Do lower-paid, higher-risk jobs still demand income protection more than white-collar ones? Lucy Quinton finds out if cover remains less affordable for some than others
The concept of working in a 'high-risk' occupation may sound somewhat alluring to someone a client is trying to impress, but are the consequences of working in high-risk occupations really that sexy when it comes to taking out income protection (IP)?
For some, the idea of a person in uniform holds a certain attractive quality. However, research conducted at the University of Cincinnati about firefighters being at a higher risk of developing certain cancers suggests that once the initial appeal of the uniform has gone, the more serious consequences of such a profession could be more sinister - and far less glamorous.
It is generally thought that blue-collar workers are more interested in IP but are unable to afford it as their income is often lower and the premium costs higher. At the other end of the scale, white-collar workers find cover easier to obtain and more affordable. However, according to Jason King, director at Torquil Clark Life Insurance: "The demand from this group is lower as they don't perceive the risk as being high and often have sick-pay benefits from their employers, which they blindly assume to be sufficient."
Concurring with King, Andy Chapman, chief executive at Pioneer Friendly, comments: "Historically, the IP market has been dominated by providers targeting white-collar workers, effectively 'cherry picking' the risk they want to insure. This has been compounded by the client banks of the average IFA, a large proportion of which are white-collar workers."
However, he believes there is a reversal in this trend that is beginning to emerge, as blue-collar workers are beginning to understand the importance of this cover, especially as they are less likely to have adequate sick-pay provisions and other benefits more associated with the average white-collar employee.
While the concept of a high-risk occupation can sound attractive to adrenalin junkies, the reality in the IP sector is somewhat less jaw dropping. King suggests it can be defined as: "A high level of manual or physical activity, or any occupation that morbidity tables suggest have a high incidence of absence due to ill health."
Ian Jefferies, head of protection marketing at Friends Provident, says: "The traditional perception has been that the higher-risk occupations are those with a heavy manual element, however, the two main causes of IP claims are mental and musculoskeletal disorders."
Classification
In general, the market defines all occupations into one of four categories according to risk, with class one being low-risk through to class four, being high-risk occupations.
Over the past few years, the teaching profession has seen itself move from one end of the classification spectrum to the other. Jefferies says this is because "there has been a rise in the tendency to take early retirement or leave the profession due to stress".
Dentistry is another profession that is somewhat surprising to see at the higher end of the spectrum. Sitting in a dentist's chair, one would not necessarily think the dentist was altogether stressed when prodding around a patient's mouth, just merely discourteous when they became too rough. However, Jefferies explains they are rated in a high classification partly "because of problems with stress, but also because they tend to work in the same position day in and day out, which can lead to back problems".
Interestingly, Chapman explains that the four occupational classes differ from one provider to the next and depend on a number of factors, like the mileage undertaken by a salesman annually, which can have an effect on his occupational class.
Pioneer Friendly differs from the vast majority of this market in so far as Chapman suggests: "We don't load according to occupation, so for example, a carpenter pays the same rates as a solicitor. We believe this adds clarity and simplicity to what could otherwise be a confusing classification, while enabling those in higher-risk occupations to obtain high quality affordable cover."
In total, there are four different types of incapacity definitions used when selling IP. The most commonly known and highly recommended are: 'own occupation', defined as "unable to follow own occupation"; 'suited occupation', defined as "unable to follow occupation or an occupation to which you are suited by experience or training"; 'any occupation', defined as "unable to follow any occupation"; and finally, 'activities of daily living' and 'activities of daily work'. This last term normally applies to housepersons' IP or when people were unemployed before becoming ill or injured and were unable to do three to six pre-defined tasks, such as dressing, feeding or washing, Jefferies explains.
Chapman says there are a number of providers in the market, including Pioneer Friendly, who offer affordable cover to people whose occupations are high risk. His advice would be: "To seek out quality financial advice, whether an IFA or one of the specialist protection focused intermediaries. The advice is invaluable as these specialists know their market and will be able to make the distinction between price and quality - as they say is often the case with protection, buy cheap, buy twice."
He adds that, currently, Pioneer Friendly's definition of incapacity is 'own occupation', moving to 'suited' after 52 weeks of a claim. However, he does hint that it is looking to change to 'own occupation' throughout".
Meanwhile, Jefferies says that, at Friends Provident, the majority of occupations it covers are on an 'own occupation' basis, but continues: "There are some occupations where the risk is so high that we use the incapacity assessment criteria definition. These are the sorts of occupation where a very minor impairment can lead to time off work, such as in the case of an air-traffic controller."
Premium reductions
Chapman suggests premiums can be reduced by researching one of the providers who do not rate premiums according to occupation. He adds that: "In order to keep premiums as affordable as possible initially, it's worth investigating a policy with a reviewable rate structure, which, in comparison to guaranteed rates, begin more affordable. In this respect, in theory, the policyholder's income should increase in line with their IP premium."
The preferred classification isgenerally taken to be 'own occupation' as the reality is that anything less than this means it is harder to claim, King says.
Jefferies concurs, adding that the issue with 'any occupation' or 'any suited occupation' is that they fail to give clear definitions, which in turn, causes uncertainty as it is up to the insurer to decide what is an appropriately suited occupation when a claim is made.
Peter Chadborn, principal at CBK, adds that: "'Any occupation' is not worth the paper it is written on. He argues that this issue "takes precedence over everything else. We favour Pioneer for protecting blue-collar workers".
On whether premiums for high-risk workers will be reduced over the next few years, Jefferies says: "The premiums charged are representative of the risk covered and, as the product is more specialised, it is not open to the price variation we have seen in the term and critical illness market."
Chapman, however, says this is not the greatest issue as a number of providers already offer affordable premiums. The focus, he suggests, should be placed on "quality of cover as this can vary hugely". It is only when a claim is sought that the true worth of an IP policy is experienced.
According to King, the harsh reality of this sector is that it is not doing any better than the rest of the general IP area. However, he suggests the "friendly societies seem to be well placed to capture business" and Chapman agrees, adding: "Our own experience has been positive, which would indicate the blue-collar sector of the market is potentially holding its own when compared to the sales trend with the overall market."
The reality is that for clients who work in a high-risk occupation, the future may be quite bleak. To help these potential policyholders gain cover there needs to be a daring, almost high-risk move to gain ground in this area to prevent it from further stagnation.
