This is the second of three posts recounting the in-depth conversation from our March Protection Forum covering how Income Protection can become more relevant, and how providers can improve how they communicate with advisers around the progress of applications and claims.
Is there merit in setting up an IP policy where a proportion of the benefit is ring-fenced for certain expenditure, irrespective of the individual’s income?
Rob Harvey:
I mean, it was just going back to that point around open banking. And obviously, I guess the point there is that rather than having a static benefit that you set up and then that’s it, and obviously it can increase over time with inflation, but fundamentally, you’re paying for a level of cover that has been deemed suitable to cover your outgoings. Is there merit in setting up in such a way that actually an IP policy, that a proportion of that benefit is ring-fenced for certain fixed expenditure, irrespective of the individual’s income?
The example I used was LV= on their mortgage and lifestyle products. It used to be that you would assign a certain proportion of the benefit for just general outgoings in the same proportion of the mortgage. It wasn’t set up in such a way that earnings didn’t impact it because it was still a financially assessed product.
But I know that obviously one of the issues in the past has been around Universal Credit as well, in the way in which someone is able to claim that and the impact on their ability to claim universal credit when they’re receiving an income benefit. And one of the workarounds of that was actually having it so that a proportion of the benefit was paid direct or at the very least ring fenced for a mortgage.
I just wonder whether there’s an opportunity there, an easy opportunity, because I think tying into open banking is a great idea, but probably a longer term thing, whether there’s not an easy opportunity here actually to rethink IP and set it up in such a way that certain fixed outgoings are protected with a proportion for just general expenditure.
I don’t know, obviously one of the benefits of IP has always been that you get a benefit that’s flexible, you can do what you like with it. But if we are encountering problems over time where the whole way the IP product and the benefit are linked to earnings, is there a potential solution in that in covering fixed costs rather than just a general benefit?
What’s the benefit of ring-fencing over the flexibility to have it paid whenever they want?
Just what problem is ring-fencing of benefits solving, would you say? Because my sense might be if you tried to ring fence benefits, people’s circumstances change materially and 18 months down the line, would they still necessarily want to have mandated benefit payments going in a particular direction? Why not give the client, as we do today, the flexibility to have it paid wherever they want?
I think it can be very tricky to ring-fence certain amounts of benefits on IP policies. One of the core benefits IP policies have now is benefits guarantees.
Julie Higman:
Probably a few points I was going to comment on. I totally agree with what Peter was saying as well. And I think it can be very tricky to ring fence certain amounts of benefits on IP policies for specific things. It can be fraught with complications both from a customer and insurer perspective. And also we know with the work that we’ve been doing on the building resilient households that it’s not necessarily straightforward, especially with how state benefits can be changing all the time as well.
I just wanted to comment as well that I totally agree with the comments Philip and Jack made around the change of occupations. And I’ve been racking my brain trying to remember the date. But I think it was around about 14 years ago that there was some information brought in for the industry that meant the customers didn’t need to let insurers know about change of occupation. But the key event is the point of claim where we’re looking at what they’ve been doing in the previous 12 months and totally agree with the comments that if they’ve gone to a lower risk occupation, then we can look at updating the policy.
And the key point of the review is making sure that the customer has got the appropriate level of benefit and defer period for what’s changed, and have there been changes with their sick pay. I also just wanted to jump back to something very early on in the discussion this morning around people’s change in working patterns and fluctuating incomes.
And I think one of the core benefits that a lot of IP policies have now is benefit guarantees. And we could see a lot more customers actually making use of those going forward over the next one or two years when it comes to actually claiming on their policy. We know working situations can change quite significantly because of what we’ve experienced over the last year. And it could really be that the benefit guarantee comes to the fore for a lot of customers over the next couple of years.
Looking at financial underwriting upfront could be rolled out further, as the policy is looking at the inception year when the customer potentially doesn’t know what their income will be.
Tobias Corden:
I was just going to say with IP and the inception year we find it can be difficult. I think in particular in the current world we’re in now, where a lot of self-employed income is going to be very different in the current financial year that we’re in now, whereas the mortgage assessment is looking at the last one or two years and whether or not this could provide an additional safety net.
Looking at financial underwriting upfront could be rolled out further, which is where advisers making a recommendation based on the previous income, whereas actually the policy is looking at the inception year and the customer is not going to know potentially what their income is going to be.
It’s just a big unknown without that, and you want to provide that certainty when you’re doing the recommendation for Income Protection that they can claim at point of need.
There’s many times where an adviser may have told a customer something and later would be able to say “I told you so” but that doesn’t fix the issue.
Rob Harvey:
I think the issue is that in as long as the adviser has done their job properly and of course, the conversation would have taken place, that would have confirmed the client understands that they need to provide financial evidence, et cetera, et cetera. It’s just that there are numerous times when you could say to a client, “well, I did tell you, I told you so.” But unfortunately, with a lot of consumers, that doesn’t necessarily smooth over the problem. And that what we encounter.
I had one recently, whereas, like we clearly documented the conversation. Explained to the client that this is a product that’s linked to your earnings. You need to let us or the insurer know if your earnings change. We check in regularly, but they don’t. And they claim and then it results in a complaint and a load of hassle sorting it out. And that’s ultimately the issue. And often is unfortunately the consumer’s fault for not listening or not reading the literature or forgetting or whatever. But it’s still a problem that has to be dealt with.
We have a bespoke plan for NHS because their scheme is very well-defined, but it can become very complex for other occupations.
Peter Hamilton:
We do it for NHS because they’ve got a fairly well-defined scheme, so it’s relatively easy to dovetail with that. I think almost the point you made earlier, that if it’s another profession with quite a variety of levels at which the benefit cuts in, it is harder to create something that is bespoke for those because you end up doing it if you’re not careful, many, many times. It could become overly complex. We’ve not had material demand for professions outside the NHS. That’s not to say there isn’t any demand – just that it’s not regular or loud.
I often see protection advisers not actually doing very much to help wealth advisers sell protection. Wealth advisers use client portals and intelligent office and certain providers send us bulk valuations and details to show us what the client has. But there’s nothing from protection there. How can we put that information front and centre in the client portal so it can’t be ignored?
Jon Dear:
My opening comments build on some comments that I shared at the last meeting, which was a sense of frustration. So I sit in a wealth management business and I hear many comments from certain commentators. And in fact, people who are joining this forum on a regular basis asking “what can we do to get wealth management firms to recommend or consider more protection more often? They should be doing more, these wealth advisers, they’re not doing a very good job.” Is the sort of constant chorus or the underlying theme.
And yet, from a strategic perspective, when I sit back and I start to look at how these firms and advisers operate, what I see is a segment of the profession, the protection profession, that’s not really helping that cause. And what I see is wealth managers are adopting client portals and adopting back office systems often come with time portals. We use intelligent office, and so we are building a proposition for our clients to enable them to see the totality of their affairs through a single online portal, which is great, from a conceptual perspective. And it’s super that certain providers will send us bulk valuations and details of a client’s plans and we can actually show the client what they’ve got.
And yet when it comes to protection, there is absolutely nothing. And yet wealth managers, financial planners, financial advisers call them what you will, day in and day out are going on to their CRM systems. They are reviewing the client’s affairs. And guess what? They’re reviewing a client’s affairs based on the data that is available to them and the data that is available in their back-office systems. And so I think my challenge to us all is to say, “look, are we doing enough to subtly promote and remind advisers of protection? Are we subtly or overtly reminding people that they’ve got a protection arrangement that perhaps has got 18 months to go?”
Is there a feature that they could be making use of, such as convertibility? In other words, are we pushing information to advisers so it’s actually front and centre? And as a consequence, it’s more difficult for them to ignore and for those using the client portal, the client can’t ignore it. It is more likely to engage with the adviser from their perspective. So that’s my hypothesis. That’s the challenge that I’m sort of seeing. I don’t think we’re actually helping advice firms to promote protection readily enough.
People don’t realize what they have and the importance of protection, and people’s budgets have gotten smaller. Many people also do not use brokers, and the information isn’t out in the general public.
Michelle Lawson:
I can agree, I think it’s very, very hard to sell protection at the moment. People want to take protection, but so many people don’t actually know what they’ve got, like you’ve already said. And also, I think people don’t understand the importance of it. We are very proactive protection wise here to try and do as much as we can. But our penetration levels have actually dropped quite significantly even as a result of Covid, because I think people are cutting back on their money, and people just don’t seem to be interested until after the event, until when they need it.
And I think probably one of the biggest things for me is the marketing from the broker point of view, we’re very aware that people need protection and we’re very upfront and try and do everything we can to it. But the biggest thing is to actually that move into the wider community because so few people actually use brokers in comparison to the people that actually do things elsewhere. There needs to be a bit more hard-hitting marketing that’s used to actually help raise more awareness.
