musculoskeletal at 30 per cent.
  2. Mental health at 9 per cent.
  3. Cancer at 7 per cent.

The top three causes of 'white collar' IP claims paid (figures based on LV 2018 claims) are:

  1. Musculoskeletal at 33 per cent.
  2. Cancer at 24 per cent.
  3. Mental health at 20 per cent.

The average age at claim was 46 years and the youngest to claim was age 22.

The top three causes of 'blue collar' IP claims paid (figures based on LV 2018 claims) are:

  1. Musculoskeletal at 38 per cent.
  2. Accident at 23 per cent.
  3. Viral/infection at 12 per cent.

The average age at claim was 37 years and the youngest to claim was age 19.

Musculoskeletal conditions– and in particular back-related problems – are consistently the highest causes of IP claim, and this is not just limited to those in more manual occupations.

The risks associated with people spending more time in sedentary positions (often hunched in front of a screen) mean that back-related injuries are just as likely to apply for someone in an office job as they are for someone doing manual work.

Mental health is highly topical and the industry is seeing a rise in the number and value of mental health-related claims.

At LV mental health claims are increasing in older, male, higher earning professionals.

In 2018, mental health was the highest value cause of LV IP claims, amounting to nearly £5m for new and existing claimants.

For blue collar IP claims, musculoskeletal and accidents are the most common causes of claim, reflecting the more manual nature of the occupations of the clients covered.