In August 2012, the Interim Report of Carol Sergeant’s review of simple financial products was published, proposing initially an Easy Access Savings Account, 30 day Notice Savings Account and life cover. Further discussion is taking place on including an income protection product with other products possibly to follow.
There is still much to do to bring the proposition to market in a way which is appealing to all parties without creating a bureaucracy for providers that is ultimately passed on in greater costs or leads to them choosing not to participate. If simple products are to work, employers could be the most effective mechanism to market them.
The total target market which could benefit from simple life cover is assessed as 9.7 million households or19.8m adults. There is little dispute about a straight-forward product with none of the bells and whistles often seen in protection products marketed through non-tied channels. Key to the thinking is that the product could be sold without advice. Anything which is seen as complex may just turn them off.
For income protection, the target market is even bigger at 12.2m households or 23.5m adults.
Can simple products alone motivate people sufficiently to buy them? Doing so would reverse traditional thinking that life insurance is sold rather than bought. In particular, would they appeal to first time protection buyers who may come with prejudices against an industry whose products are seen as complex, full of unfamiliar terminology and irrelevant to them?
Swiss Re consumer research in 2011 showed that people now recognise the increasing withdrawal of State benefits will mean they will have to provide for themselves but that, often, they have little understanding of what to buy and how to go about it. If people are to purchase products, simple or otherwise, timely and relevant marketing and messaging and sign-up processes will be even more important than the intricacies of the product design. It is here that the workplace has a role to play.
The same research tested how open people are to buying long-term protection insurance through both traditional and newer potential access points, such as retailers and social media. It found 57 per cent of employed people expressing a view were very or fairly likely to consider purchasing protection policies through work. In contrast, only 30 per cent would consider supermarkets.
There is already evidence that workplace purchases of protection are growing in response to flexible benefit propositions and voluntary benefit schemes. Between 2010 and 2011, the number of lives covered under these arrangements increased by 11 per cent and premiums rose by 18 per cent. This may grow as employers develop ways to communicate with their workforces better, including the use of technology to reach geographically disparate workforces. The evidence shows that employees are very open to workplace-facilitated products.
While work continues on income protection, there are no easy solutions. The Interim Report sets out some ideas for further discussion; these include guaranteed level premiums and benefit payment terms up to no more than five years. Traditionally, we have placed long-term income protection products in a silo, for the most part separate from short-term products such as cash plans. Would a simple and renewable general insurance income product complement such lump sum plans and widen income providing opportunities for the market and consumers alike?
The traditional retail income protection proposition has failed to appeal sufficiently to consumers or to advisers. A simple and appealing product will need radical thinking and better branding than most current offerings. Foremost, though, will be creating awareness of the need and, here, the workplace has a key role to play. Between 2008 and 2011, the number of people buying flex or voluntary income protection in the workplace increased by 85 per cent, a clear indication that it is valued even if partly in reaction to employers cutting back on the cover they provide.
Given that the Income Protection Gap has grown by 46 per cent over ten years, protecting income is too big an issue to ignore if we are to provide relevant solutions as State benefits unravel.
It can be easy to denigrate existing distribution mechanisms, instead focusing on new and frankly more trendy and exciting communication media. Yet, the fact remains that trust in employers remains high, there is a very obvious link between income and work and it is surely in an employer’s best interests that its workforce has some protection in place, whoever pays for the cover.