Short-term income protection only complicates things further
More people insure their pets than insure their income. With government cuts and the ongoing reassessment of disability benefits fewer people will receive help from the State. Yet I am also told that the income protection (IP) market continues to shrink between 5%-7% year-on-year.
For many the decrease in market size is attributed to the 'complicated nature' of the product, industry experts are saying that what we need is a 'simple product'.
But, as I have said many times before, IP is a simple product. You pay your premium and then get benefit when you can’t work because you fall ill or suffer an accidental injury.
One industry response to the call for simple products has been to produce a short-term or limited benefit IP contract. At first glance, these products are bound to appeal to the consumer. Indeed, when compared to the 'full-term IP' offerings from the same provider the difference in cost can be over 50% and in tough economic times that can be a significant difference. However, as with all these things the devil is in the detail.
It is unlikely that the sick person will recover after two or even five years, yet with short-term or limited benefit IP products this is when the payments stop. So, the question is: what happens then?
I predict that it will be the subject of some scrutiny in coming years. However, one thing is certain and that is that advisers had better be sure that they make the short payment period clear to their customers of they may find themselves falling foul of the regulator and finding claims management companies knocking at their door.
Looking at the product itself, there is of course the old argument that 'some protection is better than none' - especially when family budgets are tight and disposable income is low. However, there are competitively priced alternatives to these short-term or limited benefit IP contracts, which do offer long-term benefit. These short-term contracts are not the only way to go when looking for affordable protection.
IP contracts provided by some friendly societies offer an affordable alternative to short-term or limited benefit contracts. In my opinion these are IP contracts in the simplest form – true simple products. Most offer own occupation cover even for occupations that are considered higher risk, have a range of deferred periods that tie in with employer sick pay, offer premiums that are affordable and in some cases cheaper than the short-term limited benefit IP contracts on offer and are long-term.
While these short-term or limited benefit contracts are an evolution, I believe they only complicate things further. They limit cover to deliver a lower premium which may well grow the IP market but are in fact closer to discredited payment protection insurance than IP. Thus, contagion of IP is a considerable risk in my mind.
The way to grow the market is to understand the consumer and what they need from an IP contract and I believe that is a product that is affordable, provides financial security during times of ill health and comes from a provider that pays claims and puts their customers well being at the heart of the business.
John Bridge is sales & marketing director of Cirencester Friendly Society