Sam Barrett explores protection, underinsurance and the role advisers can play in financial education
Tough economic conditions are putting the squeeze on consumers. As it can be tempting to cut back on cover when money is tight, financial advisers are exploring ways to highlight the value of protection.
The latest figures from Swiss Re’s Term and Health Watch 2022 show the protection market was performing well after the Covid-19 pandemic. Across the board, sales were up 6.3% in 2021, with income protection sales up 8.9% and critical illness insurance up 11.5%. But with the cost-of-living crisis taking a grip, few expect next year’s report to look so positive. “We are not seeing a slowdown in the demand for protection as yet but the consensus in the market is that sales are down this year,” says Tom Connor, director at financial planners Drewberry.
Sales may be slowing but advisers are also seeing more activity around cancellations. Emma Walker, chief marketing officer at independent protection adviser LifeSearch, says that where people are struggling financially, they are looking at their outgoings and cutting out anything they don’t regard as a necessity. “We contact every customer who cancels and put a lot of energy into encouraging them to stay,” she says. “If they cancel to get through tough times, it will cost them more to take out the same cover as premiums increase in line with age and health.”
Although cancelling cover will be the only option for some clients, there are plenty of practical steps that advisers can take to make cover affordable for many of those who are struggling. Cover levels can be reduced or, in the case of income protection, longer deferred periods and shorter payment terms selected. Connor is also seeing more people opting out of inflation-linked increases on index-linked plans.
“This is particularly acute for clients on age-costed plans, where there is a double whammy of premiums increasing due to age and inflation,” he adds.
Where no amount of cover manipulation can make the sums work, Robyn Hall, director and adviser at Robyn Hall Solutions, says it is worth speaking to the insurer. “Some are offering payment holidays to help people get through if they are struggling,” she says. “It is also good to flag up the waiver-of-premium option when someone takes out cover, as this can take the pressure off if they do need to make a claim.”
The current cost-of-living crisis also presents a great opportunity to highlight the value of cover. “Protection needs to be in place in tough times more than ever,” says Kathryn Knowles, managing director of Cura Financial Services. “All the current uncertainty is a reminder of the reasons they wanted cover in the first place.”
Plans also deliver a lot more value than a payout in the event of a claim. Many include services including virtual GPs, mental health support, and health and wellbeing advice that can be used by the policyholder and their family whenever they want. These services are valuable at any time, but particularly when people are stressed about their financial wellbeing.
There are signs that these messages are getting through. “People are much more accepting of the explanations around why they need cover,” says Hall. “After the pandemic, and now with the cost-of-living crisis, consumers understand what it is like to have money taken away. Until furlough was announced in 2020, many people were facing this possibility.”
Part of the problem is that people don’t really think about protection until they are too old or too ill
She says this is leading to much more real conversations about the need for cover. “I spoke to a mum recently about her family’s protection needs. She was adamant that, as her husband was the main breadwinner, he was the only one that needed cover, until I asked her what would happen if she was unable to work for more than a month,” she says. “People underestimate their worth.”
It is encouraging that more consumers, especially those that see advisers, are aware of the value of protection but Walker says the advice profession needs to do more. “Annual statements showing the level of cover but also all the added-value services they can access would help to remind consumers what they have,” she says. “I would also like to see more financial education around these topics, so people can make informed decisions about their cover.”
Events such as the Money and Pensions Service’s Talk Money Week, which took place in November, the Seven Families campaign and Income Protection Awareness Week, help to raise awareness of the importance of protection and financial resilience more broadly.
My Personal Finance Skills is a programme from the PFS which delivers free financial education workshops to schools across the country to help students understand more about money. Last academic year alone, 700 free financial education sessions were delivered reaching more than 23,000 students in the UK.
Knowles agrees that engaging with young people is hugely important and would like to see the profession educate more people on the benefits of protection and help them learn how to become more financially resilient. “Part of the problem is that people don’t really think about protection until they are too old or too ill,” she says.
“We need to talk to more people in their 20s about protection, while they are young and healthy, and cover is affordable. Financial education is key.”
To find out more about My Personal Finance Skills, visit: www.mypersonalfinanceskills.org.
Sam Barrett is a freelance journalist