The FCA are right to highlight the lack of protection of lifestyle that many UK consumers accept as the norm. There are two factors at play however in the reluctance to set cash aside each month into insurance plans. The first is the over-generous benefits system the UK has, which even funds overseas migrants, indefinitely – and their dependents. You cannot blame them for not taking out Life cover, they assume the State will pay for everything based on past experience.
Secondly, those who do work in well paid jobs feel that they have little left over after paying high taxes, more tax on every purchase, car lease, mortgage or rent etc. It’s a tough sell to add on income protection, in case the main household earner falls seriously ill. In an era of declining marriage rates amongst the white British population the notion of Life cover is also a difficult, sometimes very sensitive issue. Those with biological children may well want to leave a cash sum, but might not entirely trust their live-in partner’s family in delivering that cash legacy to the kids.
Insurers need to understand the dynamics of blended and co-habiting families before they attempt to sell traditional Life policies, based on assumptions made in the 1990s. The world has changed which means the product lines need to be customisable, flexible and of course affordable in a high taxation, high benefits society.
When it comes to pensions it is obvious that any pension, State or private is going to be means tested in the near future as the UK slides towards an IMF/World Bank bailout, so trying to sell that dream is a non-starter. Only public sector pensions, with their ridiculously high contributions from taxpayers via State employer contributions, can offer most people a pension that someone might be able to live on after 35 years of work. But then AI is likely to consign 35 years in any job to the history books, even in the cushy public sector. Change is coming.
Here’s the word from the FCA;
While the market is working well for consumers who have protection insurance, millions of people remain unprotected. Around 58% of adults have no life insurance, critical illness cover or income protection – and 59% of that group has never considered it. This means that millions could be left vulnerable in the event of a death in the family, serious illness or loss of income.
To help more people consider whether protection insurance is right for them, the Financial Conduct Authority (FCA) will join forces with partners from industry, government and consumer groups. Actions include:
- The Money and Pensions Service and the Digital Property Market Steering Group will prompt people to think about protection at key moments – such as becoming a parent or buying or renting a home. The FCA is also exploring how other partners can help put protection on people’s radar when it matters most.
- The Protection Distributors’ Group will lead a consumer awareness campaign, targeted at groups who are less likely to take out protection products.
- The Association of Mortgage Intermediaries will lead work to help advisers improve how they discuss protection with their customers.
The work follows the FCA’s Pure Protection Market Study. The work will focus on groups who are disproportionately unprotected – such as renters, the self-employed and gig economy workers, those on lower incomes and people with pre-existing medical conditions.
Graeme Reynolds, Director of Competition at the FCA, commented:
“Competition in protection insurance works well for existing customers. But we’re working with partners to increase coverage – so that more people are protected when they or their families need it most.”
The FCA wants to see greater innovation in this market. It will hold a webinar for firms to address any misunderstandings about its rules and expectations that may be seen as barriers. It will also work with the Association of British Insurers to reduce delays in obtaining medical records and is inviting firms to take part in a TechSprint – they should express their interest by 13 November.
Wider issues
The FCA has also published findings on switching, claims experiences, and fair value in the protection market. Generally it found that competition works well in the market, but it has reminded firms of requirements and good practice under the Consumer Duty and its product governance rules. It isn’t planning new market-wide measures, but will take action where firms fall short of requirements.
Firms should review the examples and findings in the report and consider whether they need to improve how they deliver, and evidence, good outcomes for consumers.
INDUSTRY COMMENT
BROADSTONE
Ewen Tweedie, Actuarial Director at leading independent financial services consultancy Broadstone, commented:
“The FCA has correctly identified that the greatest weakness in the pure protection market is not necessarily the products themselves, or even the price of the products, but the fact that millions of people never consider whether they need cover. This indicates a shift from a conduct viewpoint focused on value, to a growth viewpoint focused on engagement.
“Prompts at key life events and greater adviser engagement are sensible steps. The decision not to extend targeted support is understandable, as it would largely help consumers who are already engaged, but the scale of the gap means policymakers may ultimately need to go further than voluntary awareness initiatives. This presents an opportunity for insurers to consider how they are not just taking their products to market, but how they are promoting the importance of protection for all.
“The workplace could provide an effective route to wider coverage. Auto-enrolment has shown how employment can help overcome inertia, and there is a strong case for government, employers and providers to explore how simple protection products could be incorporated more consistently into workplace benefits. Providing new employees with protection prompts and information could be a simple way to increase awareness and engagement.
“More consistent claims statistics would also help advisers compare providers on a level playing field and strengthen consumer confidence in the value of protection insurance.
“The protection market isn’t broken, but participants through the value chain should consider how they can work together to increase engagement and make protection more accessible for all.”
STONEBRIDGE
Rob Clifford, Chief Executive of Stonebridge mortgage and protection network, offers these thoughts;
“This is the most important regulatory review of the protection market for years, and one that can benefit the industry and consumers in equal measure.
“The final report, reinforcing the FCA Interim Report, finds that competition in the industry works well. That said, not enough people are getting to the point they can benefit from that, because far too many consumers remain unprotected.
“What the regulator confirms is what we believed was clear. There are no findings of consumer harm or misselling, as the advice sector is delivering good outcomes. The fact is that too few consumers are taking up the protection policies available to them. The industry, including insurers and distributors, has been reminded that the protection gap must be tackled to prevent unnecessary financial harm.
“The FCA has set out a collaborative approach aimed at addressing this problem and the determination that shines through here represents a step change in improving the protection market, which promises to hold enormous power over the reduction of financial vulnerability among households. We know that mortgage networks have a huge role to play and we’ll continue to invest heavily in the soft skills and technology advisers need to close this gap.
“Then there’s the ‘beneficiary gap’ that results from policies not being written into trust to avoid payouts getting stuck in probate with the rest of someone’s estate. We’ve been improving advisers’ awareness and use of trusts in protection for years and we’re delighted this has received special attention in the report. While not suitable in all cases, trusts can rescue families from impossible financial situations when it matters most.”
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