Women represent around 50% of the UK workforce. Eugene McCormack explains why the industry needs to raise awareness of income protection for this key demographic
For far too long, income protection (IP) has been viewed as the poor relation to other financial products by both advisers and consumers. Advisers point the finger at the high relative cost of this insurance compared to other products - but is this justified? Premiums are carefully calculated to reflect the risk assumed by the insurance provider and doing this provides a cost-effective solution to the transfer of risk from the individual to the insurance company.
So while at a very superficial level IP may appear expensive compared to life assurance and even critical illness (CI) products, it is really a case of comparing apples with pears. An everyday example can be seen in the case of car insurance. One would not expect to pay the same premium for fully comprehensive insurance as for third party, fire and theft. The benefits each deliver differ greatly. The same logic should be applied to the sale of IP.
Valuable
With only around 10% of the UK workforce protected against the financial and various other effects of sickness absence, it does not take a mathematician to determine that the opportunity for growth is significant. But despite the frequent laments of insurance providers, the number of people covered under an IP scheme remains stubbornly in early double figures.
So where is the growth going to come from? Is there a huge number of people just waiting to be sold IP, or is the product simply not relevant? Are insurers barking up the wrong tree? Perhaps, to some extent. But there is a growing group of financially responsible people who would benefit from IP. That group is women.
There is some evidence to suggest that women are more financially responsible than men. Women's social and financial status is largely no longer dependent on their 'better halves'. In fact, many women do not have 'better halves' to depend on. The rise of the commercially driven, financially astute, and often single, woman is well documented. Research by Datamonitor has shown that in 2003 the number of women who could be described as millionaires - with at least £200,000 in cash, bonds or shares in addition to their capital assets and salary - is now 299,300 compared with 271,700 men. Of course, that is the very top end of the scale. But still, in the real world, women in middle management have just the same need - just at a different level of income.
For young to middle-aged single women today, does life assurance really deliver a valuable form of protection? Arguably not. Money is not much use to a person when they are dead, and if it is not being left to anyone, is it not better to protect one's lifestyle while alive? Illness or injury might mean a person cannot work, but a girl needs shoes, somewhere to live, to pay bills, and the countless other things that form part of modern day living.
With this in mind, is price a real barrier to purchasing IP? It is true that, pound for pound of benefit, premiums for women are higher than for men. Rates are, after all, based on empirical statistics tracking back over many decades, as well as detailed future predictions, and actuaries are not in the business of taking uncalculated risks. Experience indicates that women are in fact more likely to be off work through long-term illness than their male colleagues. It follows that premiums are going to be higher.
Awareness
When comparing the cost of IP to CI for example, there is not a significant difference. In some cases, IP can even be cheaper. (See table, right). In positioning IP where it is truly merited - at the top of the list of personal protection products - advisers can avoid the objection at outset. It then becomes a priority choice rather than a trade-off or even a non-starter, jostled off the starting blocks by life assurance, pensions, unemployment cover and private medical insurance.
However, that is not to say that in financial planning, the first and only priority should be to ensure that income is protected. But without serious consideration being given to protecting at least some element of an individual's financial commitments, other insurances - along with many other outgoings - will simply go out the window.
So what are advisers to do? A major factor limiting the growth in protection sales is awareness, or rather, lack of it. Many, if not most, people are simply unaware that the product exists. Even if their employer provides a scheme, it is highly likely that an individual will not be aware of it during their employment, unless of course they have to claim. Employers are often reluctant to disclose, or actively communicate, the presence of a group IP scheme for fear that disenfranchised employees will see it as a ticket to a comfortable early retirement on ill health grounds.
A major challenge, therefore, is for providers and advisers to use their collective efforts to raise levels of consumer understanding to a point where the need is better understood, and as a consequence the solution to the protection gap better appreciated. Existing product designs meet the needs of women just as they meet those of men - there is no need for product innovation. In fact, women often see through attempts to market 'made for women' type insurance solutions, as it only marks them out as different in some way.
The existing product set is designed to meet the needs of a whole range of incomes and lifestyles. Executive-type products are marketed as solutions for smaller businesses, whose key executives deliver significant value to the business, and can cover up to five people. A significant and untapped potential niche for advisers to target - especially considering that there are close to one million women-owned businesses in the UK with a turnover of up to £1 million - one third of all small businesses, in fact.
But while the singles market offers great potential, and is undoubtedly growing, it is important not to forget the significant role that millions of women play in the family. While a generation ago, many women were able to stay at home while their husbands went out to work, today this is simply not an option for most families. The mix-adjusted average house price in the UK in June 2004 was £174,000. Assuming a mortgage payment of around £600 a month on a mortgage of £100,000, it is clear that many families today are dependent on two incomes just to keep a roof over their heads.
IP plans can be tailored to protect major outgoings and some are even built specifically to protect mortgage payments. Families and singles alike often mistakenly purchase an accident, sickness and unemployment policy believing this will support them in paying their mortgage should they be unable to work, but most of these policies' benefit periods are limited to 12 or at most 24 months. IP is in fact the right solution in many cases.
The current and future socio-economic environment is hugely favourable to opportunities for the growth of the IP market. Advisers and insurers alike need to work to promote the benefits of IP to a wider market, encouraging individuals to understand its benefits and to regard it as an essential element of their insurance portfolio.
Eugene McCormack is director of individual marketing at UnumProvident
COVER notes
• With only around 10% of the UK workforce protected against the financial and various other effects of sickness absence, it does not take a mathematician to determine that the opportunity for growth is significant.
• Research by Datamonitor showed that in 2003 the number of women who could be described as millionaires - with at least £200,000 in cash, bonds or shares in addition to their capital assets and salary - stood at 299,300 compared with 271,700 men.
• A significant and untapped potential niche for advisers to target - especially when you consider that there are close to one million women-owned businesses in the UK with a turnover of up to £1million - one third of all small businesses, in fact.
