After the Budget, Downing Street confirmed that David Cameron is prepared to look at workers paying into flexible saving accounts to fund their own sick pay or unemployment benefits.
The idea has been floating around in one form or another for 20 years but nervousness about the degree of transformation involved has left it at the white paper stage. However, the revolution in pensions that has taken place recently means nothing should be discounted, especially when we have an emboldened Government committed to reducing public expenditure wherever possible.
In the British Friendly 2015 Protection Survey* of the UK self-employed workforce, we found that over one in three of all respondents (37%) said that either they or someone they know have been unable to work due to illness or injury for three months or more. Yet 90% said they do not have any kind of insurance policy in place that would help replace their income in the event that they are unable to work long term due to ill-health. The top three reasons given for not having a policy are:
* It would be too expensive (30%)
* I don’t trust insurers to pay claims (29%)
* I don’t think I need one (21%)
So despite almost a decade of improving transparency and claims pay outs, as well as several major consumer marketing campaigns, the public appear to remain as distrustful and uninterested as ever. We simply haven’t been able to close the gap in public perception of the need for income protection (IP) or in building trust that insurers will pay out on their promises. In fact, only 2% of respondents in our survey thought insurers paid out on over 90% of IP claims.
My feeling is that we need to work with the grain – supporting the Government with the development of insurance-based options – if we are to make any sizeable inroads into the oft-quoted ‘protection gap’. A degree of compulsion reflecting the pensions approach may be the only way.
Now that the Seven Families project is about to complete the launch phase of its campaign, we have the perfect calling card to highlight the public need and relevant solutions. With the exception of the two biggest providers of individual IP, most others have published excellent paid claims results for 2014 (in excess of 90%) so we are in good shape to demonstrate how we can be a credible and relevant solution at the heart of benefits reform.
A savings account established by the Government specifically for the purpose of funding sick pay and unemployment benefit although being a game-changing move would, one assumes, offer only a very basic level of protection. So while the idea is a step in the right direction, only a private or employer provided long-term IP policy will ever properly cover individuals and families in their time of need.
But maybe the Government’s current thinking will help shift the balance of public thinking towards one that is more realistic about protection needs. So perhaps now is the time for us all to get behind industry initiatives like the Income Protection Task Force, working together with the Government to deliver a solution that has the potential to provide a better outcome for everyone.
Mark Myers is chief executive of British Friendly.
*All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 502 self employed adults. Fieldwork was undertaken between 11th – 14th April 2015. The survey was carried out online.