Intermediaries said insurers need to create simpler products to improve understanding and make them more affordable, while noting that the perception protection needed to be sold to customers could be problematic.
The responses come in the wake of a report that suggested the take-up of protection products is being undermined because of the complexity of the products on offer.
The Financial Services Consumer Panel (FSCP) examined the protection gap and how to encourage more people to take out insurance products that could protect them from financial problems should their circumstances change.
The FSCP acknowledged the role brokers play in the sale of these products, and argued that the way to address this insurance gap is not simply “persuading more mortgage intermediaries to recommend income protection,” nor simply to improve the levels of education around the products.
Complexity confusing clients and brokers alike
Last year, the Financial Conduct Authority (FCA) carried out a Financial Lives survey to get a better idea of the financial position of the nation as a whole.
Its research found that 65% of UK adults have no life insurance or any other protection cover in place. This figure jumps to 72% in London.
James McGregor, director at MESA Financial, suggested there can be difficulty in helping clients to understand why they need protection.
He continued: “The complexity of the products do not help this issue either. There are a lot of advisers that do not understand how the more complex covers work. It is hard to advise a solution if you do not understand the solution fully yourself.”
McGregor also argued that the perception that brokers ‘sell’ protection is unhelpful. He explained: “I strongly believe as advisers we should not be selling products, but advising on personal circumstances. The industry got in a lot of trouble by ‘selling’ products in the past, let’s hope that mentality is dying out.”
Selling vs advising
David Hollingworth, associate director at L&C, said that while the theory is that protection should not be a sell, as protection should be something that people understand the benefits of, the reality is that’s not always the case.
He added: “We try to at least put customers into an education position about available products – that conversation has to take place as a standard part of the process, rather than as a ‘by the way’ at the end.”
Hollingworth added there needed to be a balance between having simplicity in the product design and having products which borrowers will have faith in delivering in their time of need.
The worst case scenario
Stuart Gregory, managing director of Lentune Mortgage Consultancy, agreed that many clients will not be aware of options like income protection or family income benefit before speaking to a broker.
He added: “Our job is to make them informed – the key however is then being able to package their needs and satisfy that requirement within their preferred budget. The difficulty is sometimes in persuading our clients to really think of the ‘worst case’ scenario. Clients like to think they’re immortal.”
No silver bullet
To assist with the report, the Association of Mortgage Intermediaries hosted a session where members of the FSCP could meet senior representatives of the broker market.
The report stated: “Since the introduction of the Mortgage Market Review, mortgage advice takes longer, and this left less time for discussions about customers’ protection needs. It is possible that many intermediaries are not discussing protection for this reason.
“There was some strong feeling that the FCA could do more to give direction and steer to mortgage intermediaries about the need to ensure customers are adequately protected. Also, that lenders, as part of their affordability assessment, should take more interest in how their customers would be able to repay the mortgage in the event of a financial shock.”
The FSCP suggested there was no silver bullet which would remove the gap, but argued that it was vital the market developed less complex products which meet the needs of today’s borrowers.