Whole of Life: In danger of falling behind the times?


Susan Stevenson says the needs of over-50s life insurance customers are changing - but how will the market respond?

Historically, and in today's market, there have been two types of whole of life (WOL) policy: the over-50s guaranteed acceptance plan and the fully underwritten WOL policy.

These are so far removed from each other that many working in the insurance sector don't even think of them as the same class of product unless pressed to do so. Indeed, they are even treated as different categories by the Financial Conduct Authority. 

The whole of life market is estimated to be worth in the region of £108m a year, split equally between these guaranteed acceptance plans and fully underwritten products. But what exactly are the differences between the two?

Demand for WOL insurance cover is expected to grow strongly over the next few years and this provides an enormous opportunity for the affinity market

Tell-tale signs

Over-50s plans are easy to buy, have little in the way of underwriting, and generally acceptance is guaranteed with no penalties for ill health. But this ease of purchase leads to one of this type of product's greatest pitfalls.

In comparison to a fully underwritten WOL policy, it can offer poor value, particularly for those customers who are non-smokers with good medical histories, who receive no additional benefit or discount as a result of their good health. 

Often, over-50s plans are thought of solely as funeral plans to cover the costs of a funeral in the event of the policyholder's death – and no more. Fully underwritten WOL policies that do take account of a customer's health in setting premiums can be more complicated to buy due to a lengthy application process. 

Typically, they are sold via the "advice route", so are usually purchased by customers as part of a structured financial plan; perhaps as a vehicle for mitigating inheritance tax. They are often the preserve of the wealthy customer, and are not usually accessible or affordable for the mainstream.

As a result of this polarisation, the over-50s life market tends to be one of "low premium and low payout" while the opposite holds true for fully underwritten WOL policies that offer higher payouts in return for higher premiums. 

This polarisation also leaves a large gap in the market. A gap that represents a generation of over-50s who are often in good health but are increasingly facing a number of conflicting financial pressures, such as saving for retirement while paying off mortgages and other debts later in life. 

Typically thought of as "empty nesters", many are now becoming "full nesters" – having to cope with the additional challenges of supporting both adult children later in life and their elderly parents.

According to government figures, there are now 2.7 million "full nest households" in the UK, where adult children are still living at home – and this can impact on parents' ability to plan and save towards retirement. 


Deferential treatment

For many, life insurance planning is being put on hold at the expense of managing shorter-term priorities. Research from the Post Office shows that more than a third of homeowners believe they will be nearly 70 before they pay off their mortgage.

In addition, research conducted by Mintel found that 23% of 55 to 64-year-olds have either no savings or less than £1,000 saved up – barely enough to cover even emergency expenses – and more than half of all over-50s have no form of life insurance. 

This year, the youngest of the Baby Boomer generation born in the period 1945-1965 will turn 50, while the eldest will turn 70 – and older people are representing a growing demographic. According to predictions from the Office of National Statistics, the percentage of the population aged over 65 will be more than 22% by 2030. 

There is a clear market opportunity to meet this growing need for life insurance. The problem with the market as it stands is the large value gap in the middle ground, which has been particularly badly served by this type of insurance in the past.

Traditional guaranteed acceptance plans typically fit the needs of an older, less healthy customer, who is looking to pay for a funeral, leave a little money for grandchildren or pay off minor debts.

By contrast, fully underwritten WOL plans are often out of reach for the majority of customers because of the lengthy application process.

Meanwhile, the larger liabilities of the growing number of financially insecure over-50s, who are perhaps still hale and hearty, are poorly served. Why should an older person with a clean medical history accept the same deal as one with a less happy outlook on their health? Particularly when the payouts offered on death may not always meet their financial needs?

The market must consider the needs of this growing segment of customers with a new perspective. For those who are not in need of fully underwritten WOL policies for inheritance tax planning and who are buying a product on a non-advised basis, the market needs a fresh approach. 

Perhaps the "broad brush" approach to the over-50s market offered by guaranteed acceptance plans needs to shift towards offering a greater level of personalisation in return for better value, while maintaining simplicity to ensure products are easy to buy.

Welcome to stagnation...

In effect, this is a market that has been stagnant for years. Research by YouGov on behalf of Cigna shows that for almost 60% of consumers considering WOL insurance cover, the main purchase trigger is the desire to leave their finances neat and tidy.

Crucially, the findings also told us that a number of consumers would favour a medically screened product that offers more cover, or cheaper premiums, over a "standard" guaranteed acceptance plan.

Customers are telling us they want better value from their life insurance and are prepared to answer simple health screening questions in order to get it. 

Another product feature which is a cause of concern for customers in this market is the tendency for moratoriums on policies. Guaranteed acceptance plans often come with a moratorium, meaning that payouts are heavily restricted if the policyholder dies within the first 12 or 24 months of the plan. 

This is generally the price paid for that guaranteed acceptance, but this too can be addressed through just a few simple health questions, without the need for a fully underwritten process or an advised sale.

This is important as consumer research has highlighted that understanding of the word 'guaranteed' often means that consumers think the policy will pay out whenever the policyholder dies, which is not the case. To avoid this confusion, surely it is better to design out the use of moratoriums that don't guarantee a full payout?

The over-50s also want to buy insurance through multiple channels. A recent article in The Guardian showed tablet ownership among those aged over 55 at 37% in 2015 –  a situation not reflected in the current market.

As anyone who has watched daytime TV will realise, the market remains focused on selling WOL cover to the over-50s mainly via direct-response TV, direct mail and over the telephone.

Cigna's research found that 32% of over-50s now start their hunt for WOL insurance by carrying out a general internet search. Even for older demographics, it is now vital to have a strong digital presence across all platforms.


No rest for the wicked

It is clear that the over-50s life insurance market must evolve to meet the changing needs of the customer. There is a clear opportunity to segment the market more intelligently and to target those sectors that are either poorly served or would benefit from product innovation and a more up to date use of technology.

Demand for WOL insurance cover is expected to grow strongly over the next few years and this provides an enormous opportunity for the affinity market. A customer-centric solution offers good value for affinity partners reviewing their life offering or making life insurance available to their customers for the first time.

While an estimated £54m a year is a not inconsiderable market, a breath of new life in what remains an underserved, stagnant sector could result in a large market boost. However, this will only be possible through a combination of innovative products coupled with judicious use of technology. 

There is a clear opportunity in the over-50s sector (perhaps over a range of products) for a simple, limited-underwriting proposition that can provide eligible customers, whose medical histories are good, with better value for money than the market currently gives them.

It is also clear that a more sophisticated segmenting of the market can create a new level of value while retaining the optimum service levels of the customer sales journey.

Research tells us that customers want clear and easy to understand policies, purchased from a company they trust, in a way that is convenient to them, primarily online.

As an industry, we must do two things to meet the fast changing needs of this market: target areas where customers have traditionally been offered poor value and embrace the digital revolution. 

Susan Stevenson is CEO of Cigna Insurance Services

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