The cost of living crisis has proven a mixed bag for individual income protection.
While customers clearly see the value of taking out protection, this prolonged period in which the population is watching every penny has meant they want greater flexibility from providers so they they can keep cover in place.
And for a product that has historically been less valued than other forms of protection, advisers and insurers are ever more aware of their responsibility to bang the drum for individual income protection as never before.
IP demand extremely strong
“Demand for income protection has grown steadily over recent years. Income protection product sales measured by annual premium represented 10% of the individual protection market in 2022 with 96% still sold via advised sales channels,” Daren Boys, protection distribution director at Aviva, tells Health & Protection.
“Encouragingly, income protection products have been remarkably resilient to the impact of the cost-of-living crisis, with both demand and lapse experience little changed,” Boys continues.
“Those who hold IP seem to strongly value it as a product, even when times get tough which is testament to the value of financial advice in helping customers understand the value of their product.”
Andy Walton, protection proposition director at Mortgage Advice Bureau (MAB), describes demand for income protection as “extremely strong” at the moment.
“It is probably slightly above our long-term demand in this area historically,” Walton says.
“This can largely be attributed to the pandemic, as mentioned, but potentially NHS pressures too. With pent-up health issues and mental health concerns, many people will not have gone for check-ups as frequently as they may have done otherwise.”
Edward Jones, protection advice director at L&C Mortgages, tells a similar story, saying the broker has seen a “dramatic” increase in the amount of income protection sold.
“We have a team of protection specialists having comprehensive conversations with customers about the right options for them, which will undoubtedly have helped,” Jones tells Health & Protection.
“We were already on an upwards trend pre pandemic, which certainly put a focus on consumers’ resilience and highlighted the reality of life’s unpredictability for many.
“That may also have helped to demonstrate the value of income protection – but we are certainly seeing income protection make up a substantially larger proportion of our business than it did just five years ago.”
Flexible products
Naomi Greatorex, MD of Heath Protection Solutions, tells Health & Protection more flexibility around income protection would be welcome. ”
Any support around payment holidays flexing cover options will be helpful,” Greatorex adds.
And Cirencester Friendly is one provider that has heeded that call.
Alan Waddington, distribution director, Cirencester Friendly, told Health & Protection the Society has seen a greater demand for flexibility around deferred periods and short-term benefit options, to fit with budgets and lifestyles.
People want to have more choice so they can select the protection that fits their current circumstances and financial situation.
“The demand for short-term benefit options is far greater than in the past, perhaps reflecting the current cost of living issues people are facing.
“However, this doesn’t tell the whole story. How and where people work is changing. People now often have two, three or more different careers during their working lives, with growing numbers joining the gig economy and working for themselves.
“These trends will influence the type and length of protection that people opt for.”
Opportunity for advisers to talk about IP
For Jacqui Gillies, marketing and proposition director at Guardian, the cost of living crisis represents an opportunity for advisers to have meaningful discussions about protection, as the lack of clients’ financial resilience is underlined by current circumstances.
“Income protection can be a very useful product, particularly when used as part of a menu, to help clients improve their financial resilience at a time when they have a heightened awareness of the risk posed by a loss of income,” Gillies maintains.
But it is also clear that income protection remains a product that suffers from historically low take-up.
Historically low take-up
Findings from the Financial Conduct Authority’s Financial Lives Survey 2022 released in July found just 6.1% of 19,000 respondents were covered by income protection.
While this was up from 5.3% in 2020, it compares to 29% who had life cover and 47% who benefitted from any kind of protection cover in 2022.
Emma Thomson, head of protection development at Sesame Bankhall Group, told Health & Protection while the demand is there, the sector needs to acknowledge the low take-up.
“IP continues to suffer from low consumer awareness, which is why the role of the adviser is so important,” Thomson continues.
“Advisers can help consumers to understand the risks and the IP solutions available, and at this time more than ever, consumers need advice.”
Marketing of IP
So it is up to advisers to grasp the nettle and explain why IP can be so important to customers and their families, says Emma Astley, owner of Cover My Bubble.
“It’s reminding the clients on all the benefits and the reason why IP can be so important to help them through difficult times and help to keep that income coming in for them,” Astley says.
“So more educational videos are needed from advisers and insures to show how families could be affected if they were unable to work and had no insurance to protected their wages.
“Keeping in contact with your clients is key, we will always stay in contact and engage on social media with them.
“We continue to put videos out on socials to keep reminding people what they have in place should they ever need it.”
Joanna Streames, founder and director of Velvet Mortgage and Insure Services, agrees adding the sector needs to continue to try and raise awareness and reach audiences through marketing in different ways.
“We, as a country, lack the desire to protect ourselves. I really think there should be government backed incentives but, of course, this then goes into political realms. It’s very frustrating having been the victim of a breadwinner (parent) dying far too young without the right protection that we are still under insuring ourselves for our own and our families’ sakes.”
Raising IP awareness
An important step on this road has been the launch of the Income Protection Task Force’s income protection awareness week in 2021, which Peter Hamilton, head of market engagement Zurich, maintains continues to be a force for good.
“That it’s lasted as long as it has is testimony to the clearly articulated belief that IP is a good thing for customers and that it deserves more attention,” Hamilton continues.
“Individual contributors will have come and gone, but the common thread is the blend of insurers and advisers collaborating to create a better environment for a really important form of consumer protection to flourish.
“There is a wealth of material and support available for advisers new to the area. There are some inherent complexities but also many specialists who would be happy to collaborate on a ‘signposting’ basis.”
And according to IPTF co-chairwoman Katie Crook-Davies, keeping the noise going about income protection means ensuring it is a “fundamental” element of every advice conversation.
“We need to normalise protecting income so it’s almost an expectation from clients. And as an industry we need to reach consumer groups who don’t typically have access to financial advisers.
“We need to meet them where they are and think about how we can deliver accessible product solutions and marketing messages that really resonate and make income protection relevant.”