How to maximise protection revenue

The most recent Aviva Adviser Barometer found that more than two thirds (69%) of advisers gain less than a quarter of their income from protection and that 6% do not earn any revenue from protection sales at all. 

The research, undertaken by Drewberry Insurance, show that just 7% of the UK population protects their income - this compares with the 25% that have pet insurance. Advisers need to be aware that, without advice, for many consumers the wellbeing of their animals, as opposed to themselves, is more important! 

The 'I don't need this' argument

Research conducted by YouGov on behalf of Cirencester Friendly at the end of last year revealed some worrying statistics about how financially unprepared a significant section of the UK population is for a long term absence from work due to ill-health. 

When asked where they would turn for help if they had to stop working due to sickness, 53% of those surveyed said that they would depend on the state to support them. Two-fifths (41%) said that they would last less than three months before running into serious difficulties such as an inability to pay the mortgage, rent and utility bills.

There seems to be a general lack of awareness about the level of support provided by the state with many overestimating the amount of help they will receive. The reality is that benefits will simply not cover the outgoings of the vast majority of workers.

Although individual situations will vary depending on the employer, the minimum that a worker who is off sick for four or more days in a row is entitled to is £88.45 per week.

Statutory Sick Pay (SSP) is paid by the employer for 28 weeks before the claimant then has to make an application to the government for Employment and Support Allowance (ESA). The assessment rate (£57.90 for under-25s and £73.10 for over-25s) is paid for the first 13 weeks and following a successful application either £102.15 or £109.30 (depending on circumstances and national insurance contributions) from then on.

For the self-employed, the need for some kind of protection product is arguably even greater. Many of those who work for themselves such as plumbers, electricians or taxi drivers will have little support in the event of being unable to work. 

According to the latest figures from the Office of National Statistics (ONS), the average full-time weekly wage in the UK is £493 a week. Therefore even a temporary reliance on either SSP or ESA is going to mark a significant fall in earnings for many British workers. 

Statistics from the Department of Work and Pensions show that over 2.5 million people have been unable to work for three months or more and are currently claiming illness-related benefits. The odds of falling ill or suffering an accident that compromises the ability to work are relatively low.

However, such misfortune cannot be predicted. For example, in 2014, 27% of the 720 claims paid by Cirencester Friendly were for accidents or injury. This is consistently the most common reason cited in claims submitted to Cirencester Friendly.

These findings should serve as a strong reminder to both consumers and the adviser community. Clearly explaining to clients that they are potentially playing Russian Roulette with their finances if they do not take up some kind of protection product should help convince those who come to you with the "it won't happen to me so I don't need this" attitude.

Use claims statistics

Unfortunately, the fear of claims being declined affects the entire insurance sector. For protection providers, this is where the publication of claims statistics comes in and a more transparent approach to claims payment has certainly helped to address some of the concerns held by intermediaries and consumers. 

The publication of claims statistics builds up a bank of data in the public domain that sets a standard by which each provider will be judged. In 2014, we paid 94% of claims and the figures published by other providers were broadly similar.

If one provider's claims statistics were significantly lower than its competitors then that should naturally prompt some adjustments in order to meet the expectations of its clients.

The evidence shows that the vast majority of claims are paid and this should be made clear to clients. However, I would also urge advisers to look beyond the headline figures, specifically at the list of reasons why unpaid claims were declined. This increases understanding and helps ensure that customers know what they must do to ensure a successful claim.

Terms will vary depending on the provider and the contract but as long as the client has disclosed full and accurate information at all stages, premiums have been paid and the claim submitted is genuine, there is no reason for an application for support to be declined.

Know the products

There are a range of protection products out there and it goes without saying that, as the adviser, you are best placed to guide your client as to what product from which provider is best suited to them.

Some believe that protection is not as important as pensions or mortgages but this is a flawed point of view. After all, if the worst did happen and someone was left with no income due to ill health, how would they save for retirement or pay the mortgage?

Advisers should also consider the impact on their own business should clients be unable to continue contributing towards their pensions or savings plans.

I have also heard the opinion that protection contracts are wasted money as there is no benefit if a claim is never made. However, the same could be said of motor or home insurance.

While one is obliged to take out these policies by the law and terms of the mortgage respectively, it is more than that - it is a case of protecting the things that they value and earnings should be no different. 

Advisers who remain unconvinced about the merits of pure protection policies should examine other products available on the market. A large part of driving protection sales is looking for USPs that will appeal to clients.

For example, Holloway contracts allow members to share in the profits of friendly societies - a percentage of the monthly premium is invested meaning that when the policy finishes, a tax-free lump sum is paid.

Putting some kind of safeguard in place against an inability to work due to ill health is an important aspect of sound financial planning. It is good to see that many advisers recognise this but with such low levels of permeation among the British population, made worse by the PPI mis-selling scandal, it is clear that more still has to be done. 

A good protection contract should be designed to help the client when they need it most. The feedback we have received from Cirencester Friendly Members is that, much like a life-jacket or a fire extinguisher, they don't realise the value of their contract until they have to use it. 

Paul Hudson is chief executive of Cirencester Friendly