The Financial Conduct Authority’s (FCA) consumer research findings published late last year, offered an insight into what the protection industry can expect from the regulator’s highly anticipated Pure Protection Market Study interim report.
Due for publication this quarter, the study seeks to examine consumer understanding and behaviour around five key protection products: life cover, whole of life, over 50s insurance, critical illness and income protection.
While the research found that buying a home or taking on a mortgage is one of the strongest triggers for taking out protection, it also found a large number of borrowers remain unprotected.
In total, the research found that 36% of mortgage holders had some form of protection in place, compared to 11% who did not, showing that a meaningful minority of mortgage holders remain financially exposed.
Overall, the research shows that a significant proportion of consumers (58%) are still not engaging with protection products at all, clearly demonstrating a significant gap in the market for protection advice among consumers.
BARRIERS TO PURCHASE
Identifying the reasons behind the lack of take up among consumers is one of the key objectives of the FCA’s research. Unsurprisingly, it found that affordability was cited as one of the main reasons for not taking out cover, coupled with a lack of understanding and knowledge about protection products and how to obtain them.
Interestingly however, the research also found that consumers that do take out protection think it represents value for money, suggesting there is something of a disconnect in customer engagement and understanding among those without cover.
Addressing these misconceptions is crucial, which is why making protection tangible is imperative, says Peter Hamilton, head of market engagement at Zurich. He says advisers need to make consumers understand the benefits of protection by making it personal to their circumstances.
“Put the cost in context, and highlight the value,” he says. “Homeowners with a mortgage typically spend around 20% of take-home pay to buy the home – the insurance needed to help you stay in the home will be a fraction of that for example.”
Scott Taylor-Barr, principal adviser at Barnsdale Financial Management, says the key to getting consumers to understanding the true value of protection is consistency. “Make sure the conversation is had with every client, every time,” he says.
“Protection is not a ‘once and done’ event, it’s a drip, drip, drip of reminders and information throughout the mortgage process to help them see the need and reassure them that the cost is not massive,” he says.
Alan Lakey, director at CIExpert, agrees. He says: “It is vital that the potential cost of the mortgage protection be included when advising on likely mortgage cost.
“Leaving it until after the offer arrives can make it a difficult conversation with people who have already absorbed what they believe to be the mortgage cost outlay,” he says.
IMPROVING ENGAGEMENT
Although the research shows the mortgage journey is an important springboard for consumers taking out protection products, the findings also show that there is a large number of consumers (58%) who are still not engaging with protection at all.
For some, this may be due to a lack of understanding, while for others, it may be down to not knowing how to go about getting cover. How the industry communicates with consumers is also important, says Nilesh Patel, chief revenue and customer officer at UnderwriteMe.
He says: “The industry can improve communicating the value [of protection] by making it concrete. We should anchor protection to a monthly spend conversation like what would happen to the mortgage, bills, and dependants if the worst happens, rather than focusing on policy features.”
Patel’s point is an important one, particularly given the amount of information available online. In fact, only 46% of those who purchased protection products in the last 12 months used an adviser, the research found, which points to a significant advice gap in the market.
FIRST PORT OF CALL
Details around policy features and protection providers are widely available through online searches and in some cases, social media, both of which are often the first port of call for customers seeking information on financial services products.
This means it is the adviser’s duty to interpret the information, help customers understand why and how these product’s fit their lives and ensure they are easy to locate and contact online, says Jo Miller, managing director at the Income Protection Task Force.
“The findings reveal a clear advice gap and in light of this it’s important we identify ways that we can better digitally signpost to advice and make it as easy as possible to access professional support,” she says.
