Signposts for Income Protection – turning a negative into a positive

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Peter Le Beau collates the views of leading industry experts about the causes of disappointing IP sales…and potential solutions.

Normally it is better to focus on the positive but sales of income protection have been so disappointing for so long that it seemed to be a good idea to ask a number of experts just why the product hadn’t sold, and what are the challenges we face if we hope to reverse this trend.

A few weeks ago I asked a number of senior people in the protection industry why sales of income protection have been so poor. Their answers were of huge interest and I have used them as the centrepiece of this introductory article to “Signposts”.

Many of them are, in their own right, signposts themselves; others are strongly held opinions that reflect the challenge that the product faces if it is to establish itself in the UK as anything more than an afterthought. Let us look at the reasons that UK experts believe individual income protection doesn’t sell:

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David Heeney of Pacific Life Re

IP is perceived as a complex product to explain to customers and involves a lengthy sales process

In comparison, CI is easier for advisers to sell, particularly as a “next step up” from life assurance, where many start

While CI is not a replacement for IP this is often not properly considered or understood by advisers, let alone customers

Relative to CI, IP appears expensive

The perceptions of complexity and relative expense have been exacerbated by an obsession among advisers with selling “full” IP at the maximum replacement ratio level

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Dennis Smith of HSBC

Unless and until as an industry we focus on making the proposition appropriate to today’s customers, then IP will persist only as a product attractive to a very narrow range of customers. It has to be made more simple, excess complexity (designed to justify advice) removed and it has to be easy to buy. 

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Andy Couchman of Protection Review

1. Perceived complexity by advisers. Partly, this is a spiral – they don’t sell it so it appears complex. When they do sell it, they make mistakes or miss things and that confirms their prejudice.

2. We make it over-complex. Should there be an industry body-led agreed occupation listing for example? Insurers could then ‘ABI+’ as they have done with CI, but at least we would have an understandable and marketable standard. Should we encourage advisers to sell simple budget IP first and in bulk, then move on to more complex IP?

3. Perceived expense. ABI says the average annualised premium in Q3 of 2013 was just £268, so it’s perception not reality.

4. Customers are still confused as to what benefits their employer actually offers. They are scared to ask, in case they don’t like the answer or their employer fears this is a pretext to a ‘dodgy’ claim coming up, or else the employer just goes defensive. If you think your employer will ‘look after you’ why would you seek out individual IP? How do we overcome this? Annual benefits statements from employers? Should advisers (or insurers or some third party) produce their own statements, based on customer supplied documentation? This would highlight the gaps and so open a conversation for the adviser to find a solution to.

5. Ditto for State benefits. IPTF is already working on this in effect.

6. There is no real equivalent of IP voluntary schemes (as PMI and cash plans have for example) that employers can set up but not pay for.

7. We don’t sell IP through workplace marketing. So no peer/advocate pressure.

8. There is no ‘cashback’. IP went through a phase back in the 1980s where the big direct sales offices offered IP. I was in corporate life back then and one of the products I had responsibility for was IP. It was unit linked, gave a reasonable return (depending on investment performance) when you retired and we sold 20,000+ of them a year (through brokers as well as the DSF), despite never being cheapest. Now, we have Holloway plans but the regulator discriminates against cashback plans. Cashback (it was never called that, but that was what customers pictured) was the icing on the cake – you got something back at the end – and people liked that. Could we get the regulator to change its mind? What if IP came under (amended) pensions rather than life rules?

9. There is no saturation marketing to IFAs. Again back in the 80s my predecessors (despite being much cleverer than me) mucked up big time in that the product was launched and sold well for the first year. Then, advisers realised they had a GP report on every case, many more ratings and simply a lot of hassle. They spent more time selling IP than other products, but earned less. Sales fell away dramatically and that was only reversed when a saturation training and marketing programme was undertaken. Advisers were taught the technical stuff and how to overcome objections and sell ratings. They were told to expect hassle and time delays but also why they should still sell IP. Attitudes were changed and the saturation marketing continued to ensure advisers continued selling IP and so continued being familiar with it and motivated to market it. We got back our clear market leadership – but really because none of our competitors did the same.

10. IP is not sexy. We need to change that. 

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Andy Chapman of Exeter Family Friendly

1 lack of awareness both of need and availability of product. This applies to the consumer and the intermediary

2 perceived complication of product and application process

3 lack of trust in insurers to pay claims

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Louise Colley of Aviva felt that the problem was primarily:

Consumers and their mindset – optimism bias comes into play  - ie mentally they convince themselves it won’t happen to them and if it did they would fall back on a plan B (family or friends).  For sure those who have been impacted by an illness will agree that this doesn’t always play out as planned. We know from our Family Finances Report series that the average family has around £3,000 in savings. While this isn’t an insignificant amount, with typical family expenditure standing at £1,748 a month, it’s easy to see how this could dwindle away without another source of income.

We cannot underestimate the comfort income protection provides – both financially and emotionally – if someone is unable to work through accident or illness.

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Tom Baigrie of Lifesearch

The Financial Protection industry is reactive because its biggest businesses are conglomerate insurers whose leaders generally focus elsewhere.  And no matter how important or needed an insurance product is by consumers it cannot become a usual purchase if there exists no means of communicating with the public about their need and its solution. This is made worse when a product has a necessary complication (like a deferment period say) which needs proper explaining. In most markets big retailers do the marketing not manufacturers, but in our market the manufacturing insurers have always dominated revenue share and have kept distribution disparate. There is thus no money available for explaining and marketing and any product that needs that must necessarily struggle.  

An unnamed specialist in one of the leading companies in this market had this to say

* Risk appetite due to a combination of new regulator (do they understand protection need?), PPI fall-out and concern about target market identification given new working age income replacement benefits means-testing regime being ushered in with Universal Credit. This has seen a much tighter focus on addressing life cover need under hierarchy of needs; as a result affordability becomes an issue when you finally get to talking about IP need.

* Customer disposable income squeeze compounded by low level of customer financial capability, over estimation of employer and especially state benefit support – The DWP messaging on the ‘benefit cap’ appears to be setting an expectation of support to the tune of £500pw.

* Usual issues of consumer trust, negative press reporting/perception and PPI background noise.

* Structural change post RDR.

Another unnamed expert in the marketing of protection commented

1 – adviser apathy – there is a big need to raise adviser awareness and education of the product but this does fall back to the fact of ‘do they talk about protection anyway?’ You can do all the training and education in the world but they need to believe. This comes back to the duty of care point – knowing that their clients fully understand the financial risks they are undertaking in the event of illness or death. Full holistic protection planning is vital when determining clients needs. Can we honestly say that all advisers are currently doing this right now?  

2 – complexity of the product – one could argue that the product design isn’t simplistic, multi waiting periods, occupation classes etc etc. 

3 – role of employer – I think employers have a huge role to play for employee well-being to ensure their employees are fully aware of the sickness benefits they will receive and also to highlight the fact that the state won’t always be there as a back stop – we all know consumers believe the state will provide. Greater awareness in this space will then support consumer understanding of the shortfalls in place. 

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Russell Higginbotham of Swiss Re who has spent several years in Australia where IP sales are much higher, observed that the main reasons for not selling were:

“Not invented here” – the State or my employer will look after me (and to a short-term extent, this has some truth in it, but generally not in the longer-term, to any great level)

“No need” – people buy life cover and CI way before considering IP, so it is lower down the pecking order and people tend to have spent their “insurance budget” before getting to IP

“No money” – the IR shows that many people live for today and are making ends meet in the current environment. IP has commonly been pitched as a full-cover policy, whereas building up from mortgage, bills, necessary living expenses would be a better way to sell an affordable policy

“No advice” – it strikes me that IFAs don’t seek to sell it, whether influenced by the factors above and/or by complex underwriting, higher likelihood of ratings/exclusions or poor claims experiences.

Turning to a more prospective view, our failure to get IP (and life cover) considered as a part of the auto-enrolment regime was probably one of the most significant failings by the (re)insurance industry in recent years. My article on the Australian market highlights this. My hope is that we will be able to recover this situation and get to a point where all working adults have the opportunity to enjoy a base level of protection cover. This will only be possible through strong, industry-wide co-ordinated activity and messaging. It represents the best opportunity in living memory of closing the protection gap.

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Alan Tyler OBE of the IP Task Force

Consumers poorly informed about the risk of ill health, their state entitlement and the existence of IP, together with an industry largely reluctant to devote resources to promoting and managing this line of business when other products can be offered for less effort.

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Andy Walton of Intrinsic felt the main reason was:

Not demonstrating to the client the risks is my guess

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Kevin Carr of Protection Review thought the following:

It isn’t promoted or advertised

It is confused with PPI

Not many people sell it other than specialist advisers

The product is simple on the outside but the detail is overly complex

 

Sometimes management consultants bamboozle their audiences by asking them to count the number of consonants in a word and show to most peoples’ surprise a range of answers! If you tried to distil from that range  of opinion the essential challenges, there are at least a dozen separate issues which emerge and while there is overlap, a lot of very bright people have uncovered an awful lot of different issues.

In this publication we will discuss them all and try to deal with as many as possible. “Signposts” is not just about identifying problems it is about finding solutions. Many problems will be alleviated by the Consumer Charter, other solutions emerge in the articles that follow. Whatever the case, we believe there is no problem that cannot be solved with the right amount of consumer focus and the requisite industry will.

And therein lies the biggest challenge. Has the industry got the will to change the market dynamics of income protection? Do they want to sell a product that has created so many problems and sold so sporadically for so long? Isn’t it just too much trouble to try to reverse this situation and develop a much larger client base of IP policyholders?

The answer to  these questions for an industry that purports to be the most sophisticated and competitive in the world has to be that the industry wants to grow and help a new generation of customers to buy the cover that they so desperately need. Now is the time to start finding solutions to the problems and overcoming obstacles. If around 23 million people in the UK need some sort of income replacement cover (Simple Products Consultation Paper 2012) we must reverse the negative momentum that has beset the product for so long.

Peter Le Beau

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Peter Le Beau is one of the best known consultants in life and health insurance protection; he began his career at British and European and in 1981 moved to Swiss Re where he was initially Head of Underwriting and later became Head of UK Marketing. He left in 2001 to set up an independent consultancy, Le Beau Visage, which focuses on differentiation in the Protection sector.

Since starting Le Beau Visage, Peter and Andy Couchman (Bank House Communications)  have set up The Protection Review www.protectionreview.co.uk; he has set up a strategic discussion group called The-Net-Work www.the-net-work.org and in 2005 Peter and Clive Waller (CWC Research) set up the Income Protection Task Force to promote a greater awareness of the value of the product.

Peter is a non-executive director of Fineos, Red Arc, Health Claims Bureau and Exeter Family Friendly.

 

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