How hard is it to design disability-based protection products in 2012, asks Andy Milburn.
Australia has had compulsory pensions for many years. In 2009, it added a compulsory element of life cover. Australians usually get one unit of life cover from their compulsory life cover contribution into their ‘super fund', providing them with about A$25,000 (£16,000) of cover.
The result so far is surprising. In the UK, consumers think the welfare state will cover them in times of dire financial need caused through ill health - they are wrong in that belief. In Australia, consumers believe that their ‘super fund', with its compulsory life cover, will cover them in times of dire financial need. They are wrong too.
Even with compulsory protection in place, Australia has a protection gap, just like the UK. Experts in the UK who have recently called for compulsory protection to be introduced here seem quite happy to ignore this example. They should not.
The picture for income protection changes when you start to consider incentives, either on their own or alongside some form of compulsion.
Income protection is also hugely popular in Australia. Australians get tax relief on the premiums that they pay, and about 55% of Australians who do not have a staff benefits scheme in place - people such as builders or the self-employed - have to buy income protection cover by law before they can start their job.
Without a macro change to income protection products in the UK in future, identifying any different future product strategies for this product looks very difficult, if nigh impossible, now.
While the marketplace has begun to evolve, critical illness products in clearer different directions recently, the income protection market remains pretty much ‘me too', with few products offering a radically different product design.
The only potential scenarios we realistically see developing in the income protection market appear to be the traditional product design against the potential opportunity that replacement PPI products may offer. That approach is not clear enough for most to comment on yet.
Critical illness is ahead of income protection. Emotionally, that is a hard headline to write. Most experts say that income protection is more important than critical illness. For various reasons that we all discuss regularly, our industry still sells much higher volumes of the latter.
When considering product strategies, the headline seems to have more gravitas. It appears that critical illness products are ahead of income protection products in terms of the different strategic options and different product designs that are starting to emerge in the UK.
Critical illness products are evolving again and are becoming more interesting, whereas income protection products seems stuck in a rut. Product designers and strategists prefer working on evolving product markets, and that is not good news for income protection.
Andy Milburn is head of marketing at Ageas Protect
