Defaqto has proposed a six point plan to revitalise the income protection market and re-build consumer confidence.
The financial research company warns sales of income protection (IP) are suffering from “mutual distrust” – consumers do not trust insurers to pay out and underwriters believe consumers prefer to be ill rather than work.
Its latest report – Income Protection Insurance – October 2006 – includes six proposals to revive the market:
- Deferred periods should be defined in months because the majority of the population are remunerated monthly. Currently some providers use weeks and some use months, which brings an unnecessary inconsistency to the market;
- Maximum benefit percentages should be standardised – currently 42% of products use half salary and there are 12 different methods to calculate maximum benefits. Defaqto suggests a set level of between 50% and 60% would allow providers to compete and consumers to compare;
- Definitions on state benefits, other insurance and pension income should be standardised to allow advisers to make comparisons;
- Premiums which cause over-insurance should be refunded to comply with treating customers fairly;
- Common occupation descriptions should be standardised so insurers can map their policies using industry class descriptions. There are currently around 32,000 different descriptions used; and
- Publication of claims data would reassure consumers companies do pay claims and show what the policy covers and what it does not.
Defaqto says the changes will not in themselves radically improve take-up but will bring some clarity to a complex product and indicate a commitment from the industry to IP.
It suggests IP insurers do not make enough of their claims management and rehabilitation services, as under many policies the details are tucked away and create the perception they are there for the insurers’ benefit rather than the clients’.
It highlights Norwich Union as one provider which positively promotes claims management as something which extends the scope of the cover to more than just the issue of a monthly cheque.
By shifting the focus away from cash, Defaqto says providers to build a holistic protection product which funds and arranges medical treatment, replaces lost income, provides lump sums to mitigate debts on death or serious illness, offers health and wellbeing services, and includes counselling and rehabilitation.
It adds providers could consider policies which provide incapacity benefits to the over 65s to replace lost income or to fund long-term care.
Nick Telfer, report author and head of life and protection at Defaqto, says: “In product terms this paranoia manifests itself in the complex and inconsistent rules surrounding benefit limits which make the market excessively muddled. This mutual mistrust is hardly a platform for developing sales of a proposition that is fundamental to financial security.”
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 7968 4554 or email [email protected].IFAonline
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