What does the Sergeant review mean for the group market? John Letizia believes it is a spur for growth.
In November, Phil Veale of Chiltern Consulting argued in COVER that income protection (IP) had not seen significant product development in recent years. As a major provider, we would agree entirely, but any concerns should be allayed by looking at the work being done by Carol Sergeant's Review of Simple Financial Products.
It has the potential to be a huge opportunity for the financial services market, but particularly for the income protection (IP) category.
By concentrating minds on what a certified simple IP product might look like, particularly the benefits of group products as opposed to individual policies, the Sergeant review should provide significant impetus for further product development, boost the reputation of IP and deliver significant growth for the market.
To understand the opportunity presented by the review, we should start by considering the apparent barriers to creating a genuinely simple IP product.
There are four competing requirements that such a product must reconcile:
• The need to make the product affordable for a broad range of people;
• The need to ensure that eligibility is not restricted and cover is open to the majority;
• The need to ensure individuals receive an appropriate level of cover;
• The need for the product to be commercially attractive for providers.
These potential barriers may lead some to question whether a simple IP product is viable. But how could a product for which there is a clear need (consumer organisation Which? calls IP a ‘must have') not be viable? It has such a comparatively low market penetration, with just one in ten people employing IP. However, given those competing demands, it is clear that simple IP must be structured carefully to ensure its success.
Individual versus group policies
So how can those four distinct requirements be reconciled? The key to the successful roll-out of simple IP will be favouring group policies through the workplace, rather than individual cover. There are four main reasons for this: affordability, accessibility, availability and consumer acumen.
• Affordability
If simple IP was offered through the workplace, premiums could be calculated for a group of employees, thereby spreading the risk for the product provider and bringing down the cost of cover.
In addition, progressive employers would have the opportunity to subsidise the cost, either in full or in part, by incorporating IP within their employee benefits package.
There would be bottom-line benefits to this approach for employers through improved staff morale and loyalty, as well as helping with talent attraction, especially given that it is a tax-deductible benefit.
