The financial services industry has never really been good at advertising its wares.
The Association of Investment Trust Companies (now, the Association of Investment Companies) had a bash at it in the late 1990s, but the “its” campaign was truncated (and then binned) after the boardrooms of some trusts thought they were not getting enough bang for their buck.
Individual investment companies also had a field day in the late 1990s promoting investment fund-based Isas as the stock market roared like a Christmas log fire. Yet most sales, based around technology funds, led to detriment as the tech bubble exploded in early 2000 like a water-filled balloon, leaving investors seriously out of pocket.
While the banks prefer to blind us with images such as silky horses in an attempt to convince us they are customer-centric, the financial protection industry does the square root of nothing.
Maybe, it feels its important wares, like household essentials such as Domestos or Dove soap, will sell themselves, but I am not quite sure the world works like that. Most households do not have the financial nous to realise that a panoply of products — the likes of income protection, critical illness and life cover — exist to help them out when serious illness strikes and finances come under pressure.
Damp squid
Nine years ago, a bunch of financial protection product providers did launch the Seven Families Campaign, which attracted great media interest. It was clever and personal as it highlighted the transformative impact of income protection on the lives (and families) of those impacted by life-changing illness.
Yet it was not built on. Although the campaign was revived in 2020, revisiting the seven families featured in the original 2015 version, it was something of a damp squib.
Today, financial protection insurance remains a minority purchase, despite the fact that it should be a foundation stone upon which most families’ finances are built.
The latest data on financial protection sales, assembled by Gen Re, can be interpreted in many ways. The optimists can point to the 2 per cent growth in annual premiums recorded last year. The pessimists can argue that the number of policies sold overall in 2023 fell by 5 per cent to just over 2.1mn, with more than half being straightforward life insurance.
My view is that the financial protection industry can — and should — do better and I am not a lone voice. Last month’s “Critical thinking report”, published by CIExpert, said as much.
Financial protection insurance remains a minority purchase, despite the fact that it should be a foundation stone upon which most families’ finances are builtIt concluded that misconceptions about critical illness are rife, with many people believing the cover is only appropriate for those who have mortgages.
Buyers are also put off by the fact that they mistakenly think a financial adviser will charge them an arm and a leg for arranging cover. Others are unaware of some of the additional benefits that come with the product, such as access to a second medical opinion or health screening.
The report also said providers should do more to appeal to those who would use a critical illness payout to pay for medical care rather than rely on an NHS under extreme pressure.
Of course, the report was focused purely on critical illness cover, but the issues raised by CIExpert apply across the financial protection insurance spectrum. The products are not well known and consumers do not really understand them.
Game of chance
I am not sure what the answer is. Maybe it is a financial education issue, but I think it is wider than that. Protection insurance is not sexy like investing, which appeals to consumers’ greed. It is also a game of chance — the majority of customers have no need to claim and come to the end of their policy’s term a little aggrieved that they have poured quite a lot of money into the coffers of the provider they are with, and got nought back.
It is why I think the policy extras that are increasingly a feature of new protection products should be developed further, helping to give the insurance a value beyond when it meets a claim.
The government could have done its bit in the Budget by cutting insurance premium tax, but it chose to leave it alone.
No surprises there. A shame, because at the end of the day a buoyant financial protection market is not only good for consumers, advisers and insurers, it is good for the country.
Jeff Prestridge is group wealth and personal finance editor at DMGT
