Back to the drawing board

The IFA protection success story continues with almost no sign of stopping. Swiss Re's annual review of the market shows term assurance sales up 17%, critical illness (CI) up by 39% and income protection (IP) up by 54%. So should we congratulate ourselves, or try and find ways to grow the market even further?

There is so much potential in addition to the impressive results the market has seen so far.

A huge protection gap among consumers has been well reported. People who have bought protection represent only a fraction of the population. Of that fraction, few have adequate cover ' they have simply limited what cover they own to life cover and mortgage payment protection insurance (MPPI), despite the Government's reduction in provision of State benefit and the demise of 'the job for life.'

A hard sale

So are consumers unwilling to sign on the line, or are they just unconvinced about cover designed to protect their lifestyle? One of the main problems is that protection is not an aspiration purchase. People rarely rush out of the house in the morning saying today is the day to go out and buy IP, as they would about a new car or three-piece suite.

Life cover, CI, and IP represent responsibility, not pleasure. There is nothing sexy about buying a product that offers something as intangible and invisible as peace of mind.

When it comes to financial services, pensions, investments and mortgages have traditionally been easier to create interest in because they are about fulfiling ambitions. Retiring with the lifestyle you have become accustomed to, saving for the dream holiday, and owning the house of your dreams. These are more attractive prospects than discussing the frightening statistics which are often presented as a means of convincing people to buy protection. Being told the odds of contracting a critical illness are one in three just adds to the perception these products are about things people do not want to think about.

But perhaps people are not as averse to the traditional idea of protection as we might think. Granted, there is still a strong feeling of 'it won't happen to me,' but these days people are realistic about the dangers of leaving themselves unprotected from the financial effects of illness, unemployment or the death of a breadwinner.

Research conducted by Bright Grey shows consumers are aware their ever-improving lifestyles are built upon ever increasing levels of personal debt. An interesting research technique to explore the need for protection involves asking the groups to create a visual representation of what matters to them most in life. Most people will build a collage of happy images that usually include an expensive sporty car, a spacious home and holidays in the sun. Most also aspire to have a healthy body toned by hours working out in the gym and a well-balanced and sensible diet. The rest of the family is equally healthy and the children are well-educated and have all the latest designer gear and technology.

Once they have built the picture of their lifestyles, then ask them what it relies on and how they will maintain and improve upon it in the future.

They all know their income is the foundation stone, which makes the lifestyle possible. They can see the implications of losing income on their lifestyle and their finances. Without an income, the lifestyle is at risk and so are the ambitions for the future. People do appreciate the need for protection when they think about the implications in these terms.

Consumer awareness

This in turn refutes, to a certain extent, much of our perceived wisdom about the need to sell protection, because people do not think they need it. Perhaps it is time for a re-think. Why did only 25,000 of the 1.3 million people unable to work last year have any form of IP? While the 'it won't happen to me' issue will always be a factor, it is only one factor. As an industry we should focus on the way we deal with our existing customers, the process of signing up new ones and ask ourselves 'is this what the customer wants, needs and expects?'

Bright Grey's research shows that despite the best attempts, the customer feels as an industry, we are still getting a lot wrong. An example of some issues highlighted are people find protection products complicated and they do not know the difference between products such as IP and CI.

This is because many of the terms and conditions for different products are confusingly similar even though they may not do exactly the same thing. For example, CI and IP share many of the same terms and conditions for occupational definitions of disability.

People therefore think they do the same thing ' pay money if they cannot work due to sickness. But of course there are significant differences that are well known to us in the industry. We know CI pays out only on specific illnesses and IP will pay out for anything as long as it prevents them from working. But this subtle difference is lost on many customers. Many people assume IP includes unemployment ' when in most cases it does not.

Such confusion means customers need experts who can explain the details for them. This feature of the protection market has meant IFAs have been able to step in and provide the advice needed. But the jargon, confusing clauses, exclusions and complex definitions put many people off. They feel insurance companies are always against them. Some people in the research groups suggested CI cover only pays out if you are just about dead and others expressed confusion at the many conditions, citing it as just much more small print.

As an industry we are strictly observed and the media makes much of denied claims, adding to the customer perception of an industry that hides behind small print. But the truth is so many protection businesses have been written over the last few years and hundreds of CI and IP claims are paid without fuss every day.

We must not underestimate the importance of these claims and we must try and highlight the positive stories more than the negative. Protection claims have saved the finances of families. They can never put right the physical and emotional consequences of illness and death, but they do help.

In addition, communication between advisers and their clients should start to overcome negative perceptions and create a more positive feeling towards protection and insurance companies. But it should not stop there. Much of the mistrust is generated by the complexity of the language used in our industry. We must work to remove jargon and unnecessary exclusions. Clarity is crucial.

All customers perceive the protection market to be riddled with small print. But it is not always the words in tiny type that are the problem. A bigger issue is the understanding the consumer has of the product they are buying.

Customers perceive small print to be anything they become aware of later that prevents them getting their payout. For example, we may have explained to them the policy payout for CI depends on a series of illness definitions. But were they made aware of the implications of each definition separately and what conditions must be met for a claim to be paid? If not, that has the potential to become small print.

Education is key

Advisers and providers need to work together to ensure products become much clearer and the consumer understands what is covered. Trust will come, but only if we are more transparent in the way we deal with customers. Clarity makes it easier to see the true benefits, but we also have to do more to educate our customers about the real purpose of protection rather than the perceived pitfalls. Only a true partnership between advisers and providers will succeed in changing these attitudes.

When you talk to customers it is clear that far from being unconvinced of the need for protection, they are well aware of the problems not being protected can lead to. They are convinced they need something. What we have to do is to convert that growing conviction into a willingness to take action. A focus on clarity, building a greater trust among the public and marketing the positives have to be our key objectives if we are going to grow the protection market even more.

Roger Edwards is products director at Bright Grey