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Gen Re reinsures significant volumes of Income Protection (IP) business, on both an individual and a group basis in markets around the world. We are passionate about the value IP brings to consumers. It’s a market we are working to grow because IP is cover most working people need but not enough have.
In the UK, individual IP represents 8% of in-force long term life and health insurance. Not much to brag about for such an important product, but the market size has doubled in the last four years. Meanwhile, the group IP (GIP) market is about double the size, with almost 2.5 million workers covered through employer-sponsored schemes.
There are clear challenges to selling protection of any type. In fact people are more likely to buy a pet or phone policy than one for life or health. This low perception of the need or the potential benefit is a common obstacle to sales.
Another is optimism bias that causes people to think they are at a lower risk of experiencing something negative compared to others. For example, a survey amongst American workers found most considered they had a less than a 1% chance of being off work for longer than three months. Such optimism is misplaced because the odds are far higher; nearly 30 times higher.
And the so-called bystander effect means even those who recognise their need for protection simply believe support will come from elsewhere, typically the state - despite the stark reality of benefit provision. In the UK, for example, over 60% of working families are actually entitled to zero state benefit if the main breadwinner is too ill to work. Most people find that even if financial support is provided, it’s neither sufficient nor sustainable and eligibility rules are very strict; most successful IP claimants would be unlikely to qualify. People relying on state benefit do not enjoy the proactive support available from insurers as part of the claims management process, which can include rehabilitation and a staged return to working funded by pro rata benefit payments.
We are in a changing world and jobs are no longer for life. More and more people are enjoying the independence and flexibility of self-employment. In the new gig economy of casual work or multiple jobs, employee benefits are scarce. Most people will need to make their own provisions for periods of unemployment or when a disability precludes working. Employees may hope for a degree of employer paternalism but GIP is not universally available; it’s not long since it was euphemistically termed an “executive benefit”. The UK Financial Conduct Authority research shows personal savings are inadequate to support employees who can’t work for a long time or are off work multiple times or if they can only return on a part time basis.
Thankfully, consumer awareness of IP value is increasing. Insurers have responded by offering a wider variety of products at various price points and extending cover to people in more manual jobs or even gig workers. This has forced novel thinking about IP fundamentals, such as waiting periods, rating factors and affordability. “Age-costed” premiums and guaranteed benefits (based on income at outset) also help to make the product attractive and open to more people. We are actively exploring the potential for new digital technologies inside IP products that can help customers build reserves of fitness and mental resilience before and during a claim.
Challenges to be met include digital data, which must be carefully curated, and selling into niche markets, which may skew the portfolio mix so as to adversely affect claims experience. Another challenge is that previously insignificant areas of risk in traditional portfolios or products can become significant especially in combination.
At Gen Re, we recognise IP has increasing relevance. Profitable growth is possible in traditional and new market segments, provided there is a willingness to engage, experiment and learn from what you see.
