Protecting our future. report. Britain s Protection landscape.

Transcription

1 Protecting our future. report. Britain s Protection landscape. Scottish Widows Protection Report April 2013

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3 Contents. Introduction. 4 Consumer protection landscape. 6 The value of trust. 10 Welfare Reform. 12 Creating a safety net. 16 Life events. 18 Conclusion. 22 3

4 Introduction. Welcome to the Scottish Widows Protection Report Our fifth study is based on research commissioned from YouGov, who surveyed over 5,000 people on their household finances and their attitudes towards maintaining their lifestyles. Among the issues addressed in the report are: The financial safety nets that households have in place and the shortfalls that exist. Consumer perceptions of the financial services industry and how it influences the take-up of insurance products. The threats to household finances and what people are doing to counter them. The impact of spending cuts and welfare reforms on attitudes towards savings, debt and insurance. The degree to which employment, social and housing market trends could re-shape the trigger points for buying protection. The financial repercussions of losing one or more household incomes because of death, illness or an accident are widely understood. However, it remains the case that while households are seeking to pay down debts and boost their rainy day savings, many remain vulnerable to financial shocks. The financial repercussions of losing one or more household incomes because of death, illness or an accident are widely understood. However, it remains the case that while households are seeking to pay down debts and boost their rainy day savings, many remain vulnerable to financial shocks. Last year we uncovered evidence that households were battening down the hatches as incomes stagnated, employment anxieties grew and spending cuts began to take effect. This year s research underlines that consumers are acutely aware of the threats posed to their finances and lifestyles in an uncertain economic climate. Richard Jones Director of Protection and Annuities 4

5 It s evident from our report that changes such as the increase in the number of people renting their homes bringing with it rental costs at historic highs and the rise in self-employment could leave more people exposed if incomes are left unprotected. A new group of buyers also appears to be emerging: those people who are looking after elderly parents. This report examines the key findings that emerged from our research. Of particular interest are those showing how people recognise the various financial challenges they face, what they are doing to tackle them and where the industry should be helping to bridge the gaps that are left. Its ability to do so is impaired to some extent by low consumer confidence in the wider financial services industry, although insurers have taken significant steps to strengthen trust in protection products. Definitions: Protection: term used to describe all types of Life Insurance, Critical Illness Cover and Income Protection products. Life Insurance: lump sum paid to dependants on death. Critical Illness Insurance: lump sum paid to individuals if they are diagnosed with one of a list of serious illnesses. These life-changing illnesses are two to three times more likely to occur in the term of a customer s policy than death, but the financial consequences can be just as severe for their dependants. Income Protection: partial replacement of earnings if the individual is unable to work due to illness or accident. Statistically this can up to four times more likely than a critical illness insurance claim. 5

6 Consumer protection landscape. Single Income (%) If you or your partner were unable to work for 6 months or longer due to ill health or personal injury, would you be able to live on a single income? (%) Yes No Don t know Employed and working Employed and working part time (up to 24 hours per week) Self-employed and working Self-employed and working part time (up to 24 hours per week) Student in education Looking for work / unemployed 60 On long term sick leave (longer than 6 months) Housewife / house husband Employed and working Employed and working Employed and working part time (up to 24 hours per Employed week) and working part time (up to 24 hours per week) Self-employed and working Self-employed and working Self-employed and working part time (up to 24 hours per week) 32 Self-employed and working part time (up to 24 hours per week) Student in education Student in education 35 Looking for work / unemployed Looking for work / unemployed On long term sick leave (longer than 47 6 months) On long term sick leave (longer than 6 months) Housewife / house husband Housewife / house husband to to Owned Housing Association Rented Local Authority ) eek) Employed and working Employed and working part time (up to 24 hours per week) Self-employed and working Self-employed and working part time (up to 24 hours per week) Student in education Looking for work / unemployed On long term sick leave (longer than 6 months) Housewife / house husband How concerned are you about the effects of recent Government spending cuts and welfare reform on your ability to manage existing debts: (%) How concerned are you about the effects of recent Government spending cuts and welfare reform on your ability to: (%) 10 9 to to to to to to Concerned NOT concerned On long term sick leave >6 months Looking for work and unemployed Housewife or house husband l e time (up education to 24 hours week) Looking for Student work / in unemployed education On long term sick Looking leave for (longer work than / unemployed 6 months) Housewife Looking / On house for long work husband term / unemployed sick leave (longer than 6 months) term Housewife sick leave / house (longer husband than 6 per On long months) Housewife / house husband Employed & working part time (<24hrs/week) Employed & working Self-employed & working working Employed part time and (up working to 24 hours per Self-employed Employed and and working part (up to 24 Self-employed hours per Employed week) and working working Self-employed part time part (up time and to (up 24 working to hours 24 hours per full week) time per Self-employed Student Self-employed in full and time working education and working part time full (up time to 24 hours Self-employed per week) working Student part in time (up education to 24 hours Student work / unemployed in full sick Looking leave for (longer work / than unemployed 6 months) Looking On / house long for work husband term / sick unemployed leave (longer than 6 months) long Housewife term sick leave / house (longer husband than Employed and working Employed and week) and week) week) Looking for time education On long term Housewife and per On 6 months) Manage existing debt Save money Maintain your current lifestyle Meet day-to-day living expenses Student in education Self-employed & working part time (<24hrs/week) ull rking time Self-employed Self-employed and working Employed and working part and time part working (up time to 24 full (up hours time to 24 per hours week) per week) Employed Student Student in and full working time full education time part education time (up week) Self-employed Looking Self-employed Looking for work for and / unemployed working / unemployed part time (up per On week) long On term long sick term Student leave sick (longer in leave (longer than education 6 than months) 6 months) Housewife Housewife / house / husband house husband to 24 hours per and working to 24 hours Looking for work / unemployed On long term sick leave (longer than 6 months) Housewife / house husband Concerned NOT Concerned 6

7 Ways to reduce costs or raise money (%) In the past 12 months have you had to do any of the following in order to save money or build up extra money for living expenses (the day-to-day costs of running your household)? Please select all that apply. (%) Not turned on the heating when your home is cold 31 Sold items online e.g. through ebay or Gumtree 23 Cut down or gone without fresh food (meat, fruit, veg) 16 Worked more hours 15 Cancelled family days out 11 Reasons for no critical illness cover (%) Which of the following best describes why you haven t taken out a Critical Illness insurance policy. (%) I know I can t afford it I think it is a waste of money It s not a financial priority at the moment I m prepared to risk not being covered I don t have any dependants to provide for Don t think I need a policy like this Product ownership (%) Which of the following financial protection products do you own? (%) Own outright Local authority Own outright Private landlord Local authority Housing association Own outright Private landlord Housing association Local authority Own outright Private landlord Housing association Local authority Own outright Private landlord Housing association Local authority Private landlord Housing association Life Income Critical Illness Owned Housing Association Rented Local Authority 7

8 Consumer protection landscape, cont. Savings (%) How long do you think your savings would last if you were unable to work? (%) Less than a month For a month For a couple of months For six months For a year For a couple of years Why products are bought (%) For Life, Income and Critical Illness Insurance: You said that you own the following financial protection product(s): What was the main reason you took out each protection product? (%) Life Income Critical Illness A friend/family member became ill or incapacitated I have taken on more debt I am now the sole earner in my family I bought a property A change in my marital status (e.g. got married or divorced) I had children Government cuts have made me uncertain about my future income I felt the need to protect my own income A professional recommendation (e.g. IFA recommended/suggested it) 8

9 Product ownership comparisons (%) Which of the following financial protection products do you own? Life Insurance Income Protection Critical Illness Insurance Employed & working Employed & working Employed & working part time (<24hrs/week) Employed & working part time (<24hrs/week) Self-employed & working Self-employed & working Self-employed & working part time (<24hrs/week) Self-employed & working part time (<24hrs/week) Working Working Not working Not working

10 The value of trust. The public s perception of the financial services industry continues to have a bearing on the take-up of protection. One in 10 people without protection in place said they did not trust insurers to pay out when it came to making a claim. That perception may reflect a lack of confidence in the financial services industry as a whole, perhaps unsurprisingly given the turmoil of recent years. More than one in four people who don t have Critical Illness Cover or Income Protection said either that they couldn t afford it or they didn t think they could afford it, showing that both trust and perceived affordability are still issues the industry needs to look into. Of those who do not currently have Critical Illness Cover, 15% believe they don t need it, rising to 22% of respondents without Income Protection. In some cases this will be the right assessment, as protection is not appropriate for everyone. In other instances, however, the assertion that they don t need protection may be based on misconceptions, low awareness or negative perceptions of insurance products and providers. Nine out of ten critical illness claims were paid out in million per day paid out in claims made by customers in But fears of insurers not paying out on protection claims are largely unfounded. The most recent figures from the Association of British Insurers (ABI) show that more than nine out of 10 critical illness claims were paid out in 2011, up from eight in 10 in Insurers paid out 6.7 million a day in 2011 to customers who made claims on Life Insurance, Income Protection and Critical Illness Insurance. Scottish Widows pays out an average of 1.27 million each week on Critical Illness Insurance, with 492 million paid out in total since 2000 and 1.53 million each week on Life Cover claims with 807 million paid out since Reasons for no critical illness cover (%) Which of the following best describes why you haven t taken out a Critical Illness insurance policy. (%) I know I can t afford it I think it is a waste of money It s not a financial priority at the moment I m prepared to risk not being covered I don t have any dependants to provide for Don t think I need a policy like this

11 It was in 2005 that insurers began publishing the proportion of claims that pay out, in a move aimed at improving transparency and boosting levels of trust in the industry. The Consumer Insurance (Disclosure and Representations) Act, in force from 6 April 2013, may represent another forward step on that journey. Under the new rules, consumers no longer have an obligation to volunteer material facts when applying for insurance. Instead they merely have to take reasonable care to answer the insurer s questions fully and accurately. Insurers have sought in recent years to improve the application process and address consumer concerns. The Consumer Insurance Act builds on this and is expected to further strengthen trust in the industry. Insurers paid out 6.7 million a day in

12 Welfare Reform. Employed and working part time (up to 24 hours per week) Employed and working Self-employed and working Self-employed and working part time (up to 24 hours per week) Student in education Looking for work / unemployed On long term sick leave (longer than 6 months) Housewife / house husband Employed and working Employed and working Employed and working part time (up to 24 hours per Employed week) and working part time (up to 24 hours per week) Self-employed and working Self-employed and working Self-employed and working part time (up to 24 hours Self-employed per week) and working part time (up to 24 hours per week) Student in education Student in education Looking for work / unemployed Looking for work / unemployed On long term sick leave (longer than 6 months) On long term sick leave (longer than 6 months) Housewife / house husband Housewife / house husband The need to have some form of financial safety net in place is a major concern for many households as the Government s welfare reforms gather pace. At the same time there s a growing appreciation that the support provided by the state is insufficient on its own, as more people recognise the importance of taking responsibility for their Employed Employed and working and working Employed Employed and working and working part time part (up time to 24 (up hours to 24 per hours week) per week) Self-employed Self-employed and working and working financial security. Self-employed Self-employed and working and working part time part (up time to 24 (up hours to 24 per hours week) per week) On long On term long sick term leave sick (longer leave (longer than 6 than months) 6 months) Housewife Housewife / house / husband house husband Among the spending changes taking effect in 2013 are a 1% cap on increases to in-work and out-of-work benefits, reform of Council Tax benefit, new restrictions on Child Benefit, benefits paid at a household level and changes to Disability Living Allowance. Spending reforms are making a dent in employment security too, with the Institute for Fiscal Studies warning that 1.1 million public sector jobs will be cut by The impact on consumer confidence is becoming evident. More than half of respondents are concerned that the Government s spending cuts and welfare reforms impair their ability to save money. Student Student in in full education time education Looking Looking for work for / work unemployed / unemployed That includes 23% who are very concerned and 38% who say that spending cuts are affecting their ability to manage their existing debts. The latter rises to 45% of those on long-term sick leave (more than six months) and three in 10 who are unemployed. For all the efforts to boost rainy day savings, the squeeze on household finances means there may be less to fall back on should that rainy day arrive, adding to the value of having protection in place for security and peace of mind. People in rented accommodation are also more likely to be concerned about government reforms restricting their ability to save, including 33% in local authority accommodation and 39% in housing association properties. The same patterns apply when respondents are asked about their ability to maintain their existing lifestyles. Self-employed and working Self-employed and working Self-employed and working part time (up to 24 hours per week) Self-employed and working part time (up to 24 hours per week) Student in education Student in education 56% Looking of for work / unemployed people claim Looking for work / unemployed spending On long term sick leave (longer than 6 months) On long term sick leave (longer than 6 months) Housewife / house husband Housewife / house husband cuts have not caused them to think about protection, including two thirds of those Employed and working Employed and working part time (up to 24 hours per week) Self-employed and working Self-employed and working part time (up to 24 hours per week) Student in education who have debts On long term sick leave >6 months working Employed part time and (up working to 24 hours per week) Self-employed Employed and working full part 24 Self-employed hours per Employed week) and and working working Self-employed part part time time (up and (up to 24 to working hours 24 hours per full per week) time week) Self-employed Student in full and time working and education working part Self-employed week) week) Looking for Student work / in unemployed education On long term sick Looking leave for (longer work than / unemployed 6 months) Housewife Looking / On house for long work husband term / unemployed sick (up to time (up to 24 hours per working Student part in time (up education to 24 hours leave (longer than 6 months) term Housewife sick leave / house (longer husband than 6 and per On long months) Housewife / house husband 10 9 to to Student in education Employed and working Employed and working part time (up to 24 hours per week) 99 to to Looking for work and unemployed to to 22 Employed Employed and working and working Employed Employed and working and working part time part (up time to 24 (up hours to 24 per hours week) per week) Self-employed Self-employed and working and working Self-employed Self-employed and working Employed and working part and time part working (up time to 24 full (up hours time to 24 per hours week) per week) Employed Student Student in and full working time full education time part education time (up week) Self-employed Looking Self-employed Looking for work for and / unemployed working / unemployed part time (up per On week) long On term long sick term Student leave sick (longer in leave (longer than education 6 than months) 6 months) Housewife Housewife / house / husband house husband to 24 hours per and working to 24 hours Employed & working part time (<24hrs/week) Looking for work / unemployed On long term sick leave (longer than 6 months) Housewife / house husband Employed and working Employed and working Employed and working part time (up to 24 hours per Employed week) and working part time (up to 24 hours per week) Self-employed and working Self-employed and working part time (up to 24 hours per week) Student in education Looking for work / unemployed On long term sick leave (longer than 6 months) Housewife / house husband Self-employed & working working Employed part time and (up working to 24 hours per Self-employed Employed and and working part (up to 24 Self-employed hours per Employed week) and working working Self-employed part time part (up time and to (up 24 working to hours 24 hours per full week) time per Self-employed Student Self-employed in full and time working education and working part time full (up time to 24 hours Self-employed per week) working Student part in time (up edu to Employed and working Employed and week) and week) and How concerned are you about the effects of recent Government spending cuts and welfare reform on your ability to manage existing debts: (%) Concerned Employed & working Housewife or house husband Self-employed & working part time (<24hrs/week) NOT Concerned 9 to 12

13 That may yet change, as 26% believe that they could be forced by spending cuts to re-jig their financial priorities in the future. Another 22% say that a lack of job security could do the same. Whether that results 2010in a positive shift in attitudes towards protection 2011 remains to be seen. Awareness of Income Protection and Critical Illness Insurance is high 2012 but take-up is low. It would be fair to say that the case for using insurance policies to plug the widening gap between state support and individual provision has perhaps not been made with sufficient conviction How concerned are you about the effects of recent Government spending cuts and welfare reform on your ability to: (%) Concerned NOT concerned The ongoing welfare reforms are a reminder of the fragility of household incomes. But while attitudes to individual and family finances are shifting, there remains a gulf between the attention paid to protecting incomes and the extent to which people turn to protection when seeking to bolster their defences Manage existing debt Save money Maintain your current lifestyle Meet day-to-day living expenses 13

14 Creating a safety net. Welfare reform is just one of several factors adding to the pressure on individuals and families. Household finances remain vulnerable in the face of higher living costs, stagnant wages and job insecurity. These pressures on budgets are revealed in our research which shows that 23% of people have sold items online over the last year to save money or cover living costs, while 31% opted against turning the heating on when they were cold. The challenge of covering day-to-day costs is not getting any easier. The Institute for Fiscal Studies last year predicted that by 2016, real incomes where inflation is factored in will have fallen to the levels of 2002/03. Confidence in job security remains fragile too and is now considerably lower than it was in More than two thirds of respondents believe that there is a slight, good or reasonable chance they could lose their job. 17% have no savings, 15% don t know how much they have and 47% have under 20,000 in savings. So it is unsurprising that people are making a concerted effort to create their own plan B. More people are saving money each month as they seek to build rainy day funds, while the average amount being put aside each month has also edged up. However, the rate of increase in the number of people with savings has slowed since our last report. There has been a rise of 2 percentage points to 69% in the number of people who are saving money, compared with a 5% jump previously. Ways to reduce costs or raise money (%) In the past 12 months have you had to do any of the following in order to save money or build up extra money for living expenses (the day-to-day costs of running your household)? Please select all that apply. (%) Not turned on the heating when your home is cold 31 Sold items online e.g. through ebay or Gumtree 23 Cut down or gone without fresh food (meat, fruit, veg) Worked more hours Cancelled family days out 11 14

15 The fact that more people are saving money is a positive development. However, overall, savings levels are low. When asked the approximate value of any accessible savings or investments that people had alone or with their partner, a quite stark picture emerges. 17% have no savings, 15% don t know how much they have and 47% have under 20,000 in savings. Only 21% have over 20,000 in accessible savings. The overall level of savings in the UK will be higher than this as these figures exclude harder-to-access savings such as pensions and property, but should an unfortunate event occur these savings are not going to be readily available. Younger families and individuals in particular are struggling to build up funds to protect themselves, weakening their safety nets just as the cost of living continues to climb. Accessible savings or investments available to people alone or with partner 17% Have no savings 15% Don t know how much they have 47% Have under 20,000 in accessible savings 21% Have over 20,000 in accessible savings 15

16 One in four of the respondents who had suffered a critical illness said they had been forced to make dramatic lifestyle changes in order to cope with the financial constraints. Yet across the UK population, only 5% have Income Protection in place and just 9% hold Critical Illness Insurance. Of those who have savings and are not retired, 14% feel that their savings would last less than a month if they were unable to work. For those without protection in place, the risks to household finances if the worst were to happen are stark. One in five would struggle to pay their mortgage within a year if they or their partner could not work, while a third would have problems covering their household bills. Almost half of mortgage holders have other debts, our research found, adding to the pressure that would mount on their finances in the event of one or more incomes being lost. Yet that security is supplied only to a limited degree by the steps that households are taking to reduce expenditure and increase savings. The consequences for household finances of being unable to work because of illness or an accident are considerable. One in four of the respondents who had suffered a critical illness said they had been forced to make dramatic lifestyle changes in order to cope with the financial constraints. Yet across the UK population, only 5% have Income Protection in place and just 9% hold Critical Illness Insurance. Recognition of that vulnerability is evident in figures showing that 29% of people consider financial security for their dependants to be essential in the event of illness. Savings (%) How long do you think your savings would last if you were unable to work? (%) Less than a month For a month For a couple of months For six months For a year For a couple of years

17 Case Study When newly-divorced Jennifer Smith was diagnosed with cancer, the financial implications resulted in her losing her home. Jennifer was living in the family home that she owned in the wake of her divorce when she talked to an adviser about taking out protection. She decided against it, unconvinced of the need and feeling that she couldn t afford it. Days before remarrying, Jennifer was told that she had breast cancer for which she entered treatment immediately. With the extra money that protection would have given me, life would have been much more comfortable during the treatment of my illness and I wouldn t have lost my home. Jennifer s new husband helped out financially, but the experience left her in no doubt as to the value of having protection in place. I said at the time that I couldn t afford the cover, but really I couldn t afford not to have the cover. It s something that s an absolute necessity for the majority of the working population. 17

18 Life events. The key life-stages for protection needs have changed over the years as social, employment and home-buying trends have changed. There is an opportunity for insurers to review whether they are providing consumers with access to the right products at the right time. Of those who have bought Income Protection, there are two main reasons: buying a property at 27% feeling the need to protect their own income at 23%. 45%of all respondents said they would be able to live on a single income. Changes in family status account for 18% of purchases and this includes having children, getting married or divorced or becoming the sole breadwinner. There will be valid reasons why some people have opted against buying protection, as it isn t suitable for everyone. However, the value of having Income Protection or Critical Illness Insurance in place becomes greater at certain life stages, with the birth of children or marriage perhaps the most obvious instances. 18

19 Why products are bought (%) Life Income Critical Illness A friend/family member became ill or incapacitated I have taken on more debt I am now the sole earner in my family I bought a property A change in my marital status (e.g. got married or divorced) I had children Government cuts have made me uncertain about my future income I felt the need to protect my own income A professional recommendation (e.g. IFA recommended/suggested it) The level of home ownership in the UK is declining as housing market activity falters, meaning that the main incentive for buying protection has diminished. More people are renting and doing so for longer, particularly would-be first-time buyers unable or unwilling to secure a foothold on the housing ladder. Growing demand for housing is pushing the cost of private rented accommodation up to record highs in many areas of the UK. The consequences of being unable to keep pace with those rent increases can be severe, particularly as social housing availability is squeezed. More people are renting and doing so for longer, particularly would-be first-time buyers unable or unwilling to secure a foothold on the housing ladder. Also, the loss of one or more household incomes could significantly impact one s ability to pay rent and other bills, with eviction the worst case scenario. Renters are less confident than homeowners that they could get by on a single income in the event of one earner in the household being unable to work due to illness or an accident. While 45% of all respondents said they would be able to live on a single income, the proportion drops to just 31% of people in local authority homes, 34% renting privately and 38% in housing association accommodation. The responses were almost identical when respondents were asked if their household could cope with the loss of income if they or their partner died. 19

20 Product ownership (%) Which of the following financial protection products do you own? (%) Own outright Local authority Own outright Private landlord Local authority Housing association Own outright Private landlord Housing association Local authority Own outright Private landlord Housing association Local authority Own outright Private landlord Housing association Local authority Private landlord Housing association Life Income Critical Illness Owned Housing Association Rented Local Authority As the proportion of people renting their homes continues to grow, 20 this evidence points to a new market for protection. Even though renters are just as likely to suffer the consequences of a loss of income as homeowners, protection is more strongly associated with property ownership. While rainy day savings can act as a buffer in such instances, those in rented accommodation are less likely to have protection in place to cover the shortfall in the event of one or more income earners being unable to work. While 10% of respondents with mortgages have income protection, that falls to just 1% of those in social housing and 2% in private rented accommodation. It s a similar picture with regard to Critical Illness Insurance, owned by one in five mortgage holders but only 1% of people in local authority housing, 3% in private rented accommodation and less than 1% in housing association properties. However, that discrepancy is not a reflection of different attitudes towards protection insurance. Indeed, people in all forms of rented accommodation are less likely than homeowners to say they are happy to risk not being covered. They are also less likely to point to a distrust of insurers. Instead, affordability is cited as the biggest obstacle to protection ownership among those in rented homes. The assumption that people in rented accommodation are less likely to want or need protection is not backed up by our research. However, that presents an opportunity to review the commonly accepted trigger points for protection. 20

21 There is a similar argument when it comes to the swelling ranks of the self-employed. The number of selfemployed people in the UK has jumped by almost 10% 367,000 people since 2008, according to the Office for National Statistics. Product ownership comparisons (%) Which of the following financial protection products do you own? Life Insurance Income Protection Critical Illness Insurance Encouragingly, the full-time, self-employed are the most likely of all workers to have some form of protection and we have seen a increase in those who have taken out protection. However, overall the numbers remain at around a quarter, which is quite low considering the self-employed don t have employer support in place in the event of illness or an accident preventing them from working. Asked how their household would manage financially if they or their partner died, full-time, self-employed workers were more likely than full-time employees to bank on a property sale or ask their friends or family. The proportion of part-time, self-employed people who count protection among the financial products they own has fallen since our last report. People in this group are the most inclined to turn to their family and friends for financial assistance in the event that they or their partner died and are far less likely to use savings to get by. The part-time, self-employed are also the most likely of any employment category to admit that they don t know how they would cope financially in the event of a loss of income. Employed & working Employed & working part time (<24hrs/week) Self-employed & working Self-employed & working part time (<24hrs/week) Working Not working Employed & working Employed & working part time (<24hrs/week) Self-employed & working Self-employed & working part time (<24hrs/week) Working Not working 21

22 Conclusion. This year s Protection Report comes at what may prove to be a pivotal time for the financial services industry. A regulatory handover, various new legislation affecting consumers, the simple products initiative and assorted welfare spending measures create a range of threats and opportunities. The latter comes in the form of an opportunity for financial services companies to rebuild consumer trust. The opportunity is for financial services companies to rebuild consumer trust. The threats are facing struggling households who face a fresh squeeze on household finances, whether as a result of welfare reform, rising living costs, job insecurity or wage stagnation. This year s report reinforces the impression that although households are working to tighten their safety nets, protection is well down the priority list. While for some people it s justifiably not a top priority, our research has highlighted groups that could particularly gain from the extra security and peace of mind provided by having cover in place. Here s a rundown of some of the main findings from the research: For many savings aren t an adequate financial safety net. When savings in harder-to-access products such as pensions and property are excluded, 17% have no savings, 15% don t know how much they have and 47% have under 20,000. Only 21% have savings over 20,000 so the rest of the country has under one year s salary in accessible savings. The Government s ongoing spending cuts are a growing source of anxiety. Household finances have become more vulnerable, but attitudes to protection have not changed over the past year only a small minority have taken out cover to protect their finances in the event of income loss. This year s report reinforces the impression that although households are working to strengthen their safety nets, protection is well down the priority list. Other reasons why people may need Critical Illness Insurance and/or Income Protection are often overlooked. Protection is associated most strongly with traditional life events such as buying a home or having a child, but there is a risk of this being at the expense of other life stages at which having cover in place can be essential. Protection ownership is particularly low among people in rented accommodation, for example, despite the obvious consequences of being unable to get by in the event of one or more incomes being lost. One further challenge for the industry and for consumers is to associate protection more strongly with needs other than house purchase. Distrust of the financial services industry is relatively low, according to our research, but it is persistent and almost certainly has a detrimental impact on protection take-up. Insurers have sought to boost confidence in Critical Illness Insurance and Income Protection, not least through the publication of figures showing how few policy claims are rejected. At a time when households are particularly focused on costs, knowing a policy will almost certainly pay out is an intrinsic part of its value. The housing market slowdown has reduced the number of people buying protection, with house purchase the most common purchase trigger. 22

23 The point beyond which household finances will no longer stretch is occupying many people s minds, the uncertain economic outlook combining with day-to-day pressures to sap consumer confidence. Our research suggests that people are conscious of their financial vulnerability and taking more responsibility for putting some form of protection in place. It also tells us that for various reasons cost, distrust or low product understanding protection is unlikely to involve insurance. At a time when households are particularly focused on costs, knowing a policy will almost certainly pay out is an intrinsic part of its value. Some segments of society are taking that extra step to protect their incomes and lifestyle. Other groups may be more inclined to do so if the industry were to challenge assumptions around the need for insurance 23

24 Scottish Widows plc. Registered in Scotland No Registered Office in the United Kingdom at 69 Morrison Street, Edinburgh EH3 8YF. Telephone: Scottish Widows plc is authorised and regulated by the Financial Services Authority. Our FSA Register number is c 04/13