In Focus: Individual IP - targeting the mass market

The whole country, as advisers are so often told, should wake up to the need for income protection insurance. But, as Edmund Tirbutt reports, insurers’ obsession with product innovation might just be leaving everyone in a spin

There are certainly reasons to start being more optimistic about the individual income protection (IP) market but there remains some way to go before we can safely say that we have turned the corner. In particular, sales figures for 2008, which have supposedly demonstrated the first annual increase since 2002, have been leading to premature celebrations.

According to Swiss Re’s 2009 Term & Health Watch, individual IP sales totalled 126,815 in 2008, representing a highly impressive increase of 13.5% over 2007. Sorry to ruin to a good story, but closer examination of the facts shows that sales of IP as we understand it did not in fact increase at all. The figures include 29,244 policies from HSBC, whose LifeChoices’ IP option, launched in June 2007, seems to have far more in common with payment protection insurance (PPI) than with IP.

Remove HSBC, which accounts for well over 8,000 more policies sold than any other single provider, and total new IP sales during 2008 actually fell by 11.2%.

The HSBC policy option, entitled SicknessChoice, is considered to represent IP because it is a permanent contract with premiums guaranteed for the duration and because premium prices are rated according to gender, smoking habits and broad age bands. But its pricing is very similar to that of mortgage payment protection insurance (MPPI) and, most importantly of all, it only pays out claims benefit for a maximum of 12 months.

Dennis Smith, head of life and protection at HSBC, describes the product as “a modular evolution of PPI”, and Ron Wheatcroft, technical manager at Swiss Re Life & Health, admits that it is difficult to say whether it should be classified as IP or not. He says: “It was quite a fine decision but we have always focused on long-term business.”

Worryingly therefore, the individual IP sector has arguably experienced a significant sales decrease despite a number of factors that commentators joyously flag up as having contributed to a supposed sales increase. The most well documented of these is the idea that mortgage brokers and IFAs have been making efforts to have protection conversations with clients which they didn’t have time for when mortgage business was plentiful. But other influences are also reported to have been at work.

Andy Milburn, head of marketing at Munich Re (UK Life), points out that family protection now accounts for around 20% of individual IP sales, whereas a few years ago it was only 10%, because 90% of sales were mortgage related. Matt Morris, senior policy adviser at national specialist intermediary LifeSearch, observes a big increase in enquiries about unemployment cover and reasons that, because the consumer is far more aware of the vulnerability of their income, the change in mindset naturally leads to a discussion with an adviser about IP.

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