Income protection products could be improved by selling them packaged alongside other protection benefits, according to research among brokers and insurers conducted by GeneralCologne Re.
By Rachel Williams
Speaking at the reinsurer's Disability Insurance Forum held in Sutton Coldfield on 23 June, Neil Reynolds, actuarial marketing manager at GeneralCologne Re, said this was likely to happen as the market becomes more allied to mortgage protection.
He said: "Income protection fits in naturally with mortgage protection, so this is where the market will be in the future, with most providers having mortgage income protection in their range."
The potential size of this market is huge. According to research from Scottish Provident and MORI, 84% of borrowers have no disability cover.
Reynolds added: "Brokers want to sell benefits such as life cover, income protection and unemployment cover together so that whatever happens to their clients over the term of their mortgage, the payments will be made."
But the penetration of mortgage-related income protection is low. It is estimated that in 1999 sales reached 60,000 compared with 550,000 mortgage-related critical illness sales.
Following packaged income protection, insurers cited more focus on rehabilitation as the next most important product improvement while brokers looked for a lump sum component and increased flexibility. The latter did not rate rehabilitation as a priority, despite it featuring high on the insurers' list.
Reynolds said: "The brokers did not seem to pick up on rehabilitation, which suggests they do not realise the benefit is there."
While critical illness is the big seller - with six policies being sold in the IFA market for every income protection policy - 67% of brokers said that income protection was the more important benefit, with 62% saying their clients understood the need for this cover.
This illustrates the potential of the market and the need to turn that into sales, according to Reynolds. The broker research suggested that the primary hindrance to sales is lack of understanding.
He said: "There is certainly a big awareness issue for the industry. Brokers said they were not in the best position to sell the product. They felt uncomfortable and often did not know what benefits are available from the State or employers."
Around 92% of brokers said that they could benefit from clearer product material, while 54% wanted to see more advertising. On top of that they wanted more sales aids and training, case histories and benefit details.
They also said that providers could help increase brokers' income protection business by improving the underwriting process, increasing the earnings replacement ratio to over 50% and reducing premiums. A need for improved comparison and quotation systems was also raised.
When selecting a provider, 70% of brokers said that cost was the most important factor. To prevent this becoming too much of a problem for insurers, Reynolds suggested there was a need to develop and promote the 'care' angle of the product.
He said: "We need to push the softer benefits such as rehabilitation to start removing the focus from cost." He added, however, that the cost factor could stimulate further product development.
"As cost is so important, it opens up the path for the development of more budget products."
