Time to think about Protection advice

As we start to enter another period of political change due to the latest switch of Prime Minister, all across the UK many are looking not much further than their next pay packet and energy bill to determine their short-term financial position.

Rarely before in the last 20 years can clients have focused more on the question of, ‘What will it mean for me?’

At a time when most adults are experiencing health and financial challenges like never before post-COVID, due to increased demand for NHS services or financial pressures triggered by the cost of living crisis, they possibly need more help than ever from protection advisers to help ease the potential burden.

For some time the ‘Deadline to Breadline’ report commissioned by Legal & General has highlighted the lack of cash most households have to continue to pay their bills. In their last report - commissioned in April 2020 - we saw the average family were some 24 days away from the ‘breadline’ - far less than the 90 days many believed they had.

The most recent report is due to be published sometime in September 2022 and the snippets I have picked up indicate all that we would imagine, namely that figure hasn’t gotten any better.

The Exeter also produced figures recently to gain a deeper knowledge of the challenges facing UK households, surveying 2,000 employed and 2,000 self-employed adults to understand their health and financial fears during a time of record NHS waiting times and increased living costs.

They also wanted to wanted to understand consumers’ views on insurance (income protection, health insurance, life insurance and cash plans). Less than one in ten (8%) said the reason for not buying protection and health insurance was because they didn’t know what the policies were. So, if awareness of the products is high, what's stopping people from buying?

There are the traditional ‘barriers’ that are flagged in pretty much all of this type of research namely affordability, claims and communication.

The industry has done a lot of work in trying to dispel these myths, certainly in the Income Protection space and hopefully, that has had some positive effect on IP sales this year which appear to be ahead of last year from what I can gather.

What most of this research does is to identify risk and in many cases we rely on advisers to get that message across in conversations with clients at point of sale, especially where mortgages are involved.

We know that the average age of an IP Claim with L&G last year was 40 and we also know from various research that the average age of a first-time buyer is around the 35-mark. 

With the Consumer Duty rules comes the need to fully explain to consumers what products and services are available to them, and research such as both those mentioned above should help give extra food for thought when those discussions are taking place. They should certainly form part of the suitability and recommendations as to why certain insurances were recommended.

With take-up of insurance among the self-employed low (46% not having an income protection, health insurance, life cover or cash plan product in place) we really need to re-think the material we use to emphasise to clients the need for protection.

The challenge will be more pressing for many mortgage advisers speaking to clients coming out of two- or five-year fixed mortgage rates beginning with a one or two when they were implemented and starting with a three or four figure now, which will have a huge impact on available cash. The easy thing to do would be to avoid the conversations on life and income protection and ‘kick it down the road’ until times get better.

The Exeter Research tells us that 39% of working adults over 18 years old in the UK save less than £100 in a typical month, with one in seven (14%) saving nothing. Of those who do save, respondents in London are most likely to put away more than £100 a month, with only 20% saving less. 

But this varies by region. Almost half of those in Yorkshire (47%) and the East of England (45%) save less than £100 a month showing the absolute need to help clients cope when their need will be greatest using protection.

Advice will be critical in raising awareness, and with inflation set to be at double-digit levels for some time to come we should also be highlighting the need to review the amounts regularly and/or look at ticking the ‘indexation at RPI’ box – something that hasn’t been done for some time according to many insurers. Likewise, for those recommending GI it is important to review rebuild costs and costs of replacement items on a regular basis due to inflationary pressure.

Overall, this is a difficult time for many, with incomes under considerable pressure. The need for protection advice has therefore never been greater and if we as an industry can be clear in terms of our communication to clients about the benefits to be had from such policies, then I fully expect you’ll find a client base willing to listen and take the advice presented to them.