Report: Defaqto's recent report on income protection shows need for support
By Lucy Quinton
The current income protection (IP) model should be scrapped and the industry should start again rather than tinkering, which will only make things worse, according to Defaqto's latest report, Income Protection Insurance 2007 - A Time For Action Not Words.
The report said IP was a perfect example of a product that did not treat customers fairly and called on the industry to shower greater enthusiasm and commitment to IP.
As a result, the report said there will be a domino effect if providers show enthusiasm because advisers and consumers will follow suit.
Nick Telfer, author of the report and Defaqto's head of life and protection, said: "There is no single reason why it doesn't sell in greater numbers, so there is no quick fix. Doing nothing is no longer an option."
The report revealed that sales levels have continued to decline, indicating that insufficient numbers of consumers appreciate the need to protect themselves against the financial consequences of a loss of income.
Defaqto argued that the one-size-fits-all approach to product development does not sit well in the 21st century. The distribution landscape is becoming increasingly complex and consumer demands more sophisticated, and many of the current products do not recognise this.
The report identified opportunities in this market for simplification and innovation but added that provider apathy was the biggest threat to the IP market.
However, Joanne Hindle, corporate services director at Unum, said: "This does not adequately reflect the substantial progress the IP industry has made in reducing the complexity of product acquisition and the excellent value of many providers' products," adding that revised application processes, online submission facilities and tele-underwriting have cut processing times significantly and rates were extremely competitive.
She added that radical change is, to a large extent, unnecessary and may simply confuse users and lead to further uncertainty. "What we recommend is clear IFA and consumer education so businesses and consumers can understand the benefits of IP and make an informed decision based on this information," Hindle added.
The report suggested better adviser training, more consistent and accurate illustrations combined with a more interactive underwriting process will help to improve consumer perception of the IP industry.
