Consumers can be divided into four categories based on their attitudes to protection. Mark Holweger explains how advisers can identify these categories in their client bases
Despite the best efforts of both providers and advisers, the UK's ‘protection gap' continues to grow, with many consumers still not having adequate levels of cover in place to protect them against life's uncertainties.
Legal & General's latest What Would You Say to Your Younger Self? research, which looked into consumer attitudes to important financial decisions, revealed that just 39% of people in the UK have either life insurance or critical illness cover.
To compound the problem, the data also showed that while the size of mortgage liabilities are increasing, people are putting less money aside for the future, causing a shortfall in savings.
This is especially worrying when viewed through the prism of an ageing population, with improving healthcare helping to increase survival rates for those with serious illnesses.
So how can we engage with people to make them grasp the importance of protection products? Well, the general lack of awareness and understanding of the issues is one of the most pressing concerns.
This is certainly true for consumers. The industry can help to address this issue by supporting the financial education of customers, providing useful guides and marketing materials to simplify the process of taking out life cover.
First, we need to avoid jargon, promote the use of plain English in product literature, and develop public understanding of protection products.
Second, and perhaps less widely acknowledged, is that the industry also needs to educate itself when it comes to customer needs, and more specifically, the different personality types and attitudes towards life insurance.
Our research revealed that there are four main personality types of protection buyers, and the challenge for the advisers is to tailor their approach to provide the best possible service to each individual. The personalities in question are: the Free Spirits, the Confident, the Guilty and the Dependent.
The Free Spirits
Some 28% of those who participated in our survey think they do not need life insurance at all! More men (31%) feel this way, compared with women (26%). This category is mostly populated by those aged 18-24, who account for 38% of the section.
However, older people also hold this view - those aged 55-64 also form a large part of this group (32%) and another 37% are aged 65 or more. It's never too late to take out cover, although clearly, premiums are lower the earlier you start.
The ‘head in the sand' approach is also more prevalent among single people, who form 38% of the category than among couples. Those who are in their first marriage, remarried or cohabiting are less represented in this category.
Lack of understanding of the importance of life cover seems to be at the root of the Free Spirits' reluctance to take out such products. This personality type needs to be educated as to the benefits of taking out life cover, and to understand that, for many British people and families, financial stability is becoming increasingly precarious.
L&G's latest Deadline to the Breadline report shows that 43% of those aged 18-24 have no savings.
We also found that while many tend to think that they won't need life or critical illness cover, 50% of people know someone who has suffered a serious illness or injury.
If the Free Spirits were to lose their income, it would only be a matter of days and weeks before they could become reliant on state benefits and the support from their friends and families.
The Confident
This category forms the counter-balance to the Free Spirits. 28% of Brits say they already have life insurance cover and feel relaxed about the future. More of the older age groups from the age of 45 or more fall into this category, and only 6% of those aged 18-24 feel this applies to them.
Confidents are mostly people who are in a relationship (32%, compared with 20% of singles). However, they are often unmarried couples who are not cohabiting with their partners.
There seems to be a direct correlation between the length of a relationship and the inclination towards taking out life insurance.
It seems that there is a jump in the number of people with life insurance cover after five years in a relationship.
Some 29% of those who have been in a relationship for five years or less have life insurance, while this climbs sharply to 40% for those who have been together for between five and ten years, jumping again to 55% for those who have been together for ten to 20 years.
This personality type offers advisers the chance to regularly review what their clients have and make sure it is fit for purpose. People's lives are constantly changing, and while it is good to see people taking out life cover and feeling confident about their choices, this category of people should not become inured to changing circumstances.
Passive clients may simply renew their life insurance, income protection and critical illness cover policies without assessing how their circumstances have changed, which could leave them without the right levels or types of protection.
As a result, in addition to being unprotected, these clients will typically be very surprised - and angry - if and when they find themselves without appropriate cover.
The financial services industry can be its own worst enemy when it comes to provoking inert customer behaviours. The sheer number of different products available can contribute to inertia. Many people will simply stick with what they know, even if they aren't happy, rather than trying to ensure they have what they want and need.
Advisers are key to helping such clients become more engaged in financial services, because it is part of the role of the adviser to make sure customers have the right policies in place.
Confident clients can often be persuaded to review their products if they are given the right information, such as a clear breakdown of the differences between cover, because this will make it much easier to see which product is right for them.
The Guilty
The Guilty people are conscious procrastinators. 20% of people say they know they need to sort out their life insurance but never seem to get round to it. More women admit to this (23%) compared with men (18%). It also applies more to those aged 25 to 34 (31%) and 34 to 44 (27%).
The Guilty are also more common among those in earlier stages of a relationship, whether that be up to a five-year-old union (28%) or one that has lasted between five and ten years (32%).
The industry needs to act as a prompt for this category. Advisers and providers alike should have those tough conversations with their customers about planning for potential future illnesses and misfortunes. We need better and clearer marketing of relevant products, and must address any myths about unfair refusals or words in ‘small print' that may discourage people from protecting their family's financial future.
This personality type needs to be made to see what an enormous difference the right level of preparedness can make to individuals and families at what is likely to be the most stressful time of their lives.
Big changes in the lives of the customers provide the opportunity to open conversations and increase sales when it comes to protection. One of the obvious protection triggers is taking out a mortgage. The mortgage market has grown significantly in the past year, giving advisers the chance to discuss financial protection with their clients to make sure they have everything they need in place.
While many of these are difficult topics to address with clients, every adviser should be prepared to have conversations about protection with customers.
The Dependents
Finally, there are the Dependents: a small but significant minority (3%) who expect someone else to take responsibility for arranging life insurance for them. This category is mostly populated by younger people, particularly those aged 25 to 34.
To take responsibility for their own finances, the Dependents need to talk to the right people - be they providers or advisers,or friends and family - to understand the precautions they may need to take if anything should happen to them.
They need to be aware of the responsibilities they may have towards themselves and their loved ones, and be made to realise that getting life cover is much simpler than they think.
It is not enough to rely on others to sort out protection for you. With the loss of a key bill payer due to death leaving 39% of people in the UK with a mortgage to pay, it is clear that the industry needs to take action.
L&G's What Would You Say To Your Younger Self? research found that over the past 12 months these mortgage debts added up to a staggering £32bn, with an average amount of £56,823 per household.
Hopefully, these personality types will provide a useful template for advisers when thinking about their clients' protection needs. If there is scope to have more engaging conversations about life insurance and critical illness cover, that's going to create sales opportunities for advisers in the protection market.
Every customer is different, of course, but most of us tend to behave in certain ways and according to certain patterns.
The more advisers understand these behaviours, and the better providers can design and market their products to fit changing customer needs, the more scope we will have to help customers get their cover right, and to increase overall industry protection sales in the process.
Mark Holweger is director of intermediated insurance, Legal & General
