The current industry sales mix

The current industry sales mix

New protection business is dominated by mortgage-related protection: it accounts for 46% of new sales. What’s more, mortgage term assurance and MPPI are sold alongside 42% and 24% of new gross mortgages respectively

Interestingly, although non-lender intermediaries are responsible for half of all mortgage related long-term protection sales, they account for less than one-quarter of MPPI sales. In other words, while the banks sell MPPI with one in three mortgages, the ratio from the mortgage intermediaries is only one in nine. With only 21% of all existing mortgages having MPPI, there is considerable room for growth. But the product must be right!

Life protection sales also fail to reflect the three-times-greater chance of disability lasting for more than six months, over dying. Two-thirds of new policy sales are life (including whole of life) only; a quarter have Critical Illness (almost entirely as rider to Term); and the balance of just under 7% is income protection. Even the woefully inadequate sales of CI and MPPI are still about four times the volume of Income Protection.

Over the last three years CI sales as a rider to Mortgage Term have fallen from 55 percent to one-third, while MPPI sales alongside mortgages have fallen from over one-third to one-quarter. We do not see this trend being reversed.

Life protection’s ills cannot just be laid at the door of the reduction in gross lending: a major contributing factor is the growth and subsequent fall in CI sales. This malaise also extends into MPPI, despite the Sustainable Home-ownership Initiative.

We know from our many conversations with customers and reams of industry research how consumers think. We know that they’re not pre-occupied by the need for life protection, and they’re confused by our products. They also want to buy from a trusted sales person or brand, feel they’ve done the right thing, and move on. Invariably, they are forced to confront the issue when arranging their mortgage - the very time when their budget is most stretched.

Their confusion gives rise to many misunderstandings. The most common include:

That MPPI provides more comprehensive cover than it actually does. People don’t understand the cover can be changed or cancelled, often with only 30 days’ notice, the scope of pre-existing medical conditions, the breadth of claims exclusions and the limited benefit payments – which are often as short as 12 months. This is no match for a long-term mortgage liability. Many consumers mistake MPPI for income protection, and you can’t blame them; it is frequently, and misleadingly, positioned as such.

That Critical Illness covers all serious illnesses, as opposed to only those specifically defined in the policy document. People believe ‘critical’ and ‘serious’ to mean the same thing, and that any cause of longer-term occupational disability is serious and must therefore be covered.

That Life Cover is the most essential protection building block. The possibility of dying looms large in people’s minds, at the expense of more pressing possibilities of other life events, particularly occupational disability.

That the sum insured will be an effective replacement for lost income. In reality, the sum insured is always limited to a low multiple of salary, typically, three or four, or an outstanding mortgage, and will only be payable once, on a CI or death.

Customers understand the need to be financially secure, and most understand the basic principle of term insurance. Beyond that, we start to part company. They don’t think about specific life events, and even the basic points of CI, IP and MPPI are a meaningless and tiresome jumble. In turn, even the few who do have protection don’t know what cover it gives them, although one thing’s for sure: they always think it’s better than it is.

Of course, these are industry issues. We should give better information, better explanations of how overlapping products are actually different, and elevate advice to be a critical part of the sales process.

But advice, which is reduced to the selection of just one existing product will always be flawed. Better still is to innovate: to design out these problems with a product that covers everything that really matters to our customers in one plan. And this is exactly what we have done.