STATE OF THE March 2017
INTRODUCTION Royal London commissioned this research to find out how people felt about their own protection needs and the industry as a whole. And to answer questions such as: does everyone need protection? Are the products available suitable for their needs? Do people trust the protection industry to provide help when it s needed? We surveyed people who had already taken out some kind of protection insurance and those who didn t have any. We also asked advisers to find out how they felt about their own protection needs, and the challenges they face selling it. While the report confirms some of the things we already know, there are also some surprising contradictions in the results as you will see. We ll be producing this report every year so we can track how market developments are affecting adviser and consumer confidence. I hope you find the report an interesting read. Key findings Almost half of all consumers say life insurance is essential for anyone with a mortgage or dependants 38% of UK adults feel it s really important to ensure their family and dependants are looked after financially should they die One fifth of advisers have seen an increase in the amount of life insurance they have sold in the last 12 months. Group Head of Protection Strategy Royal London
Methodology We commissioned Opinium Research to run State of the Protection Nation. The research is based on the results of an online survey that took place between 28 October and 7 November 2016. 2,000 nationally representative UK adults (aged 18+) and 202 advisers were interviewed. The results have been weighted to nationally representative criteria. We asked a separate series of questions to consumers and advisers. We wanted to test consumers perceived need and trust in the protection industry and the products. We also measured adviser confidence in the protection market. 53.2 Customer confidence index The index finds that consumers have a confidence ranking of 53.2 out of 100. This ranking focuses on consumers awareness, usage and confidence of protection products. We attributed scores to the questions asked, which gave us an overall score that we are calling the State of the Protection Nation Index. The index finds that, currently, consumers have a confidence ranking of 53.2 out of 100. This ranking focuses on consumers awareness, usage and confidence of protection products. It also found that advisers have a confidence level of 60.75 out of 100. This ranking focuses on advisers perceived relevance of protection products and their ability to meet, or adapt to, consumers needs. 60.75 Adviser confidence index Advisers have a confidence level of 60.75 out of 100. This ranking focuses on advisers perceived relevance of protection products and their ability to meet, or adapt to, consumers needs. The index rankings suggest that advisers are more confident in protection products than consumers. However, we hope that as each year passes and new innovations come to market, these scores will rise and we ll begin to see an improving trend emerging.
Life insurance is essential, but... PROTECTION OWNED BY THOSE WITH CHILDREN Almost half (47%) of all consumers in the survey say life insurance is essential for anyone with a mortgage or dependants. The research revealed differences across the age ranges with 58% of those aged 55+ believing that life insurance is essential if you have a mortgage or dependants, but just 37% of 18-34 year olds feel the same. Income protection 8% Critical illness 11% Life insurance 35% This might simply reflect that the older age groups have experienced some financial shocks in their lifetime either through ill health or loss of income, or perhaps they are more aware of their own mortality. What s consistent across these age groups is recognising a need for protection cover doesn t necessarily translate into an action to buy. I agree, life insurance is essential for anyone with a mortgage or dependants. Do you currently hold (or are in the processing of currently obtaining) life cover either on your own or jointly with a spouse or a partner? PROTECTION OWNED BY THOSE WITHOUT CHILDREN 18-34 years old 37% 17% 35-54 years old 44% 29% 55+ years old 58% 30% Income protection 2% Critical illness 4% Life insurance 22% Total 47% 26% A quarter of UK adults we surveyed have a life insurance policy (26%), however just 6% have critical illness cover and 4% have income protection. Perhaps unsurprisingly, those with children under 18 are more likely to have all types of cover than those without as shown below: 50% don t have life insurance because they don t see the benefit in owning it, or they don t trust insurance companies to pay out in the event of a claim. Income protection (with children 8% vs 2% without) Critical illness (with children 11% vs 4% without) Life insurance (with children 35% vs 22% without) Top reasons for not owning each of the products 35% 30% 25% Income Protection Critical Illness Life Insurance 20% 15% 10% 5% 0% Too expensive Don't see benefit of having it Don't trust insurance companies to pay out in the event of claim
Despite these objections from consumers, one fifth of advisers (21%) had seen an increase in the amount of life insurance they had sold in the last 12 months compared to the previous year. Although just 8% had seen a rise in the amount of income protection sold and 7% in critical illness protection. In fact a third (32%) sold less critical illness cover with almost two fifths (38%) selling less income protection. The full picture is: Product % sold more %sold less % sold similar Life insurance 21% 18% 61% Critical illness 7% 32% 58% Income protection 8% 38% 51% Reaching consumers and piquing interest seems to be the hardest part. A quarter of advisers agree that it is becoming increasingly difficult to sell income protection (25%) and critical illness (24%), whilst just 6% agree this is true for life insurance. This could further imply that the objections given by customers can be overcome given the right tools, product and sales process. Protection products don t provide an adequate solution Despite the perception that life insurance is essential at certain life stages, consumer confidence in the ability of protection products to provide a solution to individual needs is low. This is particularly apparent in the 55+ age group where over half (53%) disagree with the statement protection insurance products provide a real and genuine solution to my needs. Despite this lack of confidence, those in the 55+ age group were the most likely to have life cover (30%). Perhaps the uncertainty of those aged over 55 lies more with other covers as they were also the least likely to own any critical illness cover (3%) or income protection (1%). Life insurance is usually the most straight-forward of protection covers and perhaps a lack of understanding of the benefits of other covers could be the barrier that prevents further purchases. For the other age groups, confidence in the ability of protection products to provide a solution to individual needs is slightly higher, but far from ideal. Almost one in three (29%) 35-54 year olds don t believe that protection insurance offers a solution to their needs compared to almost one in six (18%) 18-34 year olds. This suggests that younger generations are more open to the idea that protection could provide a solution to some of their financial needs, but that we have some work to do to engage with this group. I agree, life insurance is essential for anyone with a mortgage or dependants 45+55S 45% men 50+50S 50% women Do you currently hold (or are in the processing of obtaining) life cover either on your own or jointly with a spouse or a partner? 12+28+37+23+S 16+24+37+23+S 28% men 24% women By comparison, just 3% of advisers feel that protection products are failing to provide a real and genuine solution to customers needs. This is a huge discrepancy which perhaps reinforces something we already know - that more consumer education around the benefits of protection cover is needed.
The relatively low levels of income protection and critical illness cover held compared to life insurance could be considered contrary to where the actual need is likely to arise. Income protection should be considered from when you first start work. Serious illness can strike at any time and a level of critical illness cover can alleviate the impact on someone s lifestyle, provide options to seek alternative medical treatments and provide a financial safety net until they recover. Our research shows that life insurance is still seen as the most essential form of cover and the triggers are predictably when securing a mortgage or starting a family. We believe there is an opportunity to create a point of entry to income protection and critical illness for consumers at an earlier life stage. It s encouraging that almost half of advisers (48%) agree that the range of protection products currently available on the market meets the needs of consumers. Opinion is split when discussing innovation. One fifth of advisers (20%) agree that greater innovation is required to make protection more accessible compared to 19% who disagree. Consumers opinion on whether life insurance is essential for those with a mortgage or dependants: I want my family and dependants to be looked after financially when I die Almost two in five (38%) of UK adults we surveyed feel it s really important to ensure their family and dependants are looked after financially should they die. Interestingly, this figure doesn t really change based on gender or age. However, there are two notable events which seem to influence this belief having children and previous redundancy.
Perhaps unsurprisingly, a larger number of adults with children under the age of 18 want their dependants to be looked after financially when they die compared to those adults with none (47% compared to 35%). The gap isn t quite as wide when we look at redundancy, but it does have a small effect. 41% of those who have been made redundant in the past believe it to be really important that their dependants were looked after when they died, compared to 37% who had never been made redundant. This is conceivably a consequence of financial uncertainty in the past. But I don t need life insurance 37% men say they don t need life insurance Our headline statistic of two in five (38%) adults wanting their dependants to be looked after financially after their death seems low. However, an alarmingly similar number of adults (36%) claim they don t have a need for life insurance either. Age also plays its part. Almost half (49%) of those aged 55+ feel they personally don t have a strong need for life cover, but the figure drops quite dramatically when we look at the younger age groups. Just over one quarter (26%) of 18-34 year olds and almost one third (29%) of 35-54 year olds feel they don t personally have a strong need for life insurance. This could suggest that the remainder feel some strength of desire for the product, and that younger age groups are more open to the idea of buying life cover. It might also suggest that the 55+ age group doesn t have a strong need for life cover as these people are perhaps less likely to have dependant children who rely on them for support. 34% women say they don t need life insurance Life cover is the most commonly owned protection cover of those we asked with just over one quarter (26%) owning some. People aged 18-34 are the least likely to have life cover with just 17% saying they held a life cover product. However, the figure increases to 29% and 30% for the 35-54 and 55+ age groups. These figures are low, but perhaps echo the sentiment that people don t believe they need life insurance. It s interesting to note that the pattern is similar when we asked advisers about their own protection. Life insurance came out as the most popular with 88% of advisers owning a single or joint life cover policy. 26% 18-34 year olds are the most positive about life insurance with just over one quarter believing they have no need for the cover 29% Almost one third of 35-54 year olds disagree with the statement I have a strong need for life insurance 49% Almost half of those aged 55+ feel they don t have a strong need for life insurance
I don t need income protection Income protection has the lowest ownership of all the covers we asked consumers about. Overall, just 4% of adults owned an income protection policy compared to 6% with critical illness and 26% with life insurance. I currently own life insurance I currently own critical illness cover I currently own income protection 18-34 years old 17% 5% 6% 35-54 years old 29% 9% 5% 55+ years old 30% 3% 1% Advisers 88% 62% 38% Interestingly, the pattern is reflected in the adviser community too. The overall numbers are higher but, when asked, just under two fifths (38%) of advisers had income protection, three fifths (62%) had some form of critical illness cover and 88% had life cover. This low ownership by consumers is reflected by the fact that almost half (44%) of UK adults believe they don t have a need for income protection at all. Again, age influences opinion with 73% of those aged 55+ saying they had no need for income protection at all, compared to 31% of 35-54 year olds and 22% of 18-34 year olds. 7% 23% 18% of people don t have income protection because they don t like to think about getting ill or dying of people with children say they don t need income protection at all. of people don t know why they don t have any income protection. It s interesting to see that the younger generations feel a much stronger need for income protection. Are these younger age groups more aware than those aged 55+ of the higher risk of becoming ill for a long period during their working life? If so, what are their barriers to the sale? Perhaps we need to change our approach to the way we both design and sell income protection to make it more attractive to the younger age group. It can be difficult to get customers to talk about protection alone, so should we be trying to catch them when they re discussing other financial matters? Perhaps we can encourage consumers to consider income protection when they re arranging their pension through auto-enrolment? We ve already seen that figures show more people are reluctant to buy protection than are open to the purchase. 44% feel they don t need income protection at all, and just 4% claim to have a strong need. This pattern applies right across the board, regardless of gender, age, geographic location, past redundancy, or the number of dependants the person has. We know customer objections have always been one of the bigger hurdles to overcome when selling protection and these statistics reflect that hasn t changed.
But those in employment should consider buying it. Despite the strong belief that individuals don t need income protection, almost one in five (17%) agreed everyone in employment should consider buying it. This contradictory statement perhaps shows that individuals understand the concept of income protection, even if they don t believe they could benefit from having the cover themselves. Perhaps the products are too complicated and, while the theory of protecting your income if unable to work is understood, the number of options and perceived complexity of the application process just turns people off. 56% DON T NEED 9+35+56+L INCOME PROTECTION 9% NEED 35% NOT SURE Further investigation shows that almost 81% of those with income protection come from the ABC1 social grades. This means that those classed as having managerial, supervisory or professional roles are most likely to have protected their income. The remaining 19% come from skilled or manual professions. This, in itself, is interesting. Are income protection products too focussed on white collar workers, or do these products not have enough visibility or ease of access for skilled and manual professions? 52% of those without income protection don t own it because they see it as too expensive (31%), they don t see the benefit of owning it (20%), or they don t trust the provider to pay out in the event of a claim (18%). Again, these objections have long been seen as common hurdles to selling all protection, not just income protection. 36% DON T NEED 27+37+36+L LIFE COVER 27% NEED 37% NOT SURE When we asked advisers, one quarter (25%) agreed that it s becoming increasingly difficult to sell income protection, with 38% saying they had sold less in the last 12 months than in the previous year. 12% of those who will continue selling are expecting to make less sales in the next year, with 2% stopping selling income protection altogether. 45% DON T NEED 12+44+44+L CRITICAL ILLNESS COVER 12% NEED 43% NOT SURE Of those who don t have income protection... 31% say it s too expensive 20% don t see the benefit of owning it 18% don t trust the provider to pay out
Conclusion Looking at the headline statistics from our State of the Protection Nation report, we can see that there is still a long way to go as an industry to change customer opinion and meet expectations. From a customer perspective the same themes resonate throughout the research. Despite almost 80% of people seeing the benefits of life cover, critical illness cover or income protection insurance, less than 12% feel a strong need to take out a policy. The perception is that protection costs too much (46%) or they don t trust insurers to pay out when they make a claim (27%). 27% think that protection policies won t pay out This year s claims statistics have already started to be published and these are a great way for us to prove to customers that providers are in the business to pay out. Yes, there are some people who sadly don t have a successful claim. It s unfortunate that these are the cases that make the news and get talked about the most. But thankfully these cases are few and far between evidenced by the Association of British Insurers claims figures for 2015 which show that insurers pay out in 97.2% of all claims. The good news stories about families for whom the pain of financial hardship is lessened because their plan paid out just don t make a headline grabbing story. Almost half believe the cost of protection products is too high In a world where customers demand more individualisation, it s up to the industry to raise awareness that protection products are flexible enough to be tailored to suit individual needs and budgets. Recognising the trigger points for protection sales such as buying a house, starting a family or changing employment should help us recommend an entry level of carefully chosen cover to suit the individual s needs. This has to be better than none at all. There are also consumer-facing tools widely available to help overcome objections around cost. Often in the form of a calculator, they show just how much an individual could save by reducing the number of little luxuries they buy each month. Things like takeaway coffee, magazines and cinema trips all add up yet, if they were cut back a little, the money saved could perhaps buy a small amount of protection. By continuing to offer advisers the support of highly skilled sales, underwriting and servicing teams, together we can make a start on dispelling some of the myths around protection. An entry level of carefully chosen cover to suit the individual s needs has to be better than none at all As an industry, we need to make more of our claims statistics and the case studies available. By emphasising that real people are regularly helped by their financial payout, as well as by the extra help provided through support services by protection providers,we can hopefully improve the consumer trust factor in our industry. of all claims are paid according to the Association of British Insurers
Only 11% agree that protection products provide a real and genuine solution Many providers now offer additional services with their protection products over-and-above a payout. In the event of a successful claim, customers of some providers have access to medical and professional advice to help with the emotional consequences of their situation. Others offer this kind of support from the day their plan starts for pre-existing conditions, or conditions they can t claim for. Perhaps customers are still largely unaware of these valuable services? Highlighting the tangible benefit of these support services has become a great way for advisers to demonstrate the benefit of the advised sale and beyond price being the prime factor for purchase. An adviser can tailor protection plans to suit the needs of the individual and maintain their relevance no matter what life-stage the consumer is at. It s not the case that we need to radically change the current products but we do need to make it easier to adapt and flex cover once purchased to meet changing needs and encourage additional purchases with ease. The industry is changing and taking innovative steps towards a more customer-centric model rather than product-centric one. Protection is becoming more tailored to the actual needs of the customer whether this is through cover design, to help those with chronic conditions such as diabetes or incentivising customers to purchase cover through rewards for maintaining healthy, active lifestyles. We ve already seen fitness trackers working toward reducing premiums and data analytics improving the underwriting process. There s no doubt technology will continue to benefit the industry, and in turn us as providers, advisers and customers. It will be interesting to see just how these changes influence our next State of the Protection Nation report. Support services have become a great way for advisers to demonstrate the benefit of the advised sale and beyond price being the prime factor for purchase
Royal London 55 Gracechurch Street, London, EC3V 0RL royallondon.com The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. It provides life assurance and pensions and is a member of the Association of British Insurers. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London, EC3V 0RL July 2016