The default position of commentators on protection insurance is that the market is in need of reform, and is perhaps even broken.
But I now see our collective business as making decent progress overall.
For a while now my firm’s internal data has been showing quite clearly that our customers are becoming more receptive to the product that will be our most important in the future, and now the ABI has confirmed the trend as far wider. Beyond that, there is a surge of newly energised investment in protection insurance from the biggest players in the GI and banking sectors, and of late it seems the mortgage broking fraternity have got over the MMR to the point where they can now focus on delivering their shareholders the extra revenues protection can bring. We are doing alright.
It’s our best product, Income Protection (IP), that the ABI reports as growing. It may be the smallest of the three key product types, but I see it as our future because it pays out far more often than pure life policies, and is much more certainly good value every time than Critical Illness Cover (CIC) can be.
If you ask any Lloyds of London broker they will tell you that the key factor that leads to their many individual markets growing or shrinking is claims. More claims equals more sales. That implies that the root cause of protection’s failure to grow overall is the happy truth that far fewer folk are now dying before old age, which happy trend will surely continue. People’s desire to spend money insuring against catastrophe is the inverse of their certainty it won’t happen to them. Paid claims undermine that certainty, so to grow our market long-term we need more claims and that needs more IP policies in force. For with lower early mortality rates comes the need for consumers to protect themselves against the rising likelihood of non-fatal morbidity. And IP does just that.
So while the increasing focus on protection insurance from the wider financial services community is good news in the short term, what will grow the market longer term is steadily developing IP into our future lead product. Currently the zeitgeist is all in the direction of technology and simplicity and that has led almost all bar a few visionaries into focussing on term life, for it is there that improving health allows ever simpler underwriting and transaction.
For now rethinking IP seems quixotic to most insurance company strategists, who see a small market and basing their projections on current realities can’t see any profit in it, so they try instead to create a USP in the far bigger, but shrinking and thus ever more competitive and less profitable term life market. Or grab the easier profits from CIC.
But there are some thinking of what could be if the they invested in the market of the future. I’d like those ABI statistics nudge insurance companies and those re-energised allies to develop mass market IP strategies serving consumers’ changing employment and health patterns, because that will generate more claims. Better products, say a combination of IP and CIC with life cover thrown in, or new fintech solutions might enable progress, but for me the first step is the promoting and marketing of what is good enough already, for success there pays for the development of better in the future.
That future will come if we can take a longer term view and spend on promoting IP and so generate ever higher levels of claims, because that’s what grows an insurance market.
Article first published in Money Marketing 9th September 2016