Scottish Widows' Johnny Timpson tells Fiona Murphy the protection sector must do more to demostrate its value and explains how the industry can fill the gaps in welfare provision
Having worked for Scottish Widows for more than ten years, Johnny Timpson is a veteran of the protection industry.
In his role as financial protection specialist and planning manager, Timpson feels the industry is ripe for growth, but believes it needs to make more of the fact that policies bring real value to families should their main breadwinner be unable to work due to illness or injury.
At the top of his wish list is a remedy for the complexity of state benefits, with a desire to ensure that advisers explain these properly to clients as part of the protection sales process. After all, the state is not the safety net people expect and protection insurance can help fill the gaps.
Timpson points to the government's programme of welfare reform, particularly impending changes to working age welfare reform. This is particularly important given the fact that people overestimate the level of support they will get from the state or sick-pay provision from their employer, compounded by the hurdles people face in receiving sickness benefits.
"Consumers see tabloid headlines and they start to overestimate the support they can get from the state," he says. "They have no appreciation of the support available, the length of time benefits are available, means testing, of conditionality and time-boxing of benefits - not to mention the amount of paperwork you have to fill in."
State support
Timpson explains how complex the process can be: "When I do training sessions, I tend to say, ‘If you're renting and you're looking for housing benefit, there's a form, if you have a mortgage and you want some council tax support, here's the form. If you're eligible for income support, here's the application form, then you go on to the Employment and Support Allowance (ESA) application form.'
"For the long-term disabled, if you have mobility problems then you're looking at Disability Living Allowance, that's another form. And with your mortgage, you can get help on the interest you pay, with mortgage interest support. Here you're looking at a 45-minute application online.
"Universal Credit (UC) has been rolled out on a postcode basis, so only certain benefit offices have it now. At the moment in the UK we have two regimes - some claimants are on ESA, some on UC. If an individual has an income protection policy, it will be taken into account under means testing.
"For UC, there will be a different test. Also, terminal illness and critical illness benefits are treated as capital - these are things for advisers to think about. However, we shouldn't get fixated on UC, because it's not universal and it's not credit. It will only impact a small number of working-age replacement benefits.
"You also need to be aware of the mortgage and the mortgage interest benefit. To qualify, you effectively need to be receiving these benefits for 13 weeks; it's not available on buy-to-let. Support for mortgage benefit is up for review in April 2016. We're not sure what's going to happen thereafter - there's a school of thought that says it will be swept back into UC."
Meanwhile, with notable changes to bereavement benefits from 2016-17, it will be important to consider how changes to state benefits will affect families, not just individuals. Furthermore, the transition from the Disability Living Allowance to Personal Independence Payments has been rocky, with failures from the current provider, Atos, in assessing people in a timely and adequate fashion.
Work to do
Timpson admits the industry has a long way to go in increasing awareness around welfare reform: "I think there's some work to do in increasing people's knowledge of the implications of welfare reform. As an industry, that's some of the support we need to think about providing to intermediaries."
However, he believes the sector is taking a step in the right direction with the Income Protection Task Force providing training and materials, and through the work of the Seven Families initiative. "This is part of the Seven Families piece, thinking about what we can bring to customers and the adviser's capability to talk about protection needs. Do they need more support? Let's make sure they're signposted to that. Advisers might say ‘my customers are affluent and wealthy', but [poor health] can happen to wealthy people. A lot of their customers don't have an adequate plan B.
"We also need to think about the shift from defined benefit (DB) to defined consultation schemes. The DB schemes used to have an ill-health early retirement option. Again, that shift in pension provision is something we haven't been talking about enough. We also have a growing IHT issue - if you live in London, you have an IHT issue by default."
Different market segments
Timpson says the industry must start looking at different market segments and recognising that at different stages of life, people have different protection needs. "Social media allows us to take this to the customer's phone or laptop, at a time and place that suits them," he adds.
He emphasises the point that real customer stories can help: "If you look at the US, they have lifehappens.org. A number of product providers came together to tackle consumer trust issues and they set up a not-for-profit organisation to educate consumers and work with charities. They put together case studies and videos on different products. They have focuses such as Life Insurance Awareness Month, materials for intermediaries to use and education materials for consumers."
Such initiatives could help with perhaps the biggest issue facing the protection industry at the moment - restoring consumer trust.
"We've got the huge issue of lack of trust. We've been rather guilty, as an industry, of standing back and admiring that problem for quite some time," Timpson says. "Scottish Widows is really committed to Seven Families. It does a number of things - we've talked about making people more aware of their needs - but it also provides a platform on which to build consumer trust.
"We can say: ‘We're looking at their life trends, what's happened to them and the financial consequences. They each chose not to take individual financial protection at the time. That's come home to roost further down the line.' In this case, we're able to give them the equivalent of an IP benefit and demonstrate that this makes a difference. That starts us on the journey of demonstrating that our industry brings real value to families. Where does that take us?"
For Timpson, the industry's publication of claims statistics is an area it can shout about and a good starting point for advisers to better inform their customers. He says: "We can start to add some colour to the claims statistics released by both the ABI and GRID. [The industry] paid out £3.1bn to policyholders in protection claims throughout 2013.
"At the same time, GRID has helped more than 24,000 families, paying out £1.24bn in benefits. We can make the link there to say [poor health does happen] and, when it does, there is a financial consequence - and our industry does pay claims and it does make a difference."
