The environment income protection is sold into is changing fast. Lee Lovett sees promising signs this could be the start of the time when IP cover comes of age
The income protection (IP) market has had massive potential for many years, but it has consistently failed to deliver any form of material new business growth. In fact, in recent years there has been a reduction in new policies sold.
The degree of under-insurance in the UK is scary. Only 12% of the working population have any form of IP cover, either provided via their employer through group schemes or via a policy that the individual has purchased themselves.
If we put aside lives that are un-insurable the scope for this market to grow is still huge. However, gender neutral pricing is just around the corner and will add a material increase in rates for around 70% of typical IP customers.
If we put gender neutral pricing to one side, the fact remains that IP remains the cornerstone of financial planning. The historical perception that the state will provide must become exactly that - history.
The increasing amount of media commentary on the impact of government austerity measures must be a concern for the public. In particular, how welfare reform is increasingly making it more difficult to qualify for state sickness benefits and to continue to get these on an ongoing basis.
At the same time there has been unprecedented TV advertising explicitly for IP cover from both Aviva and UNUM; combined with more traditional (but equally powerful) financial services advertising from major providers such as LV=. This can only help to raise awareness of the risk/probability of long-term sickness arising in the first place and the potential for insurance to help solve this problem.
The key question though is, will this make a material difference to the amount of people that have IP cover?
History is against us and there have been several false dawns for IP cover. So, what is different this time around? Are there any other factors that could lead us to a better outcome? Clearly, we know from the past there is no single solution, however, there are a number of factors that are shaping the market's future.
Own occupation
The original move towards activity-based definitions was well intentioned; to aid expansion of the market into blue collar occupations. The reality, however, has been somewhat different. Activity based applications have been a disaster at claims stage, with a disproportionate number of claims being turned down.
