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The Life Insurance Market
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I’ve never heard anyone argue with the often stated truth that arranging a proper protection package must surely come first in anyone’s affairs. That makes it plain wrong that those who run financial services, whether from Treasury, FSA, ABI, or your own business’ board, normally only ever include protection as an afterthought.
Being spared FSA interest is a boon of course, and my purpose here is not to encourage further regulation or the lazy spread of RDR into protection, but rather to challenge those that rule us as to whether they feel any responsibility for the vast gap between the level of income protection and life insurance people should have and the amount they do have?
You see it is their fault! The primary reason for the protection gap is the lie that the welfare state provides an adequate safety net for all but the very least fortunate in society. If government held up its hands and said, “Don’t be fooled, the State will not look after you such as to maintain any normal average standard of living, though it will keep you alive (and depressed) just,” Then its citizens might take more personal responsibility for their own protection. And if the FSA focused on the greatest scandal in financial services – the £2.3 trillion gap between the cover people should have and the cover they do have – rather than picking at all the far less important failures, then perhaps adviser business leaders would demand that their advisers addressed protection properly with each client before moving on to the sexier areas financial planning.
But expecting that corrective sequence is silly. The government could never start the cycle of truth and the FSA is not paid to expose Treasury failings. So the solution needs to be found by us market practitioners. Swiss Re, as befits our mightiest player, have provided the fuel for the solution. Their annual report is consistent, gruesomely thorough and unarguable. Protection sales are falling and only the efforts of HSBC with their short term IP product represent any form of pause in that decline. We owe Swiss Re a real debt for making clear the scale of the disaster Britain risks.
But they cannot provide the spark to ignite that fuel into energy and action to change consumers opinion and so to galvanise advisers into making protection the first advice point it should be and thus to profit from closing the protection gap. It needs the whole industry to unite to do that.
Now just there is where I lose you. How can an industry unite? Well it has. 22 providers and reinsurers have funded the research and development of a consumer marketing campaign designed to disturb consumers into understanding the risks they face by self insuring. AIFA, IFAP and the PFS all support the initiative too.
The crunch will come in late summer when the marketing plan is put to the 22 funding businesses and they have to approve the budget needed. That win is the key moment when providers will decide whether their future is growth or continued decline, but perhaps the dreadful state of investment and pension markets means that in 2010 protection can secure the substantial share of overall marketing spend it needs to turn the corner and become again the central part of consumer psychology it should be.
It will look a relatively profitable business sector just then, so perhaps the provider boards will indeed see the point in going back to being insurance companies. It is time, especially as there is no alternative bar a continued decline.
This article was published in a recent edition of Money Marketing
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