Protection products are too complicated and no longer meet the needs of a modern workforce, according to the Financial Services Consumer Panel.
In a new discussion paper, the Panel calls on the insurance industry, regulators and other stakeholders to tackle the ‘protection gap’, which leaves many consumers vulnerable to the financial consequences of long-term illness or premature death.
The findings from the Panel’s consumer research, and discussions with industry representatives, highlight the lack of innovation in the market over the past three decades.
The policy focus until now has been on encouraging savings as a means of building financial resilience. There has been little discussion about the role of insurance in helping people manage life’s risks, the Panel said.
Sue Lewis, the Panel’s chair, said: “Protection products have not kept pace with the needs of today’s workforce. People now are more likely to be self-employed or have insecure employment, with volatile incomes. Our research shows that people want value for money products that suit their lifestyles, and that they understand.
“The industry needs to respond to this, rather than just selling the same products as it did 30 years ago. We hope the industry, regulators, and other stakeholders will join in the debate about how this market can be improved for consumers. More of the same is not an option.”
Johnny Timpson, protection specialist at Scottish Widows, said he supported the report from the FSCP.
“Many of the findings align with what is being asked of the DWP, the FCA and the industry by the Building Resilient Households Group and the ABI Protection Committee,” he said.
“This is that as part of the mortgage/re-mortgage and further advance process, it should be mandatory to have protection discussions.
“There should be a review and change to the Universal Credit means-testing rules and the introduction of means-testing disregards where protection claim benefits are used to fund rent, utility bills, broadband, council tax and child care commitments.
“This builds on the disregard recently secured where protection claim proceeds are used to pay down, pay off or service debt liabilities, including mortgage debt.
“Employees need to be made more aware of their workplace income replacement benefits, welfare entitlement and provision. They need to be able to access information and tools to understand the state income replacement safety net.
Educational support needs to be made available to the self-employed, those working in the gig economy and on fluctuating incomes.
“Consumers need to be made better aware about access to protection solutions, simplifying both products and the advice process, plus supporting adviser professional development.
“We look forward to working with the FSCP to improve consumer trust in, access to and outcomes from appropriate financial protection advice, products plus support and rehabilitation services.”