Business mix is critical to good coverage

Recently I wrote about the protection gap – for advisers, the issue isn’t that consumers are generally choosing no cover, although undoubtedly a few fish slip the net.

Tuesday, November 23rd 2021, 10:36AM

by Russell Hutchinson

It is mainly that clients do not buy an adequate range of cover – choosing to leave out income protection and buy too little TPD and trauma cover.

Of course, covering catastrophic risk remains our first thought – for good reason – the sudden death of a sole income earner is perhaps the original reason for insurance.

It is powerfully imprinted as a vital need to cover in both our minds and the minds of consumers. While it is less likely than at any point in our history, it is also cheap cover to buy, so why not get that job done?

The problem is that the job is not even half done with that one cover – yet premiums for death cover are about half the industry total.

Covering the full scope of risks seems to be the preserve of the wealthy, it may be more than just a question of having more money for more premium, it could also be that they are better able to accept arguments about the high prevalence of temporary disability and trauma risks.

There is an important difference between the way we describe life sums insured and income sums insured, which means we often don’t calculate the lifetime risk - the fortune that typical advice clients will earn over their remaining lifetime and the value of protecting that.

While I am tempted to believe that wealthier clients could simply be better at maths the counterargument is given by a significantly higher volume of single parents who seek income cover quotes (compared to couples) when we look at Quotemonster data.

This suggests that understanding the risk is an important factor and being a sole parent must mean more sensitivity to that discussion when it comes up.

Lifting the rate of income cover would be the single most important step, even just mortgage or expenses cover at modest levels would help a great deal in the battle to reduce the protection gap.

Extending coverage across the full range of risks may also reduce lapse risk in your client portfolio and may also reduce the potential for complaints.

Whether it’s about your client, or you, or the industry, it’s a win.

Tags: insurance Opinion Quotemonster Russell Hutchinson