Ron Wheatcroft, technical Manager, Swiss Re UK & Ireland, reviews the key trends that shaped the protection insurance industry in 2016. He also highlights five key areas where focus is needed to drive the sector forward in 2017.
2016, what a year. Twelve months ago, few of us would have predicted the extent of political change, both in the UK and internationally. Knowing now what we do, any predictions for 2017 and beyond need to be treated with great care!
Swiss Re will be issuing our market publications in 2017, Group Watch and Term & Health Watch, which show the number of new individual protection policies written in 2016, as well as changes to in-force group risk business. Early indications are that new protection sales are doing okay, but any progress will be steady rather than spectacular.
1. Changing housing needs
In 2016, it's been encouraging to see more discussion about the changing housing market in the UK, with renting rather than buying being the option for many – whether through choice or necessity. 2016 saw the latest acronym "JAM" (Just About Managing) created, to define a sector of society which, in reality, is not that well-protected against financial shocks.
According to the Resolution Foundation, home ownership among this group has fallen from 59% in 1995 to just 26% in 2015, as a greater proportion choose renting over buying property.
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There are ways the industry can encourage people to think about protecting their mortgage payments. But is this the case for rental payments too?
Rent is a continuing financial commitment which needs to be met in the same way as a mortgage repayment. The difference is that rent is a lifelong commitment where we normally expect to own our homes outright no later than when we hope to leave full-time work.
2. The Work, Health and Disability Green Paper
At the end of October, the Department for Work and Pensions and Department of Health issued a joint Green Paper on work, health and disability. The tone in the Green Paper is encouraging.
The Government is open to discussion and is encouraging wide participation from interested parties.
The report sets out the Government's 10-year vision for reform with an objective to halve the disability employment gap.
Responding to the Green Paper is very important for our industry, as it provides a great opportunity for us to develop our own thoughts further and set out a vision for how we can work with the Government to create an integrated structure leading to greater financial resilience.
The Green Paper includes positive references to the role that income protection, and specifically group income protection (GIP), can play in supporting people through paying benefits and by supporting them to return to work. This approach utilises the additional intervention and rehabilitation services which are part of our products.
The Green Paper asks specifically about how smaller businesses can be supported better.
Some do have income protection schemes in place, but the Green Paper asks if there are ideas on other ways to reach more such businesses.
Many smaller employers will have implemented pension auto-enrolment in 2016 or will be doing so in 2017 and 2018. Longer term, this framework could be the basis on which a number of other services and benefits are built.
3. Removing complexity
They way in which welfare benefits and income protection payments impact on each other is complex and difficult to explain to potential customers whose starting point may well be that the state or their employer will provide for them, should the need arise.
As the industry responds to the Green Paper, we have the opportunity to present ideas about how the benefits paid by the state and private sector might dovetail better. These will need to be modelled carefully with a very strong fiscal case made for change.
4. Not just a UK problem
Low levels of financial protection against incapacity are apparent across European countries. While Swiss Re identified in 2015 that the UK has the largest disability protection gap at £200bn in terms of annual benefits, this is far from just a UK problem as populations age and the potential burden on state provision continues to grow.
The 7Families project has shown how powerful case studies can be in creating greater awareness.
To what extent this has reached, or was intended to reach, the end consumer is an open question, but there's no doubt that it's had a big impact among intermediaries, growing awareness at a practical level about a benefit which is rarely suited to direct purchase by a customer.
For 2017, the question has to be: what next?
What lessons has the 7Families work taught us?
How can the insurance market adapt its communications with customers?
In the retail consumer context, it is very timely with the announcement of the new financial guidance body combining the Money Advice Service (MAS), the Pensions Advisory Service and Pension Wise. We should review what has been successful in other countries, such as in the USA and Australia.
And, of course, we cannot ignore the opportunities that digital services and social media present.
Finally, there is Brexit. As the details emerge, Brexit will occupy the minds of all protection firms so we should prepare for a busy 2017.