After another less-than-successful year, individual income protection is the subject on everybody's lips as this month's COVER survey paints a stark picture. Lucy Quinton reports. Click here to download pdf
The individual income protection (IP) market has suffered yet another year of abysmal sales, according to Swiss Re's Term and Health Watch Report 2007.
The report showed that the product suffered further failure for the fourth year running, with individual IP sales totalling 130,365 – a fall of 11.5% compared with 2005 when 147,285 policies were sold.
Adding insult to injury, sales of the product – deemed to be essential by the movers and shakers of the industry – have, according to the report, fallen faster than those of critical illness (CI) cover.
Roger Edwards, product director at Bright Grey, says that, while all protection products have experienced stagnant or stalling sales over the last few years, the fall in IP is particularly worrying.
Agreeing with Edwards, Joe Wiggins, PR manager for housing and protection at Legal & General, says this may be because it is easier for advisers to sell alternatives such as CI cover because customers can more readily relate to it. "Most people know of someone either in their family or at work who has suffered from the top three most common causes of a claim – cancer, heart attack or stroke," he says. However, he adds that: "Their perception is that being unable to work for a prolonged period due to ill health either simply won't happen to them or the State will step in to save the day.
"The cost-versus-benefit judgement on IP simply doesn't stack up as well in the customer's mind", he explains.
Kevin Carr, head of protection strategy at LifeSearch, however, believes that much progress has been achieved but that publicity surrounding the cover has been internal and perhaps not a lot has reached the consumer.
In addition, payment protection insurance (PPI) scandals have done little to endear the public to this product. What is more worrying is there are rumours currently circulating the market about how the banking industry is effectively trying to get the Office of Fair Trading over a barrel when it comes to its investigation into PPI mis-selling and that mortgage interest rates could be impacted as a result.
Wiggins says that the investigation into the mis-selling of PPI may well open up the opportunity for IP in the next 12 to 18 months.
Mark Johnson, head of marketing UK and Ireland at Swiss Re life and health, says the decline in sales is primarily due to the products' traditional challenges, such as the fact customers do not know about the product, they think they already have it, or they do not think they really need it.
Edwards says that to a large extent IP is a marginal product. "For many companies it represents only a small percentage of their overall new business and, therefore, they tend not to focus much attention on it from a sales promotion and a product development point of view," he says.
He adds that, for the vast majority of firms, IP is not a focus. "They are happy to receive the small amount of business that it brings, but do not look into developing the product or dedicating marketing budgets to campaigns to grow the market," Edwards explains.
The companies that do have a focus continue to write healthy business, he adds.
Interestingly though, Johnson says that, following research Swiss Re conducted earlier this year, the reinsurer found that, when it informed customers about IP, they thought it was an invaluable product and was almost too good to be true.
"A radical re-think is required to make this a mass market product with much of the complexity needing to be taken out and simple marketing messages being utilised," the Swiss Re report states.
Carr says: "The IP boat needs to be rocked but there are some IP providers that are doing everything to steady the ship". But while he declines to comment further on those providers that are potentially holding back innovation in the individual IP market, there is a general feeling among commentators that some of the IP market leaders may be quite comfortable with keeping IP in the position it is.
In order for the product to achieve any real sense of progression, Johnson says the industry must fix the problems and reiterate what good value it is for what consumers actually get. In addition, he says that providers should help advisers and give them simple and hard-hitting facts on what the product offers.
He says that the product fundamentally needs to be made simpler and be made more relevant to those that do not have IP.
To turn IP into a success story, back at the end of last year, the IP Task Force White Paper stated that advisers must be properly trained and understand the causes and natures of long-term disability for the cover to become a success.
The paper argued that sales levels show the product needs more than a face lift, with research indicating that IP does not sell because people do not believe there is a need for this product.
The year ahead, however, looks surprisingly positive and, despite its more than lacklustre performance, providers still seem keen to enter and develop products. Such entrants being bandied around include Fortis.
Commenting on the market entrants this past year, Peter Le Beau, managing director of Le Beau Visage and co-founder of the IP Task Force, says: "One of the problems with IP is it needs to be revamped and this year we have seen seven new products including three from Pioneer, Friends Provident and Prudential. This is encouraging, but it probably means that sales will take some time to build up. However, companies are not developing the plans for fun and there is a clear belief that if the product is reshaped it should increase."
Looking ahead, Le Beau says that in order for the market to move forward from these disappointing sales figures, two things are needed. Firstly, he thinks a slicker underwriting process is required. "This means looking at tele-underwriting or some form of paramedical underwriting as an alternative to the GP report."
In addition, he says there is a need for more case studies to underline the value of the benefit.
Wiggins says that 2007 has been the year of CI but "there is now an opportunity for providers to devote time and resources to turning around IP sales".
past performace
Edwards says there are also changes to the Incapacity Benefits in 2008 that will make it harder for people to rely on the State. He believes that this change can act as an opportunity but errs on the side of caution as there has been false hope before. "The last tightening of State benefits in 1996 was welcomed by the industry as the potential launch platform for an IP revival but it was a damp squib. Until the product issues are sorted out, these opportunities cannot be realised to their full potential," he says.
Again, looking on the positive side, Alan Lakey, principal of Highclere Financial Services, says: "Now providers have finished with the CI definition changes they may feel able to devote energy to redesigning their contracts to fit in with the needs of consumers and not the assumptions and preferences of the back-room boys and reinsurers."
Perhaps the real crux of the issue lies in the industry's attitude towards this product. As Carr says "there is mutual disinterest" and this fundamentally needs to change. He says it should no longer be a question of wanting to be interested but simply a matter of having to be interested. It is about time the industry ceases its current negative attitude and gets behind those that are attempting to drive real innovation in this area. n
