Individual protection: Understanding the now, anticipating the future


Swiss Re surveyed 13,000 people across 13 countries in Europe and the Middle East about financial security issues. The responses and findings are both impressive and alarming, says Russell Higginbotham

More and more people are growing older as a share of the overall population, a fact heightening the concerns that the morbidity protection gap already demonstrates. Furthermore, a number of European countries are struggling to maintain fertility even at the replacement rate. 

Combined with medical advances and the generally excellent health coverage being provided across Europe, this means people will not only live longer than their parents and grandparents but will do so as a much greater proportion of the population.

A recurring theme in our series of insurance reports is what perceptions people have and their evolving opinions about who should bear the responsibility for various aspects of caring for an individual needing help.

Only one in ten people can confidently answer that irrespective of an unexpected shock to their health or life, their family would remain well-positioned financially

In 2012, when individuals were asked who had the greatest responsibility for certain types of provision (individual, state, employer) and who would have the greatest responsibility in ten years' time, we saw a clear acknowledgement that responsibility would shift dramatically away from the state to the employer and/or the individual. In 2015, we see hardly any change in sentiment, despite the years gone by since the previous survey. The belief of who should bear the responsibility just seems to roll forward.


Perfect storm brewing

When it comes to the health protection gap, we can see three key components which have the potential to create turmoil at both an individual and societal level.

Firstly, fertility rates are falling while lifespans are extending, when greater levels of care are needed, and are needed for longer periods of time. 

Secondly, the cost of care and medical treatment are rising faster than current funding structures are able to support.

And thirdly, the current extent of state social provision has created an expectation from society that, due to economic and demographic pressures, is unsustainable in the long term.


A lack of confidence

We asked people to consider their current financial position and tell us how their household would be affected if they were to suffer a long-term illness or disability, or if they were to die. 

The overall result highlights the burden of worry which most people carry: only one in ten people can confidently answer that irrespective of an unexpected shock to their health or life, their family would remain well positioned financially.

Oddly enough, this lack of confidence does not seem to translate into more purchases of insurance coverage. In 2012, we measured the proportion of people who did not have disability insurance but expressed an intention to buy cover within the following year. 

This year, we looked at the proportion of people who said they were insured and had first bought a policy in the previous year, comparing their share against the number of people who were uninsured at the start of the year.


Disability IP gap 

For the first time the report quantifies the "disability income protection gap" – a shortfall estimated at €750bn (£521bn). This is the gap between what is required to replace 60% of income for anyone who becomes ill or injured and the amount currently available through private, employer and/or state funds.

The gap is compounded by the short-term nature of benefit periods and shrinking state benefits. All of it adds up to a risk to consumers and a growth opportunity for our industry.

Incredibly, disability benefits in many European countries are based on a lump sum, usually presented as a multiple of annual salary (say, five or ten times). This may be sufficient for a 50-year-old worker, but what about the young person who falls ill or suffers an accident?

A lump sum payment would not cover the long-term needs, and the shortfall would create lasting consequences. Surely then, adequate disability insurance protection would provide a real service to society – and a tremendous business opportunity.


Finding solutions

The future factors at play – and none more than shrinking public-sector involvement and ever-higher life expectancy – have led us to concentrate on health, disability and care protection needs.

Improved cover for health will not only help manage relentlessly rising healthcare costs, but allow our greying populations to experience healthy ageing for longer or have better choices to manage the consequences of poor health.

We make that statement in the context of the current demographic profile and reasonably high levels of state support in continental Europe, Israel, the UK and Ireland.

We see clear evidence that both demographics and public funding will change over the next decades and  significantly exacerbate both the morbidity and mortality coverage gaps, as will the expected rise in care and medical costs.

Some countries have compulsory health cover which, ever-present pressure from medical inflation aside, certainly can be a workable solution. Switzerland’s system is a case in point.

Critical illness insurance might previously have been thought to be unnecessary in a country or for an individual with good disability cover and comprehensive medical insurance.

However, in addition to out-of-pocket expenses and out-of-basket medication, critical illness cover can also fund further care costs, as well as lifestyle adjustments, child care, additional travel and accommodation costs associated with the illness, and more.

While it is critical that we make the product we are selling relevant, it is equally important that we sell the product in a relevant way. For example, advertising life cover at the supermarket checkout might not engage many consumers, but doing the same in the aisle for baby supplies may help make a meaningful connection.

This is only part of understanding the mind of the consumer, and the report focuses further on these behavioural insights.


Growth opportunities

We believe that in established protection markets such as those supporting the societies of continental Europe, the UK and Ireland, there is still significant opportunity to grow by reducing both the mortality and morbidity protection gaps.

Having completed this research, and having detailed information from more than 13,000 respondents, the report shows only a selection of the insights we have found. 

We will continue to explore this rich source of data to enhance the knowledge our clients have about selling different products, in different markets, using different distribution channels, with different brand strategies, to diverse consumer groups.

All of this, we believe, will ultimately deliver better protection and value to policyholders and society as a whole. 

Russell Higginbotham is managing director of Swiss Re UK 

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