Grab the bull by the horns

I imagine Ed Balls raised a lot of hopes in the protection industry following his announcement that insurance will be a key priority for the next steps of the government’s financial inclusion strategy.

The financial inclusion report, published yesterday, revealed the government will be working with the Association of British Insurers (ABI) to investigate which types of insurance are most needed by financially-excluded customers, what the barriers are to consumers taking up insurance products and how the barriers might be overcome.

The majority of people in the financial services industry would argue personal protection insurance is most needed by consumers because it protects lives and families, rather than material objects such as the home and contents.

But whether the government understands this is an entirely different matter, so perhaps this is the opportunity the industry has been waiting for to grab the bull by the horns and make its views known.

It’s not as if the industry doesn’t have evidence to back up its opinions: Swiss Re estimates the UK has a £2.4trn life insurance protection gap; just 60% of the population have life cover; and, according to the ABI, the income protection (IP) industry is worth £1bn a year, compared to the £3bn critical illness (CI) industry and £11bn car insurance industry.

The ABI also estimates people need £132,000 in financial protection, but in reality they only have £80,000, which together with the fact 48% of households have less than one month’s savings to fall back on, clearly demonstrates people would struggle if they were off work because of illness or unemployment.

In addition to Ball’s report on financial inclusion, the government has a target of getting one million people off incapacity benefits and back to work, which seems an ideal opportunity for the industry to step in and demonstrate how IP can assist here.

But a key issue the industry will need to tackle, among many others, is the cost of IP.

Although some people in the industry claim the product is not as expensive as consumers think it is, citing average premiums of £29 a month, I believe this is still a noticeable chunk of an individual’s monthly pay check, particularly when added on to the cost of living.

Is it too much to hope that a government-industry initiative will succeed, IP will increase in popularity and improvements in the product’s structure will reduce premiums?

If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7034 2680 or email emily.perryman@incisivemedia.com.