The Protection Review that was published in July has revealed that the market is holding up reasonably well, but there is still no sign of a real move to close the £2.3trn protection gap. How can we begin to close it over the coming year?
Market viewsDale Tranter, SesameFirstly, state coercion is something that would be an effective, if politically suicidal, strategy. It is the only way to ensure that millions of people save adequately for their retirement and the same is probably true for life cover, although the same problem of people at the bottom end of society who are unable to afford it would arise.
And then the Government would have to decide on an appropriate level of life cover for someone depending on how many spouses (or ex-spouses) and dependent children they have. Alternatively, if all lenders were to adopt a regime whereby no loan went out of the door without an associated life policy that would also have a substantial beneficial effect.
Secondly, make it cheaper. Pension term assurance (PTA) sales rose in 2006, helped partly by a reduction in rates, particularly at high sums assured. The eight-month PTA boom will also have put more policies on the books. Tax relief makes products more attractive, although whether that particular one opened life assurance up to a sector of the population who could not previously afford it or merely put more money in the pockets of those who could is a moot point.
Finally, resolve the image problem. Declined claims create bad publicity for critical illness cover in particular. While rejecting some claims due to definition failure is probably inevitable, declining so many due to non-disclosure is eminently avoidable. Tele-underwriting and wet signatures can help the industry cover its back and remove one of the barriers to sale at the same time.Jill Pinington, Legal & General
The protection gap has remained at £2.3trn for the third year running, so the industry clearly has not become any better at selling protection insurance. Most people are familiar with bank accounts, loans, mortgages and credit cards but insurance products do not offer them anything tangible for their money, apart from policy documents. In a way, it is easy to see why some consumers may 'hope for the best' and spend their money on other things.
Buildings insurance and car insurance are pretty much obligatory yet protection insurance is viewed by some as being optional. Ironically, pet insurance and mobile phone cover are likely to come higher up the list of priorities in some households. It is this attitude that we need to tackle to help close the protection gap.
There is no quick fix, but the consumer needs good advice, good service, value-for-money products that meet their needs and the ability to access these products through a range of distributors. Providers must support advisers with a speedy and efficient service and invest in underwriting systems and technology to make the process as smooth as possible. Competitive pricing will ensure that people get value for money.
Protection depends on the intermediary channel and the quality of advice that it gives.
Doing the job properly, or selling a 'fully protected mortgage', which means looking after both 'life and lifestyle' should be what our industry aims to deliver. If we are dedicated to this objective, then I am confident that we can reduce the gap below its current level next year.
Nick Kirwan, the Association of British Insurers
Swiss Re's annual report shows that protection sales grew by just 1.2% in 2006 over 2005, with just over two million new individual protection policies taken out.
Protection professionals will remember 2006 as the year when The Treasury performed a brazen U-turn on pension term assurance (PTA), which cost the industry an estimated £45m. Of course, had this money been invested in other areas, for example, in developing new systems for income protection (IP), consumers' needs going forward would have been much better served.
One of the most disappointing findings is that IP sales in 2006 fell yet again, down 11.5% on 2005. The industry needs to work hard to increase awareness of and confidence in IP.
Importantly, the protection gap has not even been dented.
The biggest industry barrier is the issue of consumer confidence. Swiss Re rightly points to the 'Watchdog effect'. However, things are improving, demonstrated by fewer complaints to the Financial Ombudsman Service about declined claims, despite there being more in-force policies. We need to work together to get this good news message across.
Mark Johnson, Swiss Re Life & Health
While the life protection gap has remained static, the industry should not celebrate the fact that it has not increased. The gap is huge. To make significant progress in closing it, the amount of life cover currently held in the UK would have to double.
At the risk of stating the obvious, there is not one simple step that will solve the problem, rather a series of steps involving many different stakeholders.
Firstly, the profile of protection must be raised within the life insurance industry. Savings and pensions are important, but so is protecting dependents from financial hardship. The industry should be banging the drum for the value of protection.
Secondly, products must be made simpler. The industry must take out some of the frills and options that so excite product designers but confuse consumers, and are, therefore, rarely used.
And finally, the confidence that the industry wants to pay, not avoid, claims must be restored in the public. The recent trend to remove standard policy exclusions is a great move. While claims paid statistics are useful, actual claims case studies are really powerful. The public will place greater store on 'real people' rather than industry data.
The comments above apply equally to IP and its £175bn gap. Having first identified the gaps in 2002, Swiss Re would be delighted to report on their reduction in the future.
