Putting protection back on the agenda
For adviser use only
Protection seems to be back on the consumer agenda. For too long it’s been pushed off the shopping list for many homeowners, largely due to there generally being no requirement to take out life or critical illness insurance with a mortgage, as well as the negative connotations in the wake of the PPI scandal. This has, in part, created a generation with little concept of the need to protect their financial liabilities – helping to fuel what’s been dubbed the protection gap.
But tentatively, things seem to be changing, in the life cover market at least. IRESS’ The Exchange, the online comparison and quote portal, reported a 5% increase in life insurance applications between May 2016 and May 2017. On Google, searches for life insurance rose 9.4% over the year to June 2017. In its Term and Health Watch 2017, Swiss Re reported that the number of new term life-only policies increased year-on-year by 7.1% in 2016.
This is surprising given the current economic and political backdrop. While unemployment is low, inflation continues to track higher than average salary increases, meaning many are undoubtedly feeling the pinch. Conventional wisdom would suggest that in times like these sales of protection take a downturn, but it could be this very uncertainty that’s making consumers more mindful about guarding against worst-case scenarios.
So with interest in insurance at such a level, this presents a key opportunity for you to be discussing this with your clients.
The key may also lie in the direct market, which has seen 22% growth in term policy sales over the past year compared to 3% growth in the IFA market and a sharp decline of -13% in the bancassurance market. It's to be welcomed that individuals can arrange this essential cover themselves rather than being wholly unprotected. But whatever the reason for the rise in protection sales, how can advisers make sure the role they can play is at the forefront of buyers’ minds as market interest returns?
Advisers still dominate
The truth is that advised sales still dominate the protection market. Looking at term assurance, direct sales may have seen the biggest growth over the past year, according to Swiss Re data. But policies sold through directly-authorised advisers continues to be by far the biggest segment of the whole market.
It’s also clear that when it comes to larger liabilities, consumers still look for the reassurance of expert advice. The average new sum insured for standalone life protection policies sold directly in 2016 was £24,830 less than those sold through a directly-authorised adviser. And this disparity was even greater for combined life and critical illness cover.
However, with this said, the average sum insured for direct sales has grown sharply by almost 50% since 2015, suggesting consumers' confidence at arranging high-value policies themselves is growing. So how can you best demonstrate the value of an advised sale?
Part of the answer may be in new processes and systems that are making the decision process shorter. Quote comparison software UnderwriteMe provides fully underwritten prices at the point of sale, allowing advisers to get a policy specified, chosen and in place in the space of a single client meeting (or a single client visit to their website), whereas previously around a third of clients may have had to wait for further underwriting before a premium could be finalised. UnderwriteMe can also provide final quotes 24/7, allowing policies to be put into force when meeting clients at weekends or in the evening. We’re currently working in partnership with Underwrite Me on developments in this area which will be available later this year.
Demonstrating adviser value
Advisers are most likely to demonstrate their value in non-standard markets, such as individuals with chronic conditions who can otherwise find themselves priced out of the market and older prospects who may need more inventive protection solutions to keep the cost of cover affordable (bearing in mind that 41% of the UK population still aren’t homebuyers by the time they reach age 35 – up from 22% in 1991). Equally, integrating life, critical illness, and income protection insurance so it's collectively affordable and comprehensive, making sure it covers all of a consumer’s financial liabilities and integrates with any other cover that an individual receives from other sources such as their employer, still demands professional know-how.
Perhaps the biggest value advisers can offer is working with clients to make sure that the level of cover is adequate. Earlier this year, we discovered, for example, that the average mortgage debt outstrips the average life insurance pay-out by around £45,000. An adviser who’s on hand not only to arrange cover initially but to make sure that it stays up-to-date by virtue of having a comprehensive understanding of a client’s circumstances – that's a value well worth promoting.
There have been calls to reinstate the relationship between house-buying and protection by making it a mandatory part of the mortgage advice process. But it’s highly unlikely that the regulator or government will look to compulsion to close the protection gap. We’d hope rather that faster underwriting processes, clear, appealing products and expert advice that looks holistically at an individual’s protection needs will help keep this essential product on the minds of more consumers.