With sales of individual IP on the slide, industry is agreed something needas to be done. However, as Nicola Culley discovers, opinion is divided as to how to reverse the decline.
We heard recently that even G-day incentives are not shifting notoriously undersold individual income protection (IP).
The long heard argument is that the product is desperately in need of innovation. But quite how that should play out divides opinion.
Some say complexity is the baddie of the piece and needs to be stripped out. Others are adamant simple options already exist in the myriad products the industry offers, and how they are promoted is what needs turning on its head.
To set the current scene for individual IP, Swiss Re's Term and Health Watch 2012 is a good place to start; take-up of the product dropped by 0.2% from 2010 to 2011.
Is this just a sign of a bad economy? Or is there much more to the dirty picture under the bonnet?
The size of the fall suggests the former, but many say other factors cannot be ignored. For example, Phil Veale, owner of consultancy firm Chiltern Consulting, said complexity is a real issue with individual IP.
He strongly feels that structuring the products around state benefits is baffling.
He explained: "The obvious thing is that the market is pretty weak at the moment. It has always been the case. It is all about the products and the way they are promoted. I think we are trying to overcomplicate it all.
"The industry is trying to integrate the products into state benefits and that is just wrong. The state benefits should be made irrelevant."
Veale argued that if a person paid a premium then the product should pay out simply and cleanly regardless of state benefit entitlement. He said, by not doing this, insurers were missing an important part of understanding consumer need.
"People have short term and long term needs when they go off sick," he said.
"What they need to begin with is more money to sort themselves out and adjust to a lower income. This should come in the form of IP backed by a critical illness lump sum. After they have adjusted they can live on, on lower incomes."
Veale stressed that structuring the products by trying to fit in with state benefits, if nothing else, did not even make practical sense. The constant changes in the system, he said, just created too much of a challenge for providers to keep up with.
Veale added: "I am not sure why providers do not innovate like this. The problem is it is seen as over-insuring and thus impacting on price, but it is not over-insuring. The way they are being structured now just over-complicates everything."
In the name of moving away from complexity then, is the simple income replacement product proposed by Carol Sergeant's steering group the way forward?
IP specialist provider British Friendly is not entirely convinced of the need for such a product.
Steve Wanstall, head of sales at British Friendly, said: "One of the things I hear a lot of is about protection innovation and simplifying products. But innovation already exists. The spectrum of IP is very broad. The innovation needs to be less about products and more about how to engage the consumers.
"The proposed simple IP for example comes with its own ramifications, like reduced underwriting will push price up. Until there is a greater understanding of IP it will not sell.
"We do not have a particular stance on the steering group initiative. It is a good move if it means the consumer is going to find it easier to buy. But simplifying it does not necessarily mean it is going to be sold, there are already simple IP products."
British friendly reported a record month in sales in October. Wanstall said it was part of an overall growth story and that the Gender Directive had not had any impact on sales, rather it owed to engaging better with advisers and consumers.
He explained that there had not been "a great deal of rushing" to take advantage of the deadline, nor had he been inundated with advisers really pushing IP, adding: "IP as it stands at the moment pretty much comes down to the adviser's ability to sell and it has to be sold not bought. Innovation needs to build the piece around awareness and value of IP not necessarily product structure.
"More recently it is like people misunderstanding how expensive the product is and debating whether the product will pay out. It is getting the right message out."
Manchester-based IFA Clayton Hulme Partnership echoed the view. Director Chris Hulme said the firm had been out there with clients marketing the price-factor ahead of the gender-neutral deadline but had seen no real impact on sales.
Hulme added however, that sales of individual IP had rocketed after the firm campaigned about state benefits and raised awareness among clients about the value of the product and their potential need.
And Warrington-based advice firm Relevant Life Policies reported similar. Tony Columbine, director, said the Gender Directive had "certainly" driven a 10% increase in life protection business, but reported no additional take-up of IP.
He said individual IP was very under-sold and that it would need much more than the Gender Directive changes to push sales.
"IP needs real innovation including more flexibility, fixed-term benefits and lower costs initially," Columbine said.
Cirencester Friendly said lack of take up of individual IP was mainly down to consumer awareness, a lack of advice and generally just a bad economy.
John Bridge, director of sales and marketing at Cirencester, said there was a serious confusion between PPI and IP and the collapse of the mortgage market had taken a lot of protection business with it.
Bridge said: "There is also a perception of our industry that insurers do not pay-out. It is a bit of a myth. The confusion presented by ADLs and own occupation has certainly had an impact on the market and most of the market is moving to own-occupation now so that if you are unable to work pay-out is very clear. And that is a good thing.
"But importantly good quality advice not only increases sales but when people are looking at IP it will ensure pay outs too."
According to bridge, there is no one silver bullet to turn the market around, but that it does need innovation.
Bridge said he was "all in favour" of the simple product concept, but added that the industry already had simple IP products.
He said: "What it needs to be is flexible and available to be tailored to differing needs. We need a simple basis but also a product that can be altered. Providers should not put restrictions on it.
"And there is the perception that if you are ill and cannot work the state will pay for you. We have an enormous amount of education innovation to do to deal with this issue."
Whatever the opinion in the industry, most are in agreement that individual IP needs to be shaken up a bit. And at the very least, the steering group simple product proposals for a new income replacement product suggests movement.
