Steve Devine, chairman of the Protect Association –an information and networking hub for companies and individuals working in the UK protection insurance market – gives his view on the state of the income protection, and particularly short term income protection market (STIP). Devine asks whether insurers and distributers done enough to move the current STIP products away from the stigma associated with payment protection insurance (PPI).
Research studies repeatedly indicate many families have insufficient savings or insurance cover to help them stay in their homes if their incomes are reduced or stopped, due to ill health or redundancy
Despite this lack of cover, long term income protection insurance sales are barely over 100k policies a year.
These products are affordable for high income earners, rather than the majority of the working population, which has a national annual average income of £26,000.
What still remains of the creditor insurance market that once generated £5bn in premiums a year, is still there, in all the usual distribution channels: advised, direct, and comparison web sites.
It’s still essentially accident, sickness, and unemployment cover, as it always was. Mortgage Payment Protection insurance (MPPI) is still sold, and many original policies are still maintained by policyholders that know exactly why they bought it and want to hold on to it.
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MPPI was considered by many to be unlucky being snared up with payment protection insurance (PPI), but it was, as is the modern equivalent, short term income protection (STIP).
These are accident, sickness and unemployment (ASU) style creditor insurance policies that are unattached to the mortgage or loan.
The regulator ruled that short term income protection (STIP) be treated in the same way as PPI and MPPI and could not be sold at the same time as the mortgage or loan. These products are probably more widely sold via aggregators, D2C websites, but also by some brokers and advisers.
Consumers are protected by
- a point of sale ban
- increased information and comparability
- annual statements
- regular premiums (no single premiums)
When sold directly or on the aggregators’ websites these products are sold mainly on price.
As a result, minimal cover ASU products might struggle to meet the policyholder’s needs when it comes to the crunch.
They will also probably not include any additional benefits to help provide better outcomes.
Consumers’ perceptions of insurance
Consumers generally want to avoid spending any more than they have to on insurance. For those that do want advice about which policy to buy there will be access to telephone advice available via specialist intermediaries. This is a positive addition to the direct market, in my opinion.
Just to help confuse things further, there are other STIP products that are currently available and starting to increase in popularity. These are essentially budget versions of the longer term income protection policies sold mainly by advisers and IFAs.
The latest market figures show over 40% of new IP sales are actually budget or STIP versions of the comprehensive IP products that struggle to generate sales because they are considered too expensive and complex.
Delving deeper into IP market
So whilst the overall market statistics are showing an increase in the sales of long term income protection insurance policies, it is the budget/STIP policies that are replacing the more expensive and comprehensive policies.
Having different products with – various and often similar names under the income protection banner – is causing some discomfort between different insurance providers.
The PPI stigma created by the mis-selling scandal is also still very real and no one is likely to promote PPI products ever again.
Have insurers and distributers done enough to move the current STIP products away from being seen as PPI under another name?
The silo mentality in insurance
My hobbyhorse with insurance, is that the industry is far too comfortable building and living in silos.
Unlike the public who often see all insurance as a reluctant, grudge purchase, or in the case of the fraudsters among them, an investment.
So what do we need to enable the next generation of short term income protection products to cover house buyers and renters should their income be affected by sickness or unemployment?
I certainly don’t have all the answers, but here are a few of the basics I would propose:
- Promote financial education/capability
- Remove the silos
- Replace selling with engagement
- Provide affordable solutions
- Keep it simple
For more information on the Protect Association, visit www.protect-association.org.uk