Lisa Balboa and Tim Smith explore how innovation in life and health insurance can address the UK’s widening protection gap
There is a large protection gap in the UK. The Financial Conduct Authority’s Financial Lives survey, published last year, estimates that about half of the UK population do not hold any protection insurance. Moreover, this gap is expanding due to recent societal pressures such as the rising cost of living, increasing pressures on the NHS and an expanding older demographic. If life insurers can understand these drivers, they can use product design innovation and proposition developments to bridge the gap.
The rising cost of living
With inflation approaching 10% at the time of writing, and energy prices set to rise further, the cost-of-living crisis is biting. Insurance premiums for protection products are never viewed as the most exciting direct debit to leave the account each month, and it is now more important than ever that insurers effectively communicate the value of their products. Life insurers have historically interacted little with policyholders after initial purchase, but this strategy is unlikely to pay dividends when consumers are weighing up what to cut from their spending.
Insurers have started to engage more with inforce policyholders in recent years, and a concerted effort to reinforce the value in these products may mitigate an increase in lapses. Advisers have a part to play here, too. The level-premium structure means that, in most cases, lapsing now and rebuying in the future leads to a steep increase in premiums, even if the policyholder remains in good health. Those with a duty of care must ensure that customers are fully informed of the value they are giving up by lapsing.
However, relatively speaking, preventing the protection gap from expanding through lapses is the easy bit. Selling protection products to new market segments, where the gap is widest, is particularly difficult against the current economic backdrop. Affordability must be one of the key considerations in product design. Recent growth in the short-term income protection market has partly been driven by the relative price point of this product compared to traditional alternatives. Products aimed at underserved sectors, such as the rental market, need to be affordable, even if this means offering comparatively low levels of cover. Some cover is better than none, and we should not underestimate the value of the ‘gateway’ product that gets consumers thinking about protection.
Widening the benefits
Insurers are increasingly looking to embed preventive healthcare services into products to support their customers. The improvement of health outcomes is where the interests of policyholder and life insurer naturally align. Consumers also value these additional services, and a well-suited service offering can tip the balance when encouraging people to buy insurance. Insurers could deliver these by partnering with complementary service providers to position a traditional protection product as one of several benefits that are offered.
Emerging technology presents another opportunity. Easy access to remote healthcare support, or wearables that help an individual manage a chronic health condition, could better control risks for insurers by improving the individual’s prognosis. This could allow those traditionally considered uninsurable to be offered cover.
Responding to pressures on the health service
The pressure that the COVID-19 pandemic put on the NHS was unprecedented, and came after a period in which average waiting times rose for the treatment of many conditions. While there is quite rightly strong affection and appreciation for the NHS, consumers are increasingly aware that they may not be able to access the healthcare they need as promptly as they would like.
The insurance industry has an opportunity to step in here. Telehealth and private healthcare services could be embedded into protection coverages. For example, income protection insurers can offer mental health and physiotherapy triage and specialist healthcare services to help policyholders return to work, in cases where NHS waiting times for these services are more acute.
Medical advances are also adding to the pressures. It takes time for newly approved medicines to go through the National Institute of Health and Care Excellence’s funding assessment, and some of these licensed medicines are not approved for reimbursement by the NHS because of budgetary pressures. This growing gap between treatments that are licensed for use and those that are funded by the NHS could create an opportunity for new protection insurance products.
One solution could be new insurance products that pay out to policyholders if the licensed treatment recommended by the physician is not available on the NHS. As this situation is likely to occur only for a minority of patients, this sort of coverage could be offered at a lower price point than more comprehensive private medical insurance covers in order to provide more affordable private access to licensed medical treatments. Collaboration between insurers and the medical community is likely to be key in the development of new protection insurance solutions that complement NHS care.
Supporting the older demographic
The age distribution of the UK population is continuing to shift upwards as people live longer. This can be seen in the results of the 2021 census for England and Wales, which shows that the proportion of the population aged 65 years and over grew from 16.4% in 2011 to 18.6% in 2021. There is an opportunity here to evolve insurance products to meet this demographic’s needs.
It is worth highlighting that health status can vary significantly across people of a similar age, and insurers should look to understand this health diversity among the growing older demographic on their insurance books. A more in-depth understanding of customers’ individual health needs could be used to tailor the service components of insurance propositions so that they address policyholders’ differing needs and circumstances.
For policyholders who are looking to protect their physical and cognitive health, a range of preventive solutions can be offered. Online or in-person health assessments can be used to identify areas in which policyholders can make lifestyle changes that will reduce their risk of diseases such as heart attack or stroke. In addition, a wide range of digital health companies are dedicated to reducing the risk of onset of neurological conditions such as dementia through training exercises that promote brain health. On the clinical diagnosis side, digital tools can now enable early detection and management of neurological conditions, for example using eye-tracking technologies.
“Consumers are increasingly aware that they may not be able to access the healthcare they need on the NHS as promptly as they would like”
Customers who are less mobile may value connected wellness solutions that enable them to live at home for longer. Several insurtechs are looking at the possibility of integrating assisted living technologies into insurance. Using wearable technology and home-based sensors, these solutions can track an individual’s movement patterns and automatically send an alert to the policyholder’s family, support network or care team if they need assistance. These smart living services can provide value to policyholders who want to live independently at home, while delivering peace of mind to themselves and their families.
What next?
With societal pressures stemming from rising inflation, increases in NHS waiting times and an ageing population, life insurers have an opportunity to evolve insurance value propositions in a way that bridges the protection insurance gap. Insurers should consider the overall social and demographic make-up of their customer base to identify which gaps to prioritise, as well as exploring ways to better understand the needs of individual customers. They can then seek out innovation partnerships with relevant stakeholders in the insurance ecosystem to design solutions that increase protection coverage.
Lisa Balboa is a business development manager at Hannover Re
Tim Smith is head of protection at Hannover Re UK Life Branch
