Income protection sales still lag behind other types of insurance. Ed Stuart-Brown and Colin Micklewright talk to Scott Sinclair, news editor at IFA-Online, to discuss why
Consumer confidence in income protection (IP) as a product seems to be a problem, what is the situation here?
Stuart-Brown: I am not sure consumer confidence is the heart of the issue. I talk to a number of IFAs who feel there is an uphill battle with clients who have an unrealistic expectation that, if the worst comes to the worst, the state will provide. There is a myth we need to start to dispel. The difficult thing is for any customer to get themselves into a position where they are taking action. They have to deal with pretty tough conversations with themselves. What would happen to me and my family if…?
Micklewright: Whether it is the group market or the individual market, people need to understand just how little the state will provide. The current state benefits are just over £4,500, that is £89.80 per week and the new ESA without doubt will be a lot more difficult to get than the old long term incapacity benefit. Many people wouldn't hope to survive on £4,500 a year.
We need an education programme. We don't have a bottomless pit any more as a nation and I think the recession is focusing that point as well. People need to understand that private provision is probably the only way that you can secure the future.
Stuart-Brown: No government is going to want to stand in front of its electorate and say the welfare state as it exists today is unaffordable, we simply can't provide the benefits that rightly or wrongly people thought they had. Equally, there is a misconception as to just how generous they are. I won't tell you how long ago I was at school but I came out of school with no clear financial education at all. And I don't think since I was at school that has necessarily changed.
Micklewright: I would lay at least some of the blame at the door of insurance companies. I don't think we have moved in the group market (until recently), quick enough with the times, possibly because the products haven't been as relevant and they have probably been too expensive. In recent times, we have seen the introduction of limited payment terms which I think is a much better solution for many because the job for life attitude went a long time ago.
How important are sales skills for advisers? And when it comes to products like income protection, do you need a real sales nous?
Stuart-Brown: There is undoubtedly an increasingly strong need for advisers to be technically competent and professionally qualified. But when you start to get into areas such as protection, you are getting into very personal discussions and conversations with customers.
I am not arrogant enough to sit here and say IFAs don't know how to sell, that is far from my experience. But we are seeing more and more requesting help and support materials. So there is an increasing acknowledgement that there is more we can do to help IFAs.
Given that providers limit the amount a client can insure, say 65%, why is it that the client on claim, finds the limit is reduced by other factors? Is this TCF, treating customers fairly?
Micklewright: We don't, on the group side, generally have this particular problem, because the way the schemes are costed. They are based on the salary, they are guaranteed for two years, so you would normally have typically 75% minus the old state benefits or possibly 50% but it is based on the salary year on year. So that particular problem doesn't really present itself.
If there are other benefits being paid, short term benefits, say issue type policies, the general practice with most insurers is to ignore them. If there are longer term benefits, i.e. paid for more than two years, they may be deducted in the event of a claim.
Stuart-Brown: I think there are two sides to the question. Is it appropriate to insure 100%, or 120%, or 75% of someone's earnings? What we are trying to do is enable someone to maintain a standard of living but with an incentive to return back to work. There is some very detailed and comprehensive research that has gone into the long term well being of an individual who is unable to work, and there are huge costs to the state and to the individual. It is in everyone's interest that people ultimately who can, and are able to, do get back to work.
The other side of the question seems to be factors that might then limit the claim. Here we have got to make sure that both the insurer and adviser are very clear about what the contract does offer and equally what it doesn't. And particularly in terms of some of the simple products and limited term products.
How big are rehabilitation schemes becoming as part of products?
Micklewright: It is an inseparable part and this isn't an altruistic offering. We have an interest working with advisers and the employer in getting people back to work. And that is best done early doors. Typically we would hope to be involved in the claim four to six weeks after absence. If we leave it any longer, people start watching daytime TV. They then don't come back. The DWP's latest research suggests that when people have been absent for a period of 12 months, on average they take eight years to come back. So you can pretty well give it up if they are not back in the short term.
It has been suggested fairly recently I think, that not working is equivalent to something like smoking 30 cigarettes a day in terms of the impact on your health. Not necessarily just your psychological health, but it is a very, very serious issue and rehab and intervention services go hand in glove now, I think, with group income protection.
The full version of this debate can be listened to at www.ifaonline.co.uk/media-centre
Ed Stuart-Brown is head of protection for Friends Provident and Colin Micklewright is head of group income protection business development at Canada Life
