Closing the gap
David Worsfold: To start off today’s debate, do you think we need to do more to promote protection?
Roger Edwards: I guess without wanting to dredge up a cliché, the fact that the protection gap exists and is so big – it is quoted as being £2.3trn – suggests that the public is vastly under-insured.So, yes, we do have to raise awareness about protection – but is it just protection that we have to raise awareness about? Or is it more raising awareness of individuals’ responsibility to do something about the lifestyle they lead. These days, a lot of people earn good salaries, have credit cards and can lead a relatively luxurious lifestyle. Is there a responsibility to acknowledge the fact that they need to do something about it themselves? Or, do they feel it is somebody else’s problem?
Fay Goddard: I agree, because hand-in-glove with that is the lack of understanding of the support from the State. I think most people would be absolutely horrified if they knew what they would get. Debt is mounting, and if we had a reversal in the economy of much higher inflation and experienced things like repossessions and people not being able to manage their debt, I don’t think people would have any real understanding of where they would be financially. This is because we have lived very comfortably for the last five to 10 years.
Jason Hurley: I certainly think that the Government could promote protection if it felt that there was a need.
Fay Goddard: It is not a vote winner though, is it?
Nick Starling: I am struck by a couple of things. Firstly, if you actually took someone and described what protection products deliver, they would sit back and say ‘yes that is pretty good’. If, for example, it is tied up in your employment contract, it is a pretty valuable part of it. But, the other issue is that people buy their insurance in a very atomised type of way. All of us go out and we buy our motor insurance from one provider, household insurance from another, we go all over the place to buy our financial products. And there is no sort of collective approach that takes people and says ‘this is your situation and these are your debts, these are your assets’ and things like that? And I think part of it may be the way that all of us buy products ourselves, and that is part of the reason why there is not so much awareness.
Alan Lakey: I would like to pick up on that point as a financial adviser. I think, really, we are talking about a state of mind of the consumer – I would say that the Government assistance is a double-edged sword. I think we are pretty nannied as a nation where people on £55,000 a year can still get working family tax credit. Whether the benefits are enough is not the point, the point is that it sends a message. And the message is ‘you don’t have to look after yourself because we are here to do it for you’. Many people have asked me ‘what is the point of saving for a pension when I am going to get this or that later; what is the point of having one of these when the State will pay this and, if I break my leg and I am paralysed, it will give me a wheelchair and all the rest of it’. These are the thinking processes of people in a significant section of the population. The overall answer is that there is a mindset that needs to be altered.
Lucian Camp: Does it need to be altered, or does it need to be understood better and catered for? I think one of the things that can create a gap between industry and consumer is our assumption that the best thing that can happen is that the £2.3trn protection gap would disappear overnight. That is not an idea that many consumers are going to support when you think about the cost of that quantity of protection. To get anywhere close to the optimal level of protection that we would probably agree upon is going to have a severe effect on consumers’ lifestyle, and a very serious change in the balance of their household expenditure would be needed. They may choose to make that, they may be forward-looking people who are risk-averse, and who are particularly concerned about their future. They may choose to spend money to protect themselves against that risk. I think these judgements about what consumers should and shouldn’t do is one of our more dubious mindsets that causes a gap between us and them.
Steve Payne: I think what you are talking about is that we would like to have a consumer base that is able to make an informed choice. And I agree with you that, if we can get to that state where people are making an informed choice, then that is as much as we can aspire to do. But, I am interested in the comments about the role of the Government here too. I think what we have to focus on is lobbying – how we can influence what the Government could be doing better to help us in this area. We have identified two things: the theme, which is around information that we would like to provide to end consumers, to enable them to make this a more informed choice; and secondly, a potential group of actions that are around lobbying.
Roger Edwards: It is all very well for us to sit around this table, all being relatively high earners with comfortable lifestyles – but there are a lot of people out there earning different levels of salary and some not earning money at all. And how do they associate their priorities with what we are trying to do? I think that there are some people out there who are on relatively low salaries who may have payment protection insurance (PPI) on their Sky TV subscriptions, or on their mobile phones. So they value that mobile phone and that Sky subscription, but they either can’t afford it or don’t value their own incomes. I think we need to try to understand what motivates those desires and priorities in people’s minds before we can start saying that they need to buy protection.
David Worsfold: What about doing some research among consumers to build on that?
Mark Twigg: Let’s take someone with my profile, say, a 30-yearold man who is probably five times more likely to become ill before he retires than he is to die, yet is five times more likely to be sold life insurance than income protection (IP). So, I think one of the important aspects that we have to think about is not just what is the need for this product but what are people actually selling and do those products fit the bill? Before we start going to the Government and saying there is a debate to be had around this, I think there needs to be an important discussion within the industry in terms of whether we are meeting consumers’ needs.
Roger Edwards: And when we say, we need to raise awareness around protection, what does protection mean? Is it life, critical illness, IP or is it PPI?
Leo Bones: People don’t necessarily want to buy life insurance – many people have it because they get it through their employer. In the same way, the majority of the population in this country don’t have a will. There is this fear about death and talking about death.
David Worsfold: Should we scare consumers?
Lucian Camp: To go around frightening people at random saying you should spend lots of money on protection, is just an unsustainable argument. It makes no sense. There are millions of people for whom it will not be true.
Peter Le Beau: I think the answer is complex. There is an important aspect that Fay referred to, which is the inadequacy of State benefits and people’s inability to comprehend or, even if they do comprehend, take action. I think Lucian is absolutely right – if we could scare them, they would not necessarily react in the logical way that we would expect them to by queuing outside the life office the next morning. But, I think another significant point is that people would probably buy more protection if it wasn’t sold by insurance companies. I don’t mean that totally flippantly, it is just that the underlying image of the industry is so poor among some people that they are unwilling to really do business with the insurance industry and I think that is a big factor. And I don’t think the Government sees a great deal of truck in making a fantastic campaign on behalf of an industry that they feel is discredited in many ways as well.
Peter Le Beau: A lot of advisers tell us at the IP Task Force that they would find it much easier if they could use positive examples of real-life case studies.Those sort of examples probably underline to consumers that there are people out there who are suffering really serious problems and there is a solution.
Steve Payne: I think what you have described is probably the best way for the insurance industry to put across the benefits of its own products. But, I also agree with what you said earlier, which is that insurance companies are probably least well-placed to actually promote the products that they offer, or necessarily to be those organisations that would succeed in expanding this market. I think the Government, generally, has a relatively low opinion of our industry. That, for me, defines where we have to start. We need to go to the Government and try to focus on the things that meet its needs. We know it is cutting down on incapacity benefits, we know there are problems that need to be solved, we know it doesn’t naturally think of the insurance industry as a partner to help it solve them. But we need to start helping it to work out what is in it for the Government. In this society, most people are interested in what is in it for them and the Government is no different. So, if we can show it how we can help reduce benefit spend and help it to increase tax revenues – be it through insurance or corporate tax – then we are starting to talk to it in terms that may garner co-operation, rather than resistance.
Roger Edwards: It is about trying to get a better message out through the media as well. Unfortunately, the media, like the Government, still view our industry as really poor.
Lucian Camp: The choice that I can see coming out of this discussion is whether we would ideally like to see a social wrong righted, or, whether we would like to see lots more business for firms in the protection game? Those are two very different options. If we want to write lots more business, I don’t think that is very difficult. In terms of advertising spend, the spend on motor insurance is about 25 times the spend on human protection. That could easily be applied to our industry too. What that won’t do, as a whole, is deal with the larger crisis. But we can do the business if we want to.
David Worsfold: Can I just focus on what the Financial Services Authority’s (FSA) role should be? Is it doing enough in this area?
Roger Edwards: I think there is a collective responsibility.
Peter Le Beau: The FSA is an interesting organisation. I was there last week and I asked it if it would like to address the protection industry within the protection review this year. And I said this is a fantastic opportunity to get across the message about treating customers fairly. It said it would think very carefully about the issue, but came back and said it can’t do it. I think that is a missed opportunity. That suggests to me that the FSA feels a bit of ambivalence towards the protection industry.
Leo Bones: Another point about the FSA was that it has made improvements – it has a website and on the website it now has a ‘Money Made Clear’ section. Parts of it are very useful, but, if you look at protection, it lumps in IP along with content insurance, all in about two paragraphs, which I don’t think does justice to what we have been talking about.
David Worsfold: So, we could certainly go to the FSA and say, come on, you need to do something about this.
Fay Goddard: It has launched a big awareness campaign though, so it is trying to raise its consumer profile.
Peter Le Beau: I think it is very well-intentioned. I just detect a real uncertainty about engaging with the industry to a certain extent. I feel that it is not certain whether all parts of the industry are respectable or not.
Fay Goddard: However, it is education and financial capability to raise people’s financial literacy that is its first priority. Its second duty is to encourage long and short-term savings. So, I do think protection is on its radar, just not a priority.
Mark Twigg: Looking through the FSA’s baseline survey on financial capability last year, it does make the point around how households prepare for unforeseen losses in income. It then makes the link to rainyday short-term savings to plug the gap. So, I think there is this usual fall-back position, not just within the FSA but within The Treasury as well, to think of it in terms of short-term and long-term savings. And where insurance products sit within that is a bit of a hazy subject.
Lucian Camp: It is only reflecting priorities of the industry, isn’t it? I mean, if you look at the total industry figures – about 2% total spend is spent on protection and 98% on credit cards – it seems odd to imagine that the FSA would reflect a completely different-coloured priority from the priority of the industry itself.
Alan Lakey: I think the trouble with the FSA is that it is in a very invidious position. While it is charged with the responsibility for education, at the same time, the responsibility for the consumer means that it is sending out mixed messages.
David Worsfold: Would a generic campaign work? Does anyone think that is the way forward? Should we be having this sort of discussion with firms like Tesco? Should we get the new distributors in?
Fay Goddard: I certainly think that some key messages, such as the Association of British Insurers’ (ABI) stats of how much is paid out a day in IP, how much is paid out a year, or even a month, in life insurance would be useful. It doesn’t matter how many times you repeat them, they should be tripping off the tongue of every adviser, of every insurance company, and they should be pushed. I think the ABI is doing a good job, it has some really good publications now of compiled stats. So, that way, you are removing any particular branding or any particular commercial interest.
Jason Hurley: To what extent is affordability an issue? To buy all this stuff is going to cost a lot of money. That said, a 30-year-old male can get £200,000 worth of cover for £10 a month. My first question would be; to what extent are people aware of that, but then would that make any difference anyway? How much of it is around apathy?
Roger Edwards: It comes back to what we said before about the extra value of insurance. Because people don’t physically believe or understand the value of their earnings, a generic advertising campaign isn’t going to get somebody to suddenly make all those connections and issues.
Alan Lakey: I don’t believe that statistics mean anything to the public. If I was to tell an uninsured client of mine that last year £50m was paid out or £10bn was paid out, they would blink and look at me – it would not mean anything. What I do find interesting is when a client walks up to me, without being approached, and asks me for a protection product. I will always ask them why? And what I often get back is the guy next door had a heart attack or my mother-in-law has just died. So it is a personal thing.
Roger Edwards: I think that is a very good point about people’s understanding of statistics. I think if you ask 10 people on the street how much £100,000 worth of life insurance will cost nobody would really have a clue. And, also, all these figures that are around, like ‘50,000 people have a heart attack’ or ‘there is a £2.3trn protection gap’ sanitise people to all these statistics. All these dreadful things happening in Iraq every day, most people don’t even blink now when they hear that a bomb has gone off and 150 people have been killed – it is just something that happens. And a lot of these statistics just go right over people’s heads.
Lucian Camp: Just going back to the question about research, I must say that, from a marketing agency side, we have done or been asked to organise very little research into attitudes towards IP. It is not at all clear to me that the industry has been particularly interested in selling large amounts of protection to large numbers of ordinary people.
Fay Goddard: Coming back to what David mentioned earlier about using other outlets like Tescos – we have just seen the deal that LifeSearch has pulled off with Asda.
Roger Edwards: We think this is a good move for protection advice. Supermarkets have a great distribution network. And yet, if you look at the amount of life insurance cover that they have written, considering such a massive distribution network, it is absolutely peanuts. Again, that message is not getting through just by having the leaflets on the shelves.
Fay Goddard: It will be very interesting to see how the Asda and LifeSearch model works. I think that could determine more of a mass market if it is successful. People do want advice. We have been round this circle many times before, but they still get advice even if they have to do the research and the comparisons on the internet or read the leaflets. It is making that actual step of going ahead and doing it. And whether it is persuasion combined with advice, most people still want that hand-holding.
David Worsfold: If we are going to try to promote protection, do we need to focus on just one or two products?
Steve Payne: I think starting with products is perhaps starting in the wrong place. But if you just flip it around, people want to find out information that is relevant to them, based upon where they are in life at the time.
Roger Edwards: I suppose before we can be really confident in tackling this poor perception that the industry has and maybe making the decision to do some generic advertising, is to go through the process and be absolutely certain that the products fit the purpose. With IP, for example, we all say the need is there and it should be top priority to people but, for all sorts of reasons, it is not selling. Therefore, you need to get that product sorted in order to allow it to become part of the proposition that we want to gain respect for. I think we need to make sure that the product concepts are clearly solid before we can be confident we can invite the public to trust us to a larger degree than they are currently doing.
Fay Goddard: But what about something very simple like a Q&A fact sheet? I just think the issue is whether consumers will actually perceive the risk? Most people don’t sit there and think ‘one day I am going to be ill and unable to work,’ but I think all of us accept one day that we will probably retire. So we can see the sense in saving for retirement. We know that one day we are going to die, so there is probably sense in having some life insurance in place. But we don’t sit there and think one day I am going to be off sick for six months or 12 months or whatever else.
Lucian Camp: I do think there is quite an interesting choice between offering consumers products, which we think they ought to have, and offering them the things which are what they actually want.
