Protection has come into the Financial Conduct Authority’s line of sight recently because of potential consumer detriment due to the Covid-19 crisis, and even closer scrutiny is on the way.
The FCA has already warned of potential poor outcomes for consumers because of practices in the industry – for example the relative complexity of protection products compared to other insurance products, which makes it harder for consumers to understand whether they are good value or not.
Such warnings were clear in the regulator’s 86-page sector review, published in February.
Most recently, the FCA issued a warning that insurers may not be swift to pay out on coronavirus-related business claims.
While trade bodies moved quickly to allay such fears stating, as the Association of British Insurers has done, that “members are committed to swift payment of valid claims and interim payments to their customers”, it has left advisers feeling that, if the regulator is concerned, they and their clients should also be worried.
For example, broker Mactavish has called for an independent review process to monitor how insurers are dealing with coronavirus-related claims.
So what have insurers been doing to allay concerns?
According to ActiveQuote, the comparison site for protection insurance, income protection providers have been swift to update their terms for vulnerable policyholders. They have also sought to reduce costs on their own businesses by furloughing employees at “unprecedented” levels.
Meanwhile, insurers are accepting new applicants, including for prospective clients who have been furloughed by their own employers, and for accident and sickness policies, as well as introducing payment holidays and premium breaks for existing policyholders.
Some have also reworked their processes to deal with the physical restrictions of the lockdown. For example, L&G has provided an alternative digital solution so advisers can place their clients' policies in a trust online, without the needing a witness signature.
Rod Jones, head of partnerships at ActiveQuote, said: “We have found the current situation has seen more people than ever turning their attention to the benefits of having income protection in place, regardless of their employment status.”
As a result, income protection providers have not closed their doors, despite the potential for huge claims coming in over the next 24 months.
Getting cover – or increasing it – has historically been convoluted, involving GP reports, paper trails and often lengthy delays as a result.
But with most insurance providers having increased their technological prowess over the past decade, processing times have reduced to a matter of hours in some cases, rather than days.
And with people in lockdown, it is unfair to expect GPs to be signing off medical reports or carrying out a medical screen.
This is why insurers such as LV have increased non-medical limits by 10 per cent for income protection, personal sick pay and critical illness cover.
That means the amount of cover policyholders can apply for before needing a further GP report, tele-interview or medical screening will rise by 10 per cent.