With the announcement by the Work and Pensions Select Committee of the first oral evidence session for its inquiry into Employment and Support Allowance (ESA) and Work Capability Assessments (WCA), there is a renewed focus on access to State benefits at times of need and the level to which people will actually be supported. Combined with a number of research studies that show a worryingly low level of savings, including one by Scottish Widows which found that 9m people have no savings at all (http://bit.ly/1fLqFJO), it is clear that we need to keep the conversation going about perceptions vs the reality of how people would support themselves if they couldn’t work.
Last year, Drewberry Insurance conducted a survey of 2000 working-age adults across the UK to examine these perceptions and they have kindly agreed to share those findings with the www.iptf.co.uk community.
The survey included people across the UK between age 18-64, with the majority concentrated in the 25-54 age range. 93% were employed and 7% were self-employed. Males accounted for 51% and females 49%. Income distribution was as follows:
54% of the sample receives either no sick pay or up to a maximum of 3 months full pay. An additional 15% of the respondents were unsure of their sick pay entitlement.
61% of the sample would not have sufficient savings to survive for over 3 months without their regular income.
15% of the sample had previously been off work for over 3 months. 34% had been off work for more than 1 month.
21% of the sample recognised this product as the most important protection policy available (behind life insurance with 45% of the sample). An additional 25% of respondents ranked income protection as the second most important protection policy.
So why aren’t they buying it?
One of the reasons could be explained by the following responses to a question about trust in the industry:
Q: Of all the life insurance claims made in 2011 to the top UK insurers, what percentage do you think were paid out?
On average, the sample believed that only 50% of life insurance claims were paid out by the top life insurers.
If we average the payout rate for Legal & General, Aviva, Liverpool Victoria, Scottish Provident and Bright Grey for 2011, the actual payout rate was around 98% of all claims made.
This underlines the massive trust issue that the industry must address if it is to be successful in getting more people covered for income protection.
It is often argued that the take-up rate for income protection is low because consumers believe that the State will take full care of them during times of incapacity. However, these survey participants actually underestimated how much the State would pay, with a figure of around £70 per week, relative to the actual Employment & Support Allowance of £99.15 per week. With a median sample income of £24,000 per annum, it is highly unlikely that £70 per week would be anywhere near sufficient to meet monthly financial obligations.
It is natural that the premium charged for a policy will have an impact on the take-up rate. On average, this sample of workers would be willing to pay around 0.7% of their gross earnings for an income protection plan. This compares to around 1.5% of earnings actually paid by a sample of Drewberry Insurance’s clients. This has to be put in the context of their perceived risk and other risks that people perceive they need to cover:
It has previously been reported that more people have pet insurance than income protection insurance and this survey found the same results, with 19% having pet insurance vs 8% having income protection. It is interesting that 13% hold Critical Illness insurance, perhaps more a reflection of industry sales practices than customer wants and needs.
It must be remembered that it is a person’s income that pays for all these other insurances.
Do people think they are at risk of needing to claim on this type of policy? The survey suggests that this is one of the biggest perception gaps that we are dealing with:
Q: During their working life, what do you think are the chances of an individual being off work for over 6 months due to ill health? 1 person in every…
The sample believed there was a 1 in 30 chance of having to go off work due to illness or injury for over 6 months, whereas the actual risk is three times higher at 1 in 10 (The Guardian / Unum Survey 2011).
This survey supports other studies that have identified the key perception gaps that the industry needs to address as trust, risk awareness, financial impact, cost of cover and the need to build personal financial resilience because support from elsewhere is limited. The IPTF continues to work to address all of these areas and welcomes contributions from any parties interested in addressing the same goals. Thanks to Drewberry Insurance for sharing these findings and the full survey can be found at http://www.drewberryinsurance.co.uk/press-release/health-protection-insurance-survey-2013