Time for a new approach to protection insurance?
11 Sep 2017
Protection insurance in the UK has a very traditional and well understood sales model. This has largely revolved around Independent Financial Advisors who look to sell protection alongside mortgages or other products at key points in consumers’ lives. These key points are targeted either due to a shift in individuals’ needs, such as buying a house, or at a point where their lifestyle undergoes a dramatic change, such as starting a family.
However this traditional journey through starting full time employment, taking out a mortgage, then starting a family is increasingly happening at older ages which affects the potential market for current protection products. Protection writers who want to grow their market will have to develop products to meet very different customer needs.
The UK has been undergoing a large demographic change in the last few years which has had a knock-on effect on the traditional points at which protection writers try to engage their customers. We will look at some key changes relating to home ownership, starting a family, and employment.
The chart below shows the change in home ownership of working age households in the UK from 2004 to 2014.
Source: Family resources survey 2014/15, DWP and Hymans Robertson calculations
There is a very clear trend over this period. While the proportions of working age households who own their house outright or rent in the social sector have remained fairly stable we can see a strong downward movement in the proportion who own with a mortgage. Correspondingly there is an increase in those who rent in the private sector; the mortgage holders have been replaced by those who are renting in the private sector. For those looking to sell protection through an IFA to homebuyers there are proportionally fewer opportunities to do so.
The increasing age of first time buyers in the UK is also impacting opportunities to sell protection insurance. The average age of a first time buyer has increased from 30 in 1995-96 to 32 in 2015-16. However the average only tells part of the story.
Source: English housing survey 1995 to 2016: first time buyers
The chart above shows the change in distribution of the age of first time buyers from 1995-96 to 2015-16. While the vast majority are still in the age 25-34 bracket there are large changes either side of this with far fewer first time buyers aged 16-24 now than in 1995-96 and accordingly more first time buyers aged 35-44. This shows that the age at which the industry would be targeting customers for a protection purchase is getting older.
Additionally the age at which people start a family is also increasing with more than 50% of births in England and Wales in 2015 being to parents who are over 30 years old. This second classic trigger for protection purchase is also happening at a later point in individuals’ lives. If protection insurers continue to only target individuals after they buy a house or start a family then they are potentially ignoring a growing segment of the population.
The way people work has also changed in the UK in recent years. This has been described as the rise of the “gig economy” with more individuals in less secure employment.
Source: Trends in self-employment in the UK 2001 to 2015, ONS
There has been a substantial increase in the number of self-employed workers in the UK over the last decade with now over 4.5m individuals working for themselves as shown in the chart above. In the past some self-employed workers have seen the need for individual protection, particularly given the lack of state sickness benefits available to the self-employed. However this is somewhat of a niche market and we have not seen a pick-up in sales relative to the increase in the number of self-employed individuals.
With fewer individuals in full-time secure employment, and the traditional triggers for purchasing protection happening at older ages protection writers will need to find new ways to engage customers with their products to ensure that their market continues to grow. We have seen a number of strategies from different insurers over recent years as they attempt to develop their protection business. These strategies include:
- Increased online presence and the development of apps: a number of insurers now offer simplified cover, directly to consumers either through their website or apps. This allows customers to purchase without needing the IFA in the middle, but also means the product has to be sufficiently simple that it can be explained and understood without the guidance of a trained expert.
- Leveraging existing customer relationships: since large composite insurers have more contact with their general insurance customers due to the annual renewals process, some are starting to use this opportunity to try to engage customers in other purchases and in effect become a one stop shop for their insurance needs. Others are partnering with or using existing relationships with banks and other institutions to get protection products in front of customers at opportune moments.
- Freebies: Traditionally found in the guaranteed over 50s world of free pens; gifts are becoming more common in the direct market as insurers are offering shopping vouchers and other incentives to buy. These vouchers are typically issued after a number of premiums to try to address some of the issues around early lapses.
- Lifestyle based rewards: Moving on from the one-off gifts of the direct market we have seen some insurers delivering a whole system of benefits to keep their customers engaged. These are designed to match the policyholder’s lifestyle and reward healthier behaviour.
- Developing additional benefits for their policies: A number of insurers now offer health and wellbeing benefits such as access to medical treatment or support services as part of their standard policies. These provide policy holders with a benefit beyond the cash paid on claim and should encourage them to maintain policies they may have otherwise let lapse.
It is clear that insurers are looking to innovate in order to get their customers more engaged and thinking about their protection needs and we believe there is even more room for innovation and evolution of products to meet customer needs.
Fit for purchase
As an industry protection writers have relied on traditional products which meet well defined customer needs. However it is clear that the needs of customers are changing and individuals no longer pass through the same well-trodden journey that leads them to buying these products. In order to grow the market and offer protection to a wider range of individuals, innovation in product design will be key.
As it stands those renting their home are unlikely to feel that their protection needs are met by a term life insurance, however they or their family could still benefit from some form of protection. As an industry, insurers should be looking to develop modern flexible solutions to ensure that suitable cover is available to all those who would benefit and not just the subset they are used to dealing with. Examples of such products could be:
- Flexible cover which allows the policyholder to instantly match changes in their needs or lifestyle;
- Seasonal premium structures allowing workers in the gig economy to match irregular income profile to their insurance needs;
- Rent and bills cover for those privately renting their homes to ensure that their basic outgoings are covered should they need help.
Many protection product providers are actively looking at developing innovative insurance solution to meet the needs of the demographics who are currently being missed out. Therefore a key part of maintaining a strong presence in the protection market is continually reassessing products to ensure they meet the needs of the widest possible range of potential customers.
Hymans Robertson have a track record of helping insurers develop innovative solutions to help meet consumers’ needs. Our products team would be happy to discuss any of the issues discussed above with you.
 Source: Birth by parents’ characteristics in England and Wales: 2015, ONS.