Advisers are misjudging the triggers likely to prompt a consumer to buy protection and are less confident in the protection market than they were a year ago, research has shown.
According to Royal London’s State of the Protection Nation report, buying a house and starting a family are recognised as the main life events that could urge a consumer to take out protection.
But beyond that, advisers and consumers have different perceptions on what the next biggest triggers for a protection purchase are.
Royal London polled 2,005 consumers and 202 advisers in March and found that advisers thought a friend or relative being ill or dying was the next life scenario most likely to prompt a purchase, but consumers said a salary increase was the biggest trigger moment after a house purchase or starting a family.
In fact, the findings showed more than one in 10 (12 per cent) had taken out income protection after a pay rise.
The research also showed that starting a business, a new job or becoming self-employed scored highly as reasons consumers had taken out income protection.
The report stated: "It might be sensible, then, to look out for customers whose salaries change, or who start new jobs or entrepreneurial ventures.
"They're more likely to connect income protection with the income their minds are focused on at that point in time. And these events could be more common for the younger generations than buying a house or having a child."
The report also found that both consumer and adviser confidence in the protection market had decreased since last year.
This year’s consumer confidence rating came in at 52.6 — down from 54.2 last year.
Adviser confidence fell less dramatically from 60.5 to 60.3, but was on a downwards trajectory from the 60.8 scored in 2017.
The findings showed the decline in consumer confidence was most likely due consumers being increasingly sceptical.
A third of consumers felt sceptical about buying any kind of protection product while more than a quarter (26 per cent) were anxious their policy would not pay out.
Only 15 per cent of consumers polled thought everyone in employment should consider income protection.
On top of this, when asked to rate how much they agreed with whether life insurance was essential for anyone with a mortgage or dependants, the average answer was 6.6 out of 10 (where 10 was to agree fully).
The research also showed that advisers have become steadily less optimistic about protection over the years, citing cost and difficulty in selling protection as key drivers.
Optimism about opportunities in the market has fallen — 26 per cent to 23 per cent in the past two years — while calls for greater innovation in the space have increased from 20 per cent to 27 per cent in the same time period.
Advisers said the rising cost of living was the biggest threat to protection, closely followed by consumer inertia and lack of income growth.
According to the report, about a third of advisers thought the ageing population was a good opportunity for the protection market. However, almost as many advisers (27 per cent) thought the ageing population posed a threat to the sector.
Royal London’s research showed that only 2 per cent over-55s would consider income protection or critical illness in the next five years.
But among the 18-34 year-olds 19 per cent were planning to take out income protection and 21 per cent were considering critical illness cover.
Those aged between 35-54 were also more likely to buy protection than the over 55s.
The report concluded that looking beyond traditional triggers and pushing innovation was key to a sustainable protection market.
Jennifer Gilchrist, protection specialist at Royal London, said the research showed there was an opportunity for advisers to have protection conversations with younger clients but noted the industry needed to tackle consumer scepticism and the coast barrier.
Paul Yates at software provider iPipeline said: "It is clear advisers and providers are not having enough of the right protection conversations with consumers.
"We have not engaged them well enough to understand how vitally important protection is to counter their low (and decreasing) financial resilience. We have to get smarter and more personalised with the messaging."
Chairman of the protection distributors group, Alan Knowles, said buying protection didn’t give the consumer the "wow I’ve bought something" feeling and it was not realistic to think people would opt for insurance without being advised to do so or without a trigger.
He added: "Advisers and providers both have a role to play in getting the message to the younger generations but ultimately this is something much bigger than just the insurance industry trying to make people see the benefits of protection.
"If we really want to make a difference, we will need to see the UK education system start to prepare children for their future financial security."
But the protection industry doesn’t need disruptive tech, big data and AI, said Emma Walker, chief market officer at Lifesearch. She said innovation needed to come in the form of understanding and messaging to make products relevant.
She added: "We need to see beyond scaremongering - and we need to see that our biggest rivals aren’t other providers or new entrants, but consumer apathy and uncertainty."
imogen.tew@ft.com
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