Click here to Skip Navigation

Tim Jackson of Unum wonders: “Income Protection for SMEs: an unfilled space for growth?”

23/01/12

January – the month of Janus, the Roman god who had one face on the back of his head looking at the year past, and one face looking forward to the future. For many, it’s the season for introspection, “new year; new you”, and resolving to do things differently. And for the protection industry, that may be truer in 2012 than ever before.

 

Looking back at 2011, Greek intransigence put the Eurozone on a precipice, and has likely pushed the economy backwards. This is probably the most significant event for financial services in general, and will continue to be a painful backdrop in 2012 as fear permeates. For those of us in the protection business in particular, the demon of PPI mis-selling has certainly reared its ugly head as well.

 

But 2011 was by no means all doom and gloom. We’ve seen some significant positive changes too – changes which I’m proud to say Unum has been at the forefront of. For the first time, Income Protection has been heavily marketed to consumers, with TV advertising campaigns not only from ourselves but also from Aviva. We’ve highlighted the enormous gap in protection that exists for consumers today, and explained why a back-up plan like Income Protection is a good thing to have – especially if you get it through work. We’re building demand, which advisers can capitalise on.

 

And this leads me to look forward to 2012. Clearly IP promotion in 2011 is creating opportunities for advisers to sell more IP. But for many IFAs, RDR is the biggest thing on the horizon, and the focal point for 2012. With the removal of commissions, how can advisers justify the visible, upfront consulting fees? What products or financial problems are large-enough scale to support the fee-based model? Where do the opportunities for new business lie – especially in the current economic situation?

 

Well, we have an idea. The major growth opportunity for Income Protection is those in the aspirational middle class. Today, these people probably don’t have access to an IFA, and under RDR, are even less likely to pay fees. The best way for this group to get IP is through work. So where’s the growth potential for advisers? In short: Group IP in SMEs.

 

GIP schemes are traditionally the preserve of corporate IFAs and employee benefits consultants. But the majority of corporate advisers focus on medium-to-large employers. Small businesses are often underserved. Yet many IFAs will have relationships with individuals whose high net worth has been derived from entrepreneurship and director-level positions in precisely those small businesses. Could those IFAs not discuss the needs of their businesses with those owner-managers? And a 10-50 person GIP scheme would not only be a major source of new premium from existing clients, but is RDR-exempt as well.

 

Of course, there are two counterarguments: SMEs don’t want GIP or they can’t afford it, so there’s no opportunity. Let’s address each in turn.

 

To say SMEs don’t want GIP is an over-simplification. Some truly won’t see the value of protecting their staff and insuring themselves against their own costs of absence. However, many do have strong desires to care for their staff – particularly if those SMEs are family-run businesses. That moral sense of care includes wanting to ‘do the right thing’ for staff who are long-term sick. In fact, Unum’s experience shows that, whilst SMEs are less likely to have a GIP scheme in place, when they do, they are far more likely to cover all their staff than larger companies. In fact, for firms over 2,000 employees, just 6% of staff are covered – IP is merely another senior management perk. Whereas for businesses in the 10-49 range, it’s 67% – small businesses want to look after staff. And in many cases, lack of penetration is less about not wanting IP, it’s about not knowing about it, or about the risks faced by both employee and employer, from long-term injury or illness. This lack of awareness is common amongst employee and employer alike. So there’s actually a major opportunity for IFAs to educate their owner-manager clients, and explore the real appetite for GIP.

 

With constrained budgets, cost is an issue. That’s why we’ve developed options for GIP cover that start from as little as £200 per employee. GIP has traditionally been sold to senior managers as a ‘gold-plated’ product, with high levels of income replacement, and insurance against being able to do specifically your old job. To protect the essentials of life, such rich cover isn’t necessary. A foundation level of IP cover is an affordable way to show employees you care – especially when pay-rises are not on the cards. And this formalises sick-pay policies, simplifies them and makes them non-discriminatory – whilst covering the direct costs of absence for the employer as well.

 

So here’s the idea: 2011 began to build consumer interest for IP; 2012 offers individual IFAs an opportunity to capitalise on that demand with SMEs, in a way that offers new revenue streams in the face of RDR. Sound interesting? We’d love to hear your views!

Categories

 

Authors

 

Archive