In a Mortgage Solutions poll, 60 per cent of brokers said they had seen a fall in the number of clients taking out protection this year.
This is despite broker’s insistence that protection policies are now more important than ever, pointing to income protection if someone is able to work due to illness or injury.
Lewis Shaw, founder and mortgage adviser at Shaw Financial Services Life, said insurance, critical illness cover and income protection sales were down due to a “double whammy of reduced disposable income and rising mortgage rates”.
Shaw said selling protection to borrowers had been a struggle even before the current cost-of-living crisis. Not because it cost too much, rather that borrowers saw it as a “waste of money”.
He added: “Unfortunately, far too many people don’t get their financial priorities sorted properly, instead citing cost as the factor when it’s not cost; they think it’s a waste of money.
“We know that psychologically people always overestimate good things happening and underestimate bad things happening. We even have the stats from Cancer Research UK that tells us anyone born in the UK after 1960 has a 50 per cent chance of being affected by cancer at some point in their lives.”
Shaw pointed out that even with this data to hand people still wrongly believed it would not happen to them, “yet they insure their pets, phones, laptops, cars, all of which are worth less than their lives and health”.
This perception of protection as an unnecessary expense makes it a hard sell for brokers, as Rob Peters, principal at Simple Fast Mortgage, pointed out. He urged other brokers are being urged to try and allocate more time to selling protection cover as the cost of living bites.
He said: “People will inevitably look to cut out insurances they deem as unnecessary.”
Protection as insurance against the rising cost of living
Living costs are set to rise even further, this month consultancy firm BFY Group warned that the average annual energy price cap will rise to £3,840 by January next year.
Peters said an adviser’s role is to ensure informed decisions are being made which meant brokers needed to be insisting that “the importance of having affordable insurance cover to cover the unknown is not swept aside without understanding the risks”.
“The economy is in shambles and finances are tight for most people, but imagine how much more difficult it would be in the event of a death, critical illness, serious accident or injury. When budgets are tight making sure the recommendation presented is truly affordable is key to it being sustainable. If not, the client will just cancel the policy a few months later to save money,” he added.
The cost-of-living crisis could even present brokers with the necessary flashpoint with which to sell protection, as a hedge against rising expenses.
Alan Richardson, head of business protection and group protection adviser at LifeSearch, said when borrowers were looking to cut costs, “the value of an adviser comes to the fore”.
Richardson said advisers must engage in “brave conversations” with their clients to help them understand possible disastrous repercussions of ill health.
He added: “This may mean allocating more time within the sales process to developing this understanding. It may require delving outside of comfort zones and asking some questions that are a little uncomfortable. A client will always thank you for helping them understand a potential problem, but never will you get gratitude for ignoring an issue. If some advisers are uncomfortable talking about protection, it is possible to build a partnership with a protection specialist.”
Brokers shying away
Robyn Allen, at Robyn Allen Solutions, believes brokers’ own unconscious bias mean they themselves are part of the problem.
He said the real question was whether people were cutting back on taking it – or, “whether advisers were away from talking about it”.
He added: “With so much being said about the cost-of-living crisis, it makes me wonder if advisers are starting to assume people won’t want to pay the ‘extra’ cost every month.
“Protection is the foundation of financial planning; if the financial safety net isn’t in place and something goes wrong, those mortgage payments likely won’t be maintained. That’s a problem for the lender and the customer. As an industry we need to keep educating and helping consumers understand how important these products are for their day to day life, but also check in with ourselves and make sure our own unconscious bias around the cost-of-living crisis isn’t affecting the way we’re interacting with clients.”
Alan Lakey, director of CIExpert agrees that brokers have an opportunity to review how they sell protection. “For example when Covid first hit in 2020 a greater awareness of ill-health washed over the population and sales of protection rose. This was a temporary reaction and has diminished over the months.”
Lakey was not hopeful, though. He said: “It is well known that mortgage advisers tend to ‘forget’ about protection plans when they are up to their necks in arranging mortgages.
“The last two years have seen a massive increase in house purchasing due to the stamp duty holiday and the kick that gave the market so mortgage advisers have focused less on protection than on getting the mortgages through.
“The reality is that many mortgage advisers are not fully committed to protection and see it as a useful adjunct to a mortgage but secondary to actually arranging the mortgage,” Lakey added.
How to sell protection
Emma Green, director of distribution at Paymentshield, said scrimping on insurance boiled down to two things: misconceptions around the value it brings, and not enough know-how to make informed decisions.
She said Paymentshield conducted some market research with over 2,000 UK adults, and found that over two-thirds, 73 per cent, are not confident when it comes to understanding common insurance terms.
Green added that nearly half, 49 per cent, wrongly assumed price is the only differentiator between different insurance products.
She said: “It’s no wonder when under financial pressure that customers will look to dismiss something they don’t understand.”
“Advisers need to focus on education and information as much as sales and service. Advisers can help to demystify insurance, explain how it actually works, and what the implications might be of switching to a cheaper but lower quality product or cancelling their insurance all together.”
