Bridging the gap between life cover required and life cover actually in place on both the individual and corporate level will be hugely difficult, according to findings of research into the issue published by Swiss Re.
The gap in UK individual life cover is now estimated at £2.2trn, to which is added a corporate life protection gap of £300bn, and an income protection gap of “at least” £150bn, Swiss Re says.
Greater regulatory costs, unwillingness to pay for advice, and the fact more people are in employment are all reasons cited for the trend towards individuals obtaining less insurance than they ought to.
Selling more life cover will not be easy, the research suggests.
Insurers face the problem of raising the additional £7.5bn in capital required to take on the amount of new business needed to close the gap and still meet minimum solvency requirements laid out by regulators.
And consumers generally remain unwilling to buy additional protection.
Even those who may be looking for advice are generally unprepared to pay for it, Swiss Re says.
Research in The Insurance Report: A gap in perception, suggests more than 75% of consumers would only be willing to pay £75 or less for face-to-face financial advice.
”Intermediaries are generally unwilling to handle business for the type of fee that most consumers appear willing to pay,” the company states.
”This is at odds with a preference amongst the population at large to be guided on their financial purchases on a face-to-face basis.”
The gap between what individuals are insured for and what Swiss Re estimates they need to be insured for is £2.2trn and climbing.
Inflation, more people working and net reductions in in-force individual cover have widened the gap by about £200m since the last time calculations were made in November 2002.
There has also been an increase in the amount of business lapsing compared to the amount of new business being written – again widening the gap.
Access to life cover could be hurt by the imposition of new regulatory demands, Swiss Re says.
”It is generally accepted that the number of people advising on or arranging insurance will fall once products such as term assurance come under the FSA’s incoming regulatory framework.”
”This will have a harsh impact on those with low to middle incomes, with whom it is least economic for financial advisers to deal.
Shortfalls in protection for individuals is not the only area considered by the report: it has also outlined the shortfall in business protection.
Research done by Swiss Re suggests that 60% of UK firms employing up to 100 people have employees whose presence is critical to the business.
However, just 5% of such companies are believed to have key person cover in place, indicating a “corporate life protection gap” of £300bn, measured by sum assured.
Adding that figure to the £2.2trn figure estimated for individual life cover results in the overall £2.5trn shortfall.IFAonline
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