The introduction of simple protection products is being hampered by divisions among providers, writes John Letizia.
In many cases this still rings true, but not in all. In recent years, changes to society and the workplace have begun to undermine both the house purchase moment as the logical point of sale for IP, and the idea that it should therefore be sold on an individual basis.
Particularly in London and the South East, high house prices mean that rates of home ownership have now begun to plateau and fall. However, young people do not simply live with their parents until they can afford to buy. The corresponding growth of the private rented sector, with rents an equal financial responsibility as mortgage payments, means that the focus on targeting homebuyers for IP sales makes less sense.
In addition, changes in the perspectives of today's employees are not developing in isolation. The mobility and flexibility of today's workforce is also helping to change the outlook of employers, leading them to increasingly embrace group risk benefits.
Firms are increasingly recognising that recruiting, retaining and motivating knowledgeable and skilled staff is the key to commercial success. Meeting that challenge requires a sophisticated employee engagement and reward strategy, in which group risk benefits, such as a putative Simple IP product, have a key role to play. That argument is now supported by a growing body of research.
According to a recent study by Cass Business School, employee benefits packages have not kept pace with changes in the demographic profile of the workplace, leaving staff less financially secure than they were 30 years ago.
As a result, 62% of employers now agree that employee benefits have become much more important in helping recruit new staff in recent years. 89% of employers say that staff are interested in their workplace benefits, pointing to the impact of reward packages on effective employee retention.
Furthermore, nearly half of bosses (47%) now identify improving productivity as a major advantage of a modern benefits package, reflecting findings from the Harvard Business Review that employers who promote financial resilience among their staff can boost productivity by up to 26%. Crucially, employees themselves welcome further support from their employers in planning their financial security.
According to research from DEMOS, only one in four (27%) would be against this.
And perhaps the most relevant measure of all? According to the most recent Swiss Re Groupwatch figures, in-force group risk premiums are up by 9.7%. The same source's Term & Health Watch data for the individual market showed total protection sales down by 2.7%.
Most important, the government has demonstrated in the clearest possible terms that it sees the workplace as the best distribution channel to deliver financial security. The introduction of pensions auto-enrolment will prove transformative for the group risk sector.
There is now virtually unanimous consensus that the principles behind auto-enrolment in workplace pensions are sensible and will ensure the financial security of millions of people in retirement. The principle of workplace distribution is surely equally applicable to the protection market?
In fact, the government can be seen to have taken tentative steps on this path already. Plans are in progress to introduce a £500 tax break for employers who invest in health interventions and rehabilitation to support staff in returning to work after a period of sickness absence.
These fundamental shifts among consumers, employers and government are undermining the primacy of the individual market and point to the fact that group distribution will become predominant in the coming years. However, it is equally clear that this is an emerging trend that is not yet fully established.
Industry inertia
In that context, the industry inertia on simple products can be seen as the result of tensions between two camps of providers. On the one hand, individual providers have supported individual distribution for Simple IP, reflecting the market as it is today.
On the other, group risk providers favour a workplace model for Simple IP, reflecting the market's likely future direction. The result thus far has been an uneasy stalemate.
That is understandable. Such a fundamental change will undoubtedly be painful for some. However, in addition to the acknowledged objective of delivering growth by building consumer trust in the short and medium term, these underlying shifts illustrate a second, more subtle, reason why the simple products agenda is so important.
By encouraging new perspectives on everything from product design to marketing, over the longer term it should act as a catalyst for innovation and growth.
Creating consensus on a Simple IP product was never going to be easy. For Simple IP (and indeed any innovation in the market) to be successful, it has to meet the needs of those seeking cover. To protect people adequately, we need to understand how they live their lives and design products to fit with the times.
The fact that the Simple Products Review was needed at all suggests that as an industry we have not adapted sufficiently in recent times. However, as well as exposing some past shortcomings, Simple Products can also act as a prism through which to consider the future direction of the industry.
Our hope is that not only will a workplace Simple IP product still come to fruition, but that the initiative will spur more fundamental reconsideration of how we can meet the needs of our policyholders to deliver meaningful progress in closing the protection gap.
John Letizia is head of public affairs and CSR at Unum
