When a business fails to make money or sell as much as it hoped of a product, everything from the economy to the weather gets the blame.
Income protection insurers have failed to attract enough customers. But instead of blaming their product design or pricing policy, they have blamed insurance advisors, banks, the government, the media and even the consumer. So far, the only group not to get the blame is terrorists, but their time will come.
Sometimes I have serious doubts that some life and protection insurance company people live on the same planet as the rest of us. According to a LifeSearch report an overwhelming 94% of insurers believe the FSA should take steps to make the difference between personal protection insurance and income protection clear to consumers. For those of you who forget, the FSA is the industry regulator. To put this barmy idea in perspective, if your football team is losing matches, you must blame the FA and get them to pick a better team. The FSA is there to regulate the industry and prevent customers losing money by insurers and advisers going bust. Financial advisers LifeSearch even suggested that if you buy a product direct from an insurer or from a bank, that the FSA must make sure you are taking responsibility for your own purchase.
The idea above actually seems quite sane when compared with the suggestion from a think tank. The Joseph Rowntree Foundation has recommended that a new form of insurance is set up by the government and mortgage lenders to protect those at risk of repossession. A report published by the charity suggested the implementation of a Sustainable Home Ownership Partnership (SHOP) scheme – a partnership between the government, lenders and borrowers – which it says will provide a much cheaper form of insurance than similar private products.
The insurance will provide non-means tested mortgage payment cover from the beginning of the third month until the end of the 12th month following the occurrence of unemployment, failure of self-employment, sickness or accident. If the unemployment or sickness continues, it will provide means-tested assistance thereafter. The report – Developing safety nets for homeowners – says take-up of private insurance is so low that only one fifth of homeowners are protected. The pathetic state safety net means homeowners have to wait nine months for any help.
The rate of contribution for SHOP would be £3.40 per month per £100 of mortgage payments covered. Borrowers would pay 50% of this, while the government and lenders would contribute 25% each. Lenders would have to contribute more if their repossession rates were higher than the average, which the report said would provide lenders with an incentive to lend more responsibly. SHOP should be made compulsory for all new borrowers and those who re-mortgage.
So, if someone takes out a new mortgage with monthly repayments of £1000, the premium would be £34 per month. Can you really imagine Gordon Brown agreeing to give insurers £100 a year – no chance. Can you imagine the bank paying insurers £100 a year, instead of getting £100s a year from the policy they currently sell – no way. The biggest problem is that a mortgage payment protection plan is £ for £ far less useful than a wider income protection insurance. We won’t even mention the problems of self-employed people paying for a policy that will give them only partial protection.
Income protection is an area where customers have not been buying as much as insurers think they should. In the last few years, the blame has been put on insurers, poor marketing, and lack of sales ability and interest by intermediaries. Particular blame has been put on you dear customer, for not understanding how valuable the product is. And of course, it is the media’s fault for concentrating on bad stories and not telling you how wonderful the product is.
Not that long ago, insurers started to wonder if the real problem was much simpler. They are not offering products that consumers want at a price they are prepared to pay. So they did, what any organisation with a problem does, set up a task force. Now, I don’t know about you, but as soon as I hear “task force” or “committee”, I think of Yes Minister and the Blair spin machine. The Income Protection Task Force is working on another report. As a group it is very clubby, being composed mostly of white middle-aged men who find it useful for networking if they need a new job. Some of their barmy ideas include making products similar or identical (in the real world this is called breaking anti-competition laws), or persuading the media to tell everyone how wonderful the concept is.
I have a very simple idea for insurers to replace all the above barminess. Instead of sitting on your backside chatting cosily with your peers or the government, go out and talk to real customers. I know this will be a great shock to you; as you are usually cushioned from customers by insurance advisers and your sales team, market researchers and junior staff.
The public is not buying your products. If you are responsible for marketing or pricing your income protection product, you should get out there and talk direct with consumers, either individually or in groups.
To start you off - a few questions:
Is the price too high?
Can you understand the product we offer?
Can you understand what we will and will not pay for?
Can you understand how much we will pay you?
Which product features are essential?
Which product features are of no interest?
Which product features would you pay extra for?
If you are clever, you can even use the brick-building product analysis system, where you take each part of a product, work out what the cost of it to you is, and compare it to what the customer will pay. It is like an insurance version of LEGO where you can build, take apart and rebuild a product until it is what the consumer wants at a price they are prepared to pay.
Having designed, negotiated and marketed national innovative insurance products in areas that the insurer experts told me were uninsurable; I am convinced that the principle of income protection insurance is a good one. But products need simplifying and designing and pricing for the needs of the modern customer from scratch. Think outside the box. Do not let the whines and whinges of the sales, underwriting, IT, and claims people get in the way - these internal problems are always soluble, even if you have to bang a few heads together.
Will we see some new products that customers want to buy, or just another batch of excuses? Insurers need to take responsibility, otherwise it is like a footballer blaming the spectators for missing that open goal.
Income protection insurance: Hot Topic: April 2008