Apr 21 – Looking after the most important asset
In taking out a mortgage, the average consumer invests in a house to build their home in. Most consumers take out insurance to cover their buildings and contents, but it is a harder task to establish in the consumers mind the need to protect their income against the loss of their job, long term sickness or possibly a terminal illness. Although most will purchase cover against an untimely death, other protection that is based on events much more likely to happen is furthest from consumer’s minds. Many see it as it will never happen to them, do not trust the brokers motive for selling the insurance (commission) or the poor likelihood of the insurance paying out.
In March 2021, the Association of British Insurers (ABI) published Covid-19 claims statistics – the first time it has collated claims data arising from one single event. The figures are a stark reminder of what has been endured by individuals and families in the UK within the last 12 months, with £202 million paid by insurers to those families who have sadly lost a loved one to Coronavirus. To put this into context, £5.8 billion was paid out for all protection claims in the preceding year (2019). This is clear and demonstrable evidence of the power of protection insurance. However, whilst those in the industry know this to be true, the same message is not getting through to consumers.
The Association of Mortgage Intermediaries (AMI) carried out research in September 2020 which showed that 57% of consumers do not trust insurer claims statistics (source: The New Protection Challenge). We need to therefore ask the question: where do we go next on claims statistics? Protection claims statistics have been published for the last 15 years so perhaps we ought to look further afield to explore alternative approaches.
In Australia, the regulators publish semi-annual data on the claims admittance rate for advised and non-advised protection products. Should the UK consider the same approach? It could encourage consumers to consider protection advice, if the data showed that advised sales had a higher claims admittance rate compared to non-advised. This would require the protection advice industry to take a leap of faith and have confidence that advised policies result in better consumer claim outcomes.
An increase in advised protection sales could reduce the number of claims repudiated due to non-disclosure or misrepresentation, two likely factors in the 1.7% of protection claims that weren’t paid out on in 2019 (ABI 2019 claims data: 98.3% of protection claims paid). Psychologically it is human nature to focus on the negative in a given situation. It’s at this point that consumer doubt and mistrust can creep in and also raises a valid question debated as part of AMI’s 2020 research: whether the claims figures are in fact too high to be believed?
Collectively, insurers and advisers need to make clear to consumers why claims aren’t paid out and how this situation can be avoided. Advisers are particularly well placed to foster an environment that encourages disclosure and explains the ramifications of incorrect or misleading information. Insurers have at their disposal raw data and can drill down and share real examples of why claims are not paid, including what could have been done to mitigate this.
What also stood out from the ABI’s Covid-19 claims statistics is the inclusion of real life case studies where insurers have supported those affected by Covid-19. This is a positive addition, as it brings to life what insurance essentially is – a promise to pay. If we can demonstrate that insurers do deliver on that promise and make consumers think twice about how ‘that could have been me’, we are one step closer to increasing protection insurance take up and making a meaningful difference to people when something bad happens to them. Insurance should always be seen as something you do not want to claim on, but a safety net if you do. .
Intermediaries also play an important role in sharing real life claims stories from within their own client bank (with customer permission) to prospective and existing customers. There is also merit in expanding on this by sharing case studies of customers that have used added value services under income protection policies, such as mental health support or virtual GPs. Whilst added value benefits should never be the main focus of income protection policies given that these perks could be taken away at any time, it serves as another example of ways to make insurance more relatable and relevant and to ensure the policy is not seen by the consumer as another direct debit that can easily be cancelled when times get tough financially.
Along with claims statistics, another part of the wider protection jigsaw puzzle is GP reports. We are aware of situations where consumers are waiting six months or even longer for an underwriting decision due to a delay in obtaining their medical report from the GP. Efforts to encourage electronic GP report (eGPR) adoption within GP surgeries is welcomed. The use of eGPR’s should reduce the likelihood of customer disengagement in the protection journey, reduce non-disclosure and crucially ensure that individuals and their families are insured. The ultimate worst case scenario is where a consumer understands and recognises the benefits of protection, proactively obtains a quote but is let down by delays at GP report stage, suffers an injury or illness and not only is unable to claim but is left uninsurable.
It cannot be denied that the NHS has been under immense pressure this past year and requests for GP reports by insurers are not going to take priority. However, it is important for Government to recognise that consumers who purchase protection products are likely to reduce the burden on the state in the event of illness or death. Not to mention support provided by the insurer at the time of claim (such as rehabilitation services under an income protection policy) which could speed up recovery and allow an individual to return to work more quickly. It is in everyone’s interests to get these reports completed as quickly as possible.
As AMI has increased its attention and focus on the protection space, it has been important for us to develop and strengthen relationships with other bodies. We are appreciative that the ABI has welcomed engagement with open arms, along with regular meetings. Collaboration is crucial and we have identified shared areas of focus and common goals to build on throughout 2021 and beyond. Making sure that consumers get the fairest deal from insurance through a trusted broker is in every customer’s interest.
Finally, there is a line in the FCA’s 2020 Financial Lives Survey that stood out in relation to insurance: which illustrates that perceptions matter too. FCA research conducted in October 2020 showed that 34% of adults believe that insurance companies rarely pay out (up from 22% in February 2020) but only 4% of adults have not been able to get a refund from an insurance company or a claim has been handled poorly between March and October 2020. This is nothing new; a quick Google search shows numerous articles over the years on how consumers underestimate the percentage of protection claims paid out and whether consumers are even aware of the existence of the data. Now is the time for us to work collectively to focus less on the percentages and amounts and more on bringing to life the incredible consumer benefits that protection can provide. 2021 should be a year where the benefits of taking out insurance is clear to everyone. Those who took out mortgages two or five years ago, coming off their fixed rate product will mostly be saving a lot on their monthly mortgage payments. A constructive discussion on whether to save this money or invest it in better protection is a discussion every good mortgage broker should be having.
Stacy Reeve, AMI