Julie Thompson, Protection Proposition Manager, Scottish Widows.
With the cost of day to day living increasing, wages stagnating, and negative year on year growth not expected to turn positive until 2023[1], it would be true to say that most of us will start to feel the "pinch" at some point in the near future, if not already.
For both advisers and insurers, this presents a challenge as naturally customers will start to reassess outgoings and we have to consider - where does protection cover come into this?
Unfortunately, it is likely that customers don't always see the true value in this cover and may deem this as ‘non-essential', especially when compared to outgoings such as food and fuel. It is understandable that anyone faced with choosing whether to ‘heat' or ‘eat' is not going to consider ‘protect' as a third option, and who can blame them?
One of the advantages of working at a financial organisation is the insight we have on customers, societal behaviour and financial wellbeing. As such, we know that of those customers feeling the immediate impact of the financial pressures, 75% of them have savings less than £500 and are therefore the most at risk of going into arrears.[2]
Realistically, maintaining protection cover payment isn't going to be possible for all. This means that as an industry, we need to be prepared to face into challenging situations where, ultimately, protection is not the priority and offering support and signposting support services is the better customer outcome.
The above being the case, I would argue that the customer cohort we have the greatest influence over to retain their protection cover, are those not yet deemed in financial difficulty. Those are the customers who may already have a budget in place, but it is ‘maxed' or have savings, which are dwindling, due to the continued rise in daily essentials.
Our research indicates that of these customers, while less likely to struggle short term, in the medium term may look to deprioritise protection as pressures mount and savings decrease. Equally, with 34% of consumers believing financial sectors play a role in supporting with the cost of living challenges, not only should we want to intervene early, we must intervene to increase financial resilience before it's too late.
This is where we need to educate customers by directly engaging with them to remind and reiterate the importance of protection cover and why this should be deemed a priority above, dare I say the likes of ‘Netflix', due to the negative impact this may have down the line not just to them but to their family too.
One of the key reasons a person takes out cover is to improve their financial resilience should the worst happen, however, the harsh reality is that having a critical illness is expensive.
Macmillan research [3]shows that 83% of people with cancer in the UK experience some kind of financial impact from their diagnosis, and for those affected, this reaches an average of £891 a month, on top of their usual expenditure.
The same study, found that more than one in three people with cancer (39%) are severely financially affected by their diagnosis, and for those living with the long-term effects of cancer, the overall financial burden of their diagnosis is more than a year's average UK full-time salary,
While I recognise this approach of actively reaching out to customers to ensure needs are still being met is not as palatable to all as gaining new business, this is key to growth as well as maintaining good business relationships. There are options available for customers who are starting to struggle with their finances such as considering a premium driven cover amount, so we shouldn't treat annual reviews or customers contacts with trepidation that they might cancel. Instead let's have the confidence that Protection Products are important for customers, not just for peace of mind for if the worst was to happen, but also to ensure great customer outcomes through the living benefits provided by our Nurse services like RedArc and virtual GP services.
In summary, as an industry we need to be considering how the cost of living increases may impact our customers on an individual basis and not only focus on those who are currently struggling. We need to be prepared to have inquisitive and potentially challenging conversations about individuals' finances and work collectively to ensure customers are informed as to the true value protection cover holds, for now and for the future. For providers this means proactively identifying customers in need and having the expertise to provide additional support through partnerships, while for advisers, they need to be talking to customers regularly, educating them and supporting them.
This post is funded by Scottish Widows
