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Prioritising protection in a challenging economic environment

Published: 05/07/2023

Unfortunately, the economic outlook for many in the UK is a gloomy one. However, this has increased the need for financial protection advice, not lessened it, writes Greg Levine, Chief Operations and Growth Officer for Vitality.

A perfect storm of continued high inflation and increasing interest rates is adding to the severe financial pressures facing households this summer.

All this presents a challenging landscape for advisers and their clients. However, given the increasingly poor financial resilience of many UK households and the pressures people are facing, the expertise of an adviser is likely to be valued more than ever at this time. 

“At a time when consumers are looking at what cutbacks they can make, there’s always a risk that things like insurance gets cut”

- Greg Levine, Chief Operations and Growth Officer, Vitality

With the Bank of England (BoE) having raised interest rates for the 13th consecutive time recently, putting them at their highest level since 20081, those with mortgages are facing a significant rise in borrowing costs.

It’s not just homeowners that are being hit hard. Renters are also feeling squeeze as landlords pass on higher costs to tenants and increased housing demand is leading to soaring rents.

Despite BoE attempts to stabilise the UK economy, inflation remains stubbornly high at 8.7%2. Against this backdrop the ongoing cost-of-living crisis shows no signs of abating.

The need for financial protection has increased

Whilst the ongoing cost-of-living crisis and rising mortgage rates are undoubtedly placing severe cost pressures on individuals and households, there is arguably also a heightened need for clients to be adequately protected.

Protection insurance like Life Cover, Serious Illness Cover or Income Protection is needed now more than ever and whilst many may be tempted to forego insurance or cancel existing cover, this is a risky move.

Research published by the FCA last year highlighted a significant increase in poor financial resilience amongst UK adults as a result of rising living costs. Overall, poor financial resilience has led to a marked increase in the number of UK consumers with a characteristic of vulnerability according to FCA findings3.

For many of these people, they face the risk of serious hardship if they were to experience a financial shock, such as a loss of income due to ill-health or the death of a main household breadwinner.

Whilst it may be tempting to shy away from conversations about protection insurance, particularly for mortgage clients, where their primary concern is likely to be rate rises and mortgage affordability, it’s a conversation that is best not avoided.

As we’ve explored recently, the upcoming Consumer Duty regulations are also likely to make protection conversations a necessity as part of a broad drive to deliver good outcomes and avoid foreseeable harm.

Unlocking client value and better retention

At a time when budgets are tightened and consumers are looking at what cutbacks they can make, there’s always a risk that things like insurance gets cut.

The intangible benefit offered by insurance – and the promise of a payout if a claim arises – can often be difficult for consumers fully value when times are tough.

This is why it’s important that advisers help clients to unlock more immediate value from their protection cover, that they can use every day. The growing range of health and wellbeing benefits and rewards that plans now offer can be a great way of doing this.

If a client sees a Direct Debit leaving their account each month but associate that with a range of everyday benefits that they’re using, alongside core protection insurance cover, they’re hopefully far more likely to recognise the value of that plan.

Unlocking immediate value though requires good, meaningful client engagement, with access to health and wellbeing benefits and rewards seamlessly integrated in their everyday life.

Using technology to deliver better digital access, we can drive up far greater engagement and continually keep it top of mind.

This approach can lead to much better persistency and rates of retention – on average two thirds more for highly engaged members4 - as clients no longer see cover as something that delivers zero benefits other than peace of mind. This is obviously good for clients and advisers alike.

Ensuring protection recommendations remain fit for purpose

For clients with existing protection cover in place, now is a particularly important time to ensure any cover remains suitable for their needs.

Whilst reviewing suitability is important at any time, especially as people are likely to increasingly experience numerous job and lifestyle changes during their lifetime, the current changing economic landscape makes it even more pressing.

With many protection plans linked to liabilities like a mortgage, or providing financial protection to cover living costs, interest rate changes alongside continually high inflation can have implications for a client’s cover.

Annual review statements from the insurer can be a great way of helping to facilitate review conversations with clients and I’d encourage advisers to make the most of these. At Vitality, for example, we share annual statements with both member and adviser, detailing their level of cover, as well as other useful information like their Vitality status.

Be there for your clients

All this is ultimately about being there for your clients and supporting them at a challenging time.

Navigating the myriad of decisions that need to be made against a backdrop of economic uncertainty can be difficult for people and the expertise of an adviser will be priceless.

Whether it’s supporting clients with the right recommendations and making sure they’re adequately protected or helping to ensure they’re getting the most value out of any cover they already have in place, the role of advisers has never been more important.

Find out more about Vitality’s unique approach to financial protection alongside a host of
wellbeing benefits and how you can deliver tangible value to clients from day one.

Where to next?

  • Why now is the time to talk about indexation

    With clients continuing to face rising living costs and their purchasing power being eroded, futureproofing the value of protection cover has never been more important.

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    Our Insights Hub brings you our range of adviser content - from video series to articles & blogs.

1 Bank of England raises interest rates by a half point to 5% | Interest rates - The Guardian
2 UK inflation stays at 8.7% despite hopes of a fall - BBC News
3 Financial Lives 2022 survey: insights on vulnerability and financial resilience relevant to the rising cost of living - FCA
4 VitalityLife Claims & Benefits report 2022