The last 12 months have been anything but boring in the individual income protection (IP) market. Providers have realised that instead of being inflexible, IP products should respond to life events. They have, therefore, been upgrading their contracts, so that they can be adapted as people move house, change career or face redundancy.
Self Assurance, from Scottish Provident, was the first menu-based product to allow customers to pick and mix from IP, term assurance, critical illness and unemployment cover. It was also innovative in allowing cover to be easily upgraded if the client’s circumstances changed.
The concept was very well-received and has since spawned several imitations, most recently from Friends Provident. And now IP policies are being relaunched with a far greater range of options.
Since last October, Norwich Union Healthcare’s SafeGuard policy has offered guaranteed insurability, hospital benefit, retirement benefit, death benefit and career break options. Product development manager Nick Homer says: “We changed the policy so that it can be used as a mortgage contract. Guaranteed insurability means there is no further underwriting if someone gets a bigger mortgage.”
Legal & General’s new IP plan includes hospitalisation benefit, a no claim cash-back of the last two years’ premiums when the plan ends, and waiver of premium during claims. Options include unemployment cover, a five-year benefit term, index-linking of premium and benefit, and stepped benefits. This means that benefit starts at a low level but is increased when, for instance, the employer stops paying salary.
Pioneer Friendly Society has not only introduced improvements to terms and conditions, but has raised its commission to the market level of 130 per cent of the old Lautro scale. This equates to nearly 125 per cent of the first year’s premiums, and is payable on all new contracts, with a 36 month earnings period.
But while contracts are expanding in scope, choice of providers is contracting. Following the merger of Norwich Union and CGU, part of the old CGU business has been transferred to Norwich Union Healthcare’s SafeGuard contract. But most of the CGU portfolio was introduced by corporate partners and this channel of distribution remains unchanged.
Permanent Insurance has been sold by Equitable Life to Liverpool Victoria Friendly Society. Scottish Provident will shortly be swallowed by Abbey National, which already owns Scottish Mutual. This will inevitably lead to rationalisation, which will be accentuated if Lloyds TSB takes over Abbey National. Additionally, Axa, the French owner of PPP healthcare, is looking at entering the market.
Friends Provident intends to become a plc later this year, after which it will probably soon be taken over. IFAs have long favoured Friends’ guaranteed premiums, and the company’s approach to claims, so any new owner would do well to maintain the brand name, ethos and philosophy.
Some IP providers continue to attract negative publicity in the national press. Allegations include not paying genuine claims, and having vague wordings. The Insurance Ombudsman said last year that he will not accept the “any occupation” definition of incapacity. Providers have therefore moved to introducing activities of daily working tests for people who, because of occupation or medical history, cannot be offered an own occupation definition.
The industry is also moving away from the “suited occupation” definition. “We’ve never had suited occupation,” says Mike Turner, the protection product manager at Friends Provident. “It’s very subjective, and neither one thing nor the other.” So it may not be long before there are only two disability definitions – either own occupation, or personal capability assessment, including mental condition.
The other major change in the market has been in the type of claims seen. Mental and psychological illness has become the most frequent cause of claim. Norwich Union, which receives 1,000 claims a year, says that one third are now for mental illness, including stress. Non-manual occupations, especially teachers, are most at risk of suffering from this.
Most IP providers report static sales last year, especially via the IFA channel. The pockets of growth are where benefit is related to expenditure rather than income, such as mortgage-related business. The first hurdle is to sell clients an IP contract to cover mortgage repayments and utilities bills. When their finances improve, benefit can be uplifted to a percentage of income. The future for individual IP may well lie in this direction.