Don’t let the rabbit win
That there are more rabbits covered by pet insurance in the UK than people with income protection is just one of a number of figures revealing the scale of the task facing the protection industry if it wants to raise it public standing. Kevin Carr, chief executive of Protection Review, takes a close look at how consumers feel about protection
Protection – whether life cover, a critical illness policy, or an income-protection scheme – remains a poorly understood subject. This lack of understanding is often accompanied by low levels of trust in the industry. As a result, many people are either under-protected or unprotected from the effects of a life-changing event.
- The proportion of claims paid out by protection insurers is woefully underestimated by the public
- In fact, 90% of claims are met
- People believe protection insurance is more expensive than it actually is – but they also need to understand the balance between quality and cost
At a conference earlier this year titled ‘10 years is a long time in protection’, the Protection Review brought together almost 200 advisers and providers to analyse the protection market’s recent history and debate its future. While it was recognised, importantly, that what the protection industry does has a fantastic impact on people’s lives when they need it most, what came through loud and clear is it must develop a culture of serving the customer much better than it does now.
There is little in life as transformative as receiving a payment from an income protection, life or critical illness policy, as it inevitably follows a major change in life circumstances. But providers and advisers cannot rest on their laurels where protection is concerned, when so many people remain under-protected and have little knowledge of, or faith in the industry.
This is highlighted in research carried out by the Protection Review and iPipeline, who interviewed around 100 consumers about protection. It showed that, among those who had cover, not a single person knew the exact details of what they had in place – and of course many had no cover at all. This made them feel concerned – and “a bit rubbish” – especially when they thought about their children. A number of people said when it comes to protection they feel like they need to be persuaded to buy cover, which shows the importance of advice in this market.
Here we look at some of the findings from the research in more detail, and how this could help advisers when talking to clients about protection.
I have heard people in the industry say before that we are not in the market of selling insurance but “a promise to customers” – a promise that if a certain event happens, we will look after them or their loved ones financially. As an industry we are very good at keeping those promises but, unfortunately, this is contrary to popular belief.
Recent high-profile cases of claims being rejected, which gain public support from the likes of Stephen Fry’s twitter campaign, give the public the impression these very few cases are the norm and that providers will wriggle out of paying a claim at any cost.
So when the researchers asked people the percentage of claims they think protection insurers pay out each year, the average answer was just 38%, with the lowest answer a mere 5%. This is staggeringly disappointing when the real answer is 90%. There is clearly a big job to be done in educating the consumer about what we do. Recent figures from the ABI show insurers paid out more than £6m a day in 2012 to people who made claims on life insurance, income protection and critical illness cover.
A decade ago, protection intermediary LifeSearch began campaigning for protection providers to publish their claims statistics. Today, most providers that sell through the advised market publish their claims stats each year, for life, critical illness and, more recently, income protection.
The reason behind publishing the stats was never to create a league table of which provider pays out the most claims but, as an industry, to be able to demonstrate the overwhelming majority of claims are paid year-on-year – and, when they are not paid, being able to explain the reason clearly to consumers.
Many providers produce sales aids for advisers on claims stats each year. These alone will not convince someone that taking out protection is the right thing to do, but they can help to allay fears as to whether this type of cover pays out, and show the importance of full and honest disclosure at application. You can download guides from the individual provider’s website, or visit Protection Review for an overview of each insurer’s stats.
Concerns over cost
The research asked people what has, or might, put them off buying protection. Unsurprisingly cost came out top. But when you ask people what they would be willing to pay for protection cover each month, the average came out at just over £50 a month.
This suggests people have an inflated assumption of what protection actually costs and they may be surprised to find it is a lot less than they think. This is confirmed when you compare that figure to the average monthly premium paid by someone buying through protection intermediary LifeSearch, which is £28 – almost half of the average people said they would be prepared to pay.
Clearly there is an opportunity to help clients see not only the cost is often less than they assume but to make sure they understand the value of the cover they are buying. Those advising regularly in the protection market will know that cheapest rarely means best when it comes to protection, and it is their job to balance a recommendation between quality of cover and cost of premium.
This can be a difficult task when insurers are constantly updating their products to remain competitive, particularly in the critical illness market. Tools such as www.CIexpert.co.uk can help advisers clearly and simply outline to their clients the difference between providers’ cover for the premium paid.
Everybody is invincible
Another barrier to people buying protection that came out in the research is they believe they simply do not need it and, when people do take out cover, it is often for the event that is least likely to happen to them. Most people take out life cover, yet compared to having a serious illness or being unable to work long-term, people are much less likely to die before retirement age. But we know that simply presenting stats on the likelihood of something happening to someone does not work – it does not make it personal to them, but simply feels like a number.
“If we do not engage with people regularly, they will not see the value in us engaging with them.”
During a presentation at the Protection Review conference, the financial adviser network Intrinsic talked about just this. It has been said before that more people cover their pets than themselves, but even when you drill down from those that own cats and dogs to rabbits, Intrinsic showed there are more rabbits covered by pet insurance than people with income protection in the UK. The rabbit wins.
According to Intrinsic, just 395,000 people have income protection in force in the UK. Even when you only compare this to the 4.2 million self-employed people in the UK, this means 92.5% of them probably have no proper cover in place.
So perhaps a conversation about pet insurance with your client could lead to more protection sales. During a panel debate following Intrinsic’s presentation, it was suggested advisers could sell more protection by asking whether people have insurance for their pets – and then asking if they have cover for the people that provide for those pets.
Protection is often talked about in the vein of ‘once you have it sorted, you can put it in the drawer and forget about it – job done’. The research showed that 74% of people believed just this – they want to deal with the issue once and then forget about it. But they would say that, wouldn’t they? If someone asked you whether you wanted to go and see the doctor once and that is it, or go back every year for a check-up, which would you choose?
It is fair to say that, in situations like this, the public wants what the public gets. If we do not engage with people regularly , they will not see the value in us engaging with them. We know some people take out cover and then never hear from the company they bought the policy through, or from the provider, unless they need to make a claim. People are paying money for something they think – and this case hope – they will never use. This can inevitably lead to cancellation of cover, especially in tough economic times such as now.
Historically the reason for sales teams or advisers revisiting clients’ protection cover was to see if they could get them a cheaper premium, if costs had fallen since they took out cover. But legislation that came in at the end of 2012, most notably the gender directive which equalised insurance premiums for men and women, changed pricing in a way that now means re-broking policies on the basis of premiums falling will not be possible for some years.
Arguably this is no bad thing. Instead, clients should be revisited each year to ensure their cover is fit-for-purpose. Their circumstances may have changed, or there may have been updates to cover on the market that make it worthwhile reviewing. However, in the critical illness market, definitions may tighten on newer policies following medical advances; so always check clients are not losing cover that is generally no longer available on the market, or that would have been easier to claim on in certain circumstances.
Some providers, such as PruProtect, have attached benefits to policies that aim to keep the customer engaged, by offering premium discounts for eating healthily and exercising, and giving them money off leisure activities and products. This is an attempt to make cover more tangible, so people feel there is a benefit to having cover now, as well as if they need to make a claim in the future.
Not all clients will want to interact with their cover in this way, but a more productive conversation opener about protection could be to ask ‘do you go to the gym?’ rather than ‘are you concerned about what would happen to your family finances if you were ill or passed away?’
Kevin Carr is chief executive of Protection Review and managing director of Carr Consulting and Communications