Roy McLoughlin takes a look at the new opportunities opening up and urges advisers, providers and reinsurers to skill up in IP to make the most of them.
Income Protection should undoubtedly be integral in any providers’ protection solution. My reasoning here is as follows:
Firstly the message from the state concerning welfare reform is loud and clear. Individuals will need to examine their own situations and in the unfortunate event of long term illness will need to arrange their own provision. This self-sufficiency model dovetails extremely well with the message that auto-enrolment delivers. Don’t rely on the state!
The average client will naturally believe that their employer will look after them but as we all know the most used phrase in an employee handbook is now “at the employers’ discretion”, which is basically shorthand for “don’t rely on us to look after you for too long a period!” If we then factor in that only 8% of employers have a group IP scheme then the vast black hole that this creates is very evident.
Interestingly I believe that auto-enrolment is a fantastic opportunity for advisers. For the first time, virtually every employee in the UK will have a financial services product, whether they like it or not. This in turn implies that these people will be seeking advice, on most occasions for the first time ever. Protecting one’s income should therefore be at the forefront of any advisory solution, but we must acknowledge that the adviser still needs to make clients aware of the problem – swiftly followed by the solution.
There is a body of thought that says that poor sales of income protection are determined by the poor faith in which some advisers hold this product, so a sea change needs to occur. This is also backed up by national training, which the PFS has been running, where some of the (understandable) ignorance on this subject has been very obvious. The great paradox of IP is that such a simple concept is seen as such a complicated sale. Whether we like it or not protection needs a (qualified) disturbance process and our self-proclaimed invincibility needs to be challenged. Fact: more people will be off long term ill before aged 65 than will have a critical illness. Fact: more people will be off long term ill before aged 65 than will die. It really is as simple as that.
The positive news is that advisers with this new-found client base will have the opportunity to talk to people in a way that they have never had before and that has to be a good thing.
On a corporate level the pleasant unintended consequence of AE is that employers, after having sorted out their pension, have been asking what other employee benefits they shoukd be considering – group IP surely ought to be at the head of this queue. The world is increasingly embracing self-employment and the increasing army of self-employed people arguably need income protection more than anyone else.
Recent estimates are that we are moving towards a society where 1 in 4 people may effectively work for themselves – this is a massive opportunity. So why have IP sales languished at around 100,000 for the last few years? I believe that I have alluded to all the answers above but maybe we need to be more direct. Firstly and most importantly we need to educate the adviser population. Direct sales forces have largely disappeared so the training of advisers has basically stalled. The industry needs to work out how it can develop this education process. Advisers need help to understand how IP works and ultimately to be convinced that it is an incredibly simplistic concept. If you are off ill you can only expect to be looked after for a short period of time. If you can claim state benefits (and that is an incredibly big if) then the level of money received will leave people living dangerously near the poverty line. Surely that is a simple equation and a very powerful and important message?!
“Selling” has been a much maligned concept but we need to get over this and realise that very few people will wake up in the morning and worry about taking out income protection. One of the constant sources of feedback from the PFS sessions is that advisers need help in overcoming objections. The industry therefore has a massive opportunity to help in this education process so my plea is that insurers and reinsurers, in particular, realise this and effectively replace the great training that direct sales forces used to enjoy.
The return on investment is totally tangible as, if you help train people to advise (sell) IP then 100,000 will become an embarrassingly low historic figure. The costs involved here are relatively low as, apart from premises and some training capability, the rest will work through itself. IFAs are an incredibly resourceful bunch who have arguably had more knocks than any other part of the UK financial services industry. Their ability to adapt is therefore well-established and if an opportunity is recognised they will seize it, especially if the required help and assistance is at hand. Clients stay very loyal to their advisers because we look after them in the correct way and, in many cases not only through their lives, but also their childrens’. There is an obvious place for direct-to-consumer solutions but I think everyone would acknowledge that comprehensive face to face advice is Utopia, and that is why from an adviser’s perspective the signpost for income protection is planted firmly in our camp.
Roy is an experienced financial planner with a wealth of knowledge from advising a broad portfolio of private and corporate clients within the PR, advertising, media and entertainment sectors.
As a partner at Master Adviser, he has won numerous awards for cutting through the jargon and helping his clients to create an achievable plan so they can relax and get on with their lives safe in the knowledge that they are financially protected. He also provides advice and feedback to insurers and re-insurers on product development and industry issues and is a founding and executive member of the Income Protection Task Force.