UK citizens are unlikely to have income protection or consider buying it even though they percieve state protection to be mediocre, a major study for Zurich by Smith School of Enterprise and Environment at Oxford University has found.
In a poll of 11 countries, the UK came second last in terms of the proportion of its citizens having income protection insurance and of their willingness to pay for it, even though Britons’ perception of the strength of their public safety net is near the median across the sample, suggesting the nation’s protection gap is bigger than most other countries.
The research found personal experience of an income protection gap, whether first- or second-hand, is more likely to influence demand for the product than financial literacy, a finding that could turn on its head a number of assumptions about the effectiveness of financial education and literacy campaigns, the report says.
The survey, which polled 11,000 individuals in Australia, Brazil, Germany, Hong Kong, Italy, Malaysia, Mexico, Spain, Switzerland, the United Arab Emirates, the UK and the US, found national institutional factors appear to have the strongest influence on willingness to pay. The strength of a country’s social safety net was found to be a key determinant of whether people without insurance would consider buying it, as well as how much of their income they would be willing to pay for it.
The report found one-third of households drop into a lower income quintile after an unexpected adult death in the UK, and 20 percent fall into poverty.
The UK achieved a relatively high social protection ranking in the World Economic Forum index in large part because of National Health Service (NHS). Yet both demand for income protection insurance and willingness to pay in the UK rank low, despite relatively low levels of disability benefits.
People in Australia had the lowest average willingness to pay. Its mandatory superannuation personal pension scheme includes auto-enrolment into disability protection.
People in Switzerland, the country with the most extensive social safety net according to the WEF index, were also unwilling to pay for income protection insurance. In Switzerland, the government puts significant pressure on employers to rehabilitate the disabled, and state and occupational support – in terms of the amount paid to the disabled – has not been cut, although access has been restricted.
Most people without income protection insurance would be willing to consider buying it but are put off by its perceived high cost, the research found.
The main reason people cited for lack of income protection insurance was high cost, even though the amount they would be willing to pay for such insurance – a consistent average across all countries of around 5 per cent of respondents’ monthly income– was considerably higher than the average cost of income protection insurance for most people.
The 48 per cent of employed workers who don’t have insurance and said they do not wish to buy it stated a variety of reasons why they would not consider doing so, including not having any dependents (20 per cent), lack of trust in insurers (19 per cent), and believing they are not at significant risk of disability (14 per cent). However, by far the most common reason given for refusing to buy insurance was price. Just about half (49 percent) believed that income protection insurance is too expensive.
Men are more likely than women to have income protection, but household status as primary or secondary wage earner is more important than gender.
Work status plays a major role: the rise of the ‘gig’ economy is putting more individuals at risk.
Younger and healthier people are more likely to have insurance. Although older and less healthy people are aware of their income protection gap risks, that does not make them more willing to consider buying insurance.
Zurich group chief operating officer Kristof Terryn says: “The public and private sector must work together to close income protection gaps. The two most important barriers to income protection are workers’ limited understanding of the products and misconception about price of protection. We need new and innovative approaches to insurance that are simple and easy to understand for everyone ”