Helping customers protect their lifestyles in these challenging times

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1 Helping customers protect their lifestyles in these challenging times insurance services Recent consumer focus group activity that we have carried out in conjunction with YouGov within the 30 to 54 year old age group shows just how top of mind the consequences of a loss of earnings due to sickness, accident or redundancy is for people in this age group. The key issues are the negative impact on lifestyles, the ability to pay the bills (especially after three months being off work) and the stress and strain all of this cause for their families. Clearly, there is a very strong recognition of need when the focus is on protecting lifestyles. There is a very strong recognition of need when the focus is on protecting lifestyles However, a major consequence of the fall-out from Payment Protection Insurance (PPI) mis-selling has been to reduce much of the availability and market appetite for short-term income protection products, much of which is now concentrated through price comparison sites and IFAs. It s fair to say that the supply side has been heavily impacted by the issues around PPI. This all comes at a time when consumer debt continues to mount, unemployment remains high, savings are under pressure and more cutbacks and changes to Government support will further erode the limited welfare state safety net. So, just how does the industry rise to the challenge and deliver the affordable protection consumers need to ensure their lifestyles are not adversely impacted due to the consequences of redundancy, accident or sickness? 1 FirstAssist Update - February 2013

2 Further changes to the welfare system will reduce the safety net Last year s Autumn Statement aims to deliver a further 3.7 billion of savings to the Treasury s welfare bill in with below inflation increases to many working-age benefits further reducing the amount paid in real terms to those who are eligible. The consequences of more austerity are to erode already limited state provision. This year, changes designed to simplify the structure of the benefits system will be introduced in full from October The new Universal Credit will replace many benefits with a single payment. However, charities are warning that this will further diminish state provision for many disabled people, with up to half a million standing to lose out. Household savings are under intense pressure too We already know from a survey carried out by Unum in 2011 that most people would struggle with their bills if they had to survive for more than four weeks without full pay. However, a survey at the start of 2012 shows the position is getting worse not better. The findings published by the consumer publication, Which?, revealed that almost half of all UK households could survive for less than a week with rainy day funds if they were to find themselves out of work. This was based on savings of just 250 against average monthly outgoings of 1, Historically low interest rates are keeping repossessions in check According to Credit Action, the estimated average mortgage for the 11.3 million households that carry mortgage debt stood at 111,592 in October

3 Recently, the Council of Mortgage Lenders (CML) announced that the number of repossessions in the third quarter of 2012 was down again and now stands at its lowest level since This pattern is being driven by historically low interest rates and lenders showing increasing restraint with borrowers in financial difficulty. Whilst this is clearly welcome news, the figures mask the underlying upwards trend in arrears, with the number of people with the highest levels of arrears representing 10% of their outstanding mortgages now at 29, This shows the extent to which more and more borrowers are struggling to maintain their payments even with record low interest rates. The big question is the extent to which lenders will be able to keep absorbing this level of debt in their balance sheets, and at what point this becomes unsustainable. More and more borrowers are struggling to maintain their payments This all comes at a time when the base rate is under pressure from inflation, with the Bank of England continuing to balance the need to support economic recovery with trying to meet inflation targets. 3 FirstAssist Update - February 2013

4 10 key facts to illustrate the size of the UK s income protection problem: 1 At 2 Average 3 Every 4 1,399 5 Average 6 The 7 28% 8 32% 9 The 10 the end of October 2012, individuals owed nearly as much ( 1.42 trillion) as the UK produced in GDP during the whole of household debt (including mortgages) was 53,912 in October working day the Citizens Advice Bureau in England and Wales dealt with 8,465 new debt problems during the year ending June people a day reported they had become redundant between July and September consumer borrowing (including credit cards, motor and finance deals, overdrafts and unsecured loans) per UK adult was 3,184 in October number of people out of work in the three months to November 2012 was 2.51 million, or 7.8% of the working population 4 of all UK households have less than 250 in rainy day savings and 21% have no savings at all 1 of people would not be able to keep up rent or mortgage payments if they lost their primary source of income 1 proportion of families with income protection insurance fell from 11% to 9% in the year to May Only 20% of all mortgages holders have Mortgage Payment Protection Insurance (MPPI) cover in place 6 4

5 Consumers are living on a knife-edge The picture that comes through most strongly from this pattern of mounting debts, reduced insurance protection and the erosion of personal and state safety nets is the extent to which many people are living on a knife-edge when it comes to protecting the income that supports their lifestyles, families and homes. Every year there is always much debate about the protection gap, but what really worries consumers the most is the impact a loss of earnings would have on their lifestyles. This is a different way of looking at the same problem, but is one that consumers relate to. There is a strong recognition about the need for action The research we are doing with YouGov shows the extent to which there is a strong recognition about the need for action, but given the squeeze on household spend and the mis-trust of an industry struggling to work through the consequences of PPI, there is a very sizeable challenge in delivering the protection consumers need. The prize on offer is not only to win greater loyalty but also the reassurance from the credit provider s viewpoint that comes from knowing that core revenue streams are protected. Meeting the consumer need for affordable, accessible and simple protection The new breed of short-term income protection products, such as those offered by FirstAssist, continues to evolve. These offer customers comprehensive financial protection designed to ensure their lifestyles can be maintained in the event of sickness, accident or involuntary unemployment. The products offer choice, flexibility and full portability, ensuring they have broader appeal beyond just the specific financial commitment, which is usually focused on the mortgage payment. 5 FirstAssist Update - February 2013

6 However, with household incomes being squeezed ever harder due to continued inflationary pressures, particularly with gas and electricity, food and fuel prices all increasing, there is a need to explore other ways of delivering affordable protection that covers key commitments. This is where specific protection cover can be of benefit. Bill protection cover, for example, offers a simple, affordable and accessible way for customers to cover their key financial commitments by adding protection insurance cover to specific bills. This is especially pertinent for essential goods and services, such as groceries which now represent the second largest single monthly household expenditure at 11% as at May Grocery protection cover helps ensure that families can continue to maintain their food shopping expenditure if they were to suffer sickness, accident or redundancy. With the insurance benefits being paid in vouchers, this type of cover can be highly attractive as an extension to customer loyalty schemes for retailers too. But it s not only retailers that might want to consider offering bill protection cover; utility providers, telecoms and other organisations where they have customers that have a regular financial commitment, especially those that provide essential goods and services or lifestyle services such as gym memberships, all have a need to consider delivering their customers a cushion against hard times. There is a need to explore other ways of delivering affordable protection After all, customers want to be able to maintain their lifestyles no matter what happens. Maintaining customer loyalty to the service provider through offering additional protection which benefits customers when times are hard is a win-win scenario. 6

7 Winning greater loyalty If ever there was a time to properly address the income protection challenge it is now. With the continued evolution in product design and more certainty about sales processes, the time to act is now. FirstAssist, a leading specialist in this market, helps its partners deliver the protection their customers need and want in ways which are affordable, accessible and simple to understand, helping customers protect their lifestyles, through free-standing policies or with cover that can be added to a regular financial commitment. By offering appropriate cover, partners can build greater brand loyalty. 1 Which?, 11th January Credit Action, December BBC Business News, 8th November The Guardian, 12th December Aviva Family Finances Report Building Societies Association, 2011 To find out more, please contact Jody Baker, Head of Business Development at jody.baker@firstassistinsurance.co.uk or on FirstAssist Update - February 2013

8 For over two decades, FirstAssist Insurance Services has been a silent partner in our markets working behind many of the UK s largest brands. We deliver specialist and bespoke white-label insurance solutions which generate many millions of pounds of additional income for our clients each year whilst extending their customer propositions. In that time, we have built an enviable reputation as one of the UK's leading providers of white-label solutions across our core areas of insurance expertise: travel, protection, health, life, accident and legal protection. Driven as a specialist business by an entrepreneurial, commercial management team, we provide a unique range of products and flexible marketing solutions for banks, insurers, affinity organisations, corporations, intermediaries and small and medium-sized enterprises. FirstAssist Insurance Services was acquired by Cigna in November 2011, which further enhances our capabilities with access to a broader range of health, life and accident products and the benefits of Cigna s global expertise and infrastructure. We provide award-winning levels of customer service to nearly three million customers. With over 160 individually tailored schemes through major UK brands, we know one size does not fit all. From the commercial arrangements to the regulatory relationship, from a full service stand-alone product proposition to wholesale risk provision, we will custom-design the perfect solution to meet your customers and business needs. insurance services FirstAssist Insurance Services Limited, Marshall s Court, Marshall s Road, Sutton, Surrey, SM1 4DU Registered in England & Wales No Authorised and Regulated by the Financial Services Authority FirstAssist Insurance Services Ltd. is part of Cigna.