Income protection, lifestyle protection…

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Johnny Timpson of Scottish Widows argues that our industry should reach out to a diverse range of expert partners to make protection insurance the norm rather than the exception. Now is the time for collaborative working…And we have potential partners waiting for us to step up!

Given the fragility of household finances, the pressure on inflation-eroded incomes, the prospect of long term austerity and the level of media coverage being given to the Government’s welfare reform agenda including the raising of state retirement age (taken altogether, the most significant reform of income replacement benefits in the welfare state’s 70 year history), it would be fair to assume that consumers would be more aware of the limitations of state support and the financial tightrope that many walk.

However, this doesn’t appear to be the case, as the 2013 Scottish Widows Protection Report informs us that 28% of people say they would rely on state benefits if they or their partner were unable to work due to long term illness and/or disability, because they perceive welfare benefits to be generous, simple and speedy to obtain. The figure of 28% is an increase from the 27% that Scottish Widows reported the previous year.

This consumer over-estimation of the support available from the state should a long term sickness or disability occur, is compounded in all too many cases, by an unrealistic assumption of the occupational support available from employers. Recent consumer research from Swiss Re, Hannover Re and the Protection Review supports this view.

Now is the time to engage, inform and educate working age UK consumers on the benefits of an income protection based financial health “Plan B“. However, we need to earn the right to do so and seek the support of Employers, Charities, Trade Unions, FCA and Government, embracing them all as strategic partners and work in collaboration with them.

It is very encouraging to note that the main health charities recognise and appreciate the physical/financial health linkage, and are actively calling for action to be taken to improve financial capability and in particular, access to income protection advice and product solution where appropriate to household circumstances. I recommend that readers review the recently released Demos “Getting to grips with the financial costs of cancer….Paying the price“ report, it can be found at http://www.demos.co.uk/publications/paying-the-price (and via a link on the Signposts infographic on the Home page).

I have been fortunate in being able to spend some time recently with Macmillan Cancer Support front line staff and shadow them as they supported their customers. Having listened to the voices of people living with and beyond cancer, I was struck by the number of working age people who significantly underestimated the financial cost of their cancer, their critical reliance on income, and the pace of their resultant decline in financial health when that income was reduced and replaced by a much lower level of means-tested income replacement benefit.

The significance of the health charity funded Demos report is that it indicates that the need for households for whom the level of means tested income replacement support from the welfare state would result in significant issues, has been clearly recognised beyond our industry. It is now time to form a broad coalition of the willing to tackle this key income protection need, working collaboratively with health charities and Government in particular, building on our shared objectives of improving customer financial awareness, education, capability and resilience before, during and after the physical and financial heath event that threatens their well being.

In order to gain the trust and enrol the support of our strategic partners and consumers there are a number of key cultural and proposition changes that we, as an industry, need to first embrace:

We need to develop, standardise and make widely available a range of support, tools, worksite and social media communications and interventions to help the consumer better manage their income and expenditure, for example,

A set of “ no-fear “ questions for employees to ask their employers about the workplace HR policy on long term sickness and disability,

Budgeting education and tools.

Information on and sign posting of welfare benefits together with some detail on just how living on means tested welfare income replacement and housing support benefits can be challenging.

Case studies in multi media format that bring the benefits of income protection to life and showcase the value of the product to “people like you” with a focus on not only protecting the consumers income but also their spending power.

Making it easier for the customer to understand how products work, engage with and compare them, access the information, guidance and advice that they require is vital. This however makes it key that we use common labelling, language and question formatting across the industry to reduce and minimise consumer confusion.

Building on the above, there is value in us highlighting to consumers, charities and Government that income protection is much more than a “Plan B” that simply replaces income when the policy holder cannot work. So, let’s increase the profile of the rehabilitation support available to aid our policy holder return gradually to the world of work post claim. Importantly, the Demos report specifically highlights the beneficial health effects of a phased to return to the world of work.

Having spent time with the financial guidance and support staff of various charities and listened into the discussions that they have with consumers in difficulty and their carers, it is striking just how often people forget about the products that they already have and are paying good money for. In my view, as an industry, we must commit to providing our customers with an annual benefit statement that reminds them about the policy benefits they currently have and clearly states how to claim, make a change or simply obtain further information/advice should their needs change.

Looking at the customer base currently holding income protection cover both in individual and group forms, it is apparent that we have a diversity issue as the majority of the customers are male, middle aged and higher earning. This suggests that we have much to do in recasting our target market and reaching out to a younger and especially female audience. Given the number of women in the UK workforce, the importance of their earnings to both the household and national economy and increasing incidence of females being the primary family bread winner, this is a priority issue.

The publication of claim statistics is important in demonstrating that the industry is transparent and does pay claims, but let’s build on this by clearly indicating what the claims journey looks like, how long it takes and publish comments and feedback from claimants on their experience.

There is merit in having a designated “income protection“ day/week (they recently had a long term care month in the US) to focus on the importance of income, budgeting and an appropriate income replacement “Plan B“. But lets be clear, for some consumers, given their household and financial circumstances, this may well be the welfare state and we should sign post this.

In order to better set and meet the expectations of consumers from the get-go, we should re-engineer the initial illustration process; introducing a number of basic health and lifestyle questions will enable the quoted terms to reflect the risk that the customer presents and increase the number of customers who go to business on the terms quoted at outset.

It is important that we present the consumer with a clear and simple description of the level of benefit being provided (e.g. 50% of your gross monthly salary) together with the maximum length of term that benefit will be paid for, and do so not just at point of entry into the proposition, but also ongoing, as part of the annual benefit statement process.

I propose that we consider renaming “deferred periods” and describe them as “policy excess periods” given that consumers are very familiar with the concept of policy excesses within motor, buildings and contents covers.

Premiums should be guaranteed, and wherever possible the claim definition used should be “own occupation” with ADLs (Activities of Daily Living) restricted wherever possible to house-persons and carers.

We should look at simplifying financial underwriting at claim stage, and given the average cost of running a home in the UK, not applying financial underwriting to benefit levels of under £1,000 or so per month. In the case of policyholders who are self-employed or have a dividend component to their earnings, let’s embrace making a claims payment on an account basis until such time as the level of income can be fully established.

Should a policyholder miss a premium, providers should have a retention team in place to call them, flag the missed premium and remind them of the value of the product. Let’s tell our customer upfront about this process and position as part of our commitment to customer care and service.

The kite mark proposed in the Sergeant Report gave rise to comment and discussion at time of its publication; interestingly “trust mark” need has again been picked up and highlighted by Demos following their consumer research. Given the need for our industry to regain the confidence and trust of consumers, charities and influencers, the time for debate is over, let’s embrace this proposal together with a quality income protection mark and process that our customers can recognise and have confidence in.

In closing, given the fragility of household finances together with the significant and post-code creeping reform of working age welfare benefit provision both in place and in plan, protecting family and lifestyle is more of an issue than ever. As an industry, we have every good reason to talk to UK consumers about protecting their incomes, spending and lifestyes but we need to earn the right to do so by embracing culture change and walking the customer centric talk. So, let’s step up and step out with our strategic partners and ensure that our financial “Plan B” messaging to consumers is simple, educational, relevant, timely, informative, value adding and delivered in the format and medium of their choice. And makes taking protection products easier and part of the norm of taking out everyday insurance.

Johnny Timpson

johnny timpson

Johnny is Bancassurance Protection Specialist – Lloyds Banking Group & Scottish Wdows Plc

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