Income protection (IP), traditionally the underdog of the protection sector, is on the up. The previously overlooked and undersold product is gaining traction with consumers.
Huge numbers of people, worried about the impact of financial shocks, are taking out IP insurance.
A record 247,000 IP policies were bought last year, according to data from the Association of British Insurers (ABI). This is a 16% increase on 2022 and the highest figure since the ABI started collecting the data in 2000.
IPAW has put IP front and centre of the adviser-client protection conversation
ABI director of protection Yvonne Braun says: “It’s encouraging to see that so many people recognise that income protection and critical-illness [CI] insurance are an important part of financial planning and play a crucial role in providing a financial safety net.”
The ABI highlights that nearly all (97%) individual IP products were sold with advice. It adds that the data shows the important role advisers must play in increasing consumers’ financial resilience.
This is good news for a product that has always been seen as difficult to sell. And advisers are often blamed for overlooking its value compared to that of life and CI cover. However, the ABI data shows this is no longer the case.
Post-Covid rise in sickness
So, what’s the reason for the uptick in sales?
There are several factors, one of which is the rise in sickness absence since the Covid pandemic. The number of UK adults economically inactive due to ill health rose from 2.1 million in 2019 to a peak of 2.8 million in 2023, according to the Resolution Foundation.
Most advisers believe the Consumer Duty will result in a move towards value-led protection recommendations
Another reason is the concerted efforts of several players — including advisers, trade bodies, campaigners and the regulator — to drum up support for IP.
Carr Consulting managing director and Protection Review chief executive Kevin Carr believes these actors should be lauded for the surge in IP sales.
“I think the news on rising IP sales is very positive and the hard work of many should be commended,” he says.
One of those players is the Income Protection Task Force, an industry group set up to promote the sale of IP. Its yearly Income Protection Awareness Week (IPAW), which is aimed at advisers, is a runaway success.
Is this going to make IP the protection top dog? Kevin Carr won’t bet on that
The IPAW enables advisers to talk to and share their IP experiences with their peers. It has put IP front and centre of the adviser-client protection conversation.
Consumer Duty effect
Another important factor may be the Financial Conduct Authority’s Consumer Duty, which came into force last July. The FCA charter, which set higher standards of consumer protection across all retail financial services, has had an impact on the way advisers operate in the protection sector.
More than half (57%) of advisers have changed the way they approach protection because of the Consumer Duty, research by protection challenger Guardian has found.
There are several factors behind the increase in IP sales, one of which is the rise in sickness absence since the Covid pandemic
More than 40% of adviser respondents to Guardian’s survey say they expect to make more protection recommendations because of the regulation.
A further 58% expect to make the same number of protection recommendations, with just 1% saying they expect to make fewer.
The survey also shows that most advisers believe the Consumer Duty will result in a move towards value-led protection recommendations.
Is this shift in the dial of IP sales going to make it the protection top dog? Carr, a leading voice in the protection sector, won’t bet on that.
This is good news for a product that has always been seen as difficult to sell, with advisers often taking the blame
“I’m not convinced that IP will become the dominant protection product because consumers often prefer a lump sum, and I’m not sure if insurers want to be committing to millions of long-term IP policies,” he says.
“Many people have talked about and tried to launch products that combined elements of life, CI and IP, which were not successful. Maybe the product was right, but the timing was wrong.”
Whatever is next for IP, the protection sector should celebrate this milestone in sales.
Momodou Musa Touray is senior reporter
This article featured in the April 2024 edition of MM.
If you would like to subscribe to the monthly magazine, please click here.
“I’m not convinced that IP will become the dominant protection product because consumers often prefer a lump sum”.
For that, you’ll need both a CI Term Insurance AND a Personal Accident one (which most IFA’s can’t advise on or sell because it’s classified as GI, which requires a different authorisation), because the former won’t pay out in the event of loss of earnings capacity as a result of something like a car accident or a fall.