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To close the protection gap IP needs to work harder

Published: 11/12/2023

It's essential that income protection meets the needs of today’s consumers and their adviser – not yesterday’s – writes Rob Harvey, Vitality Adviser Editor.

In the aftermath of the Covid-19 pandemic, which saw the UK government implement what was in effect state-funded income protection for millions of workers, the country has continued to face numerous economic and health challenges.

The cost-of-living crisis has exposed the precarious financial state of many households and price rises, driven by inflation, continue to squeeze people’s finances.

According to the FCA’s latest Financial Lives survey, the number of people reporting low financial resilience – those who would find themselves in difficulty were they to suffer a financial shock – has grown considerably in the last few years to a staggering one in four of all UK adults1.

“Too much of the focus from both government and, indeed, within the industry is on the point at which someone is already unwell (or already off work)”

- Rob Harvey, Vitality Adviser Editor

Elsewhere, UK population health has also been on the decline, with record numbers now out of work due to ill-health2.

Since the pandemic, the number of people not working due to long-term sickness – with mental health and heart disease the main causes – has risen to 2.6 million3.

Worsening health and wellbeing amongst the working age population is now regarded as one of the contributing factors to the UK’s stagnant productivity4, highlighted as one of the issues the government is hoping to address following the recent Autumn Statement.

A heightened need for protection

All of this means that despite the challenging environment, the need for protection, particularly income protection (IP), has increased for many individuals and households.

And, as we covered on our recent webinar, despite obvious concerns around affordability, it’s essential advisers are having these conversations with clients.

Consumer Duty also now adds a regulatory imperative to do thorough protection planning, enhancing the need to evidence good consumer outcomes and avoid causing foreseeable harm.

Wider trends shaping our world

As well as the volatile economic and health landscape we’re currently living through, the world more broadly is also going through a period of rapid change, with various trends shaping the way we live and work.

It’s now increasingly common for example for people to change jobs or even career multiple times during their working life.

Elsewhere, people’s lifestyle habits are changing, particularly many choosing to have fewer children or having them later in life and an increase in the age of first-time buyers5.

Technology also continues to have a profound and increasing impact on our lives, with the rate of innovation having accelerated in recent years.

All this change will impact our industry, particularly as many of the traditional trigger points for a protection conversation have fundamentally changed, as have the needs of consumers.

IP must move with the times

If we are to close the protection gap, it’s essential the industry offers products that meet the needs of today’s consumers and their advisers – not yesterday’s.

As we recently highlighted, product innovation in critical illness cover has been driven by the wider trends shaping our world. Income protection also must move with the times.

For example, IP products will increasingly need to flex and adapt to meet a client’s changing needs at various times during their life.

It’s one of the reasons why Vitality uniquely expanded the range of Guaranteed Increase Options offered on our IP plan, to allow a broader range of changes to be made to the client’s plan at key life events, such as reducing the deferred period or increasing the finishing age6.

Features like a full earnings guarantee, meanwhile, remove some of the concerns surrounding how fluctuating earnings can negatively impact a future pay-out. With people changing jobs and careers more frequently these days, this has become increasingly important.

Other options, like the ability to add Children’s Serious Illness Cover to an IP plan, give client’s enough flexibility to protect their income and their children.

Building better health resilience with IP

At the same time, IP products also need to do more to address the health challenges the country is facing and play a greater role in preventing people from falling ill and out of work in the first place. Or, if something does happen to them, offer the necessary rehabilitation support to get them back into work sooner.

Too much of the focus from both government and, indeed, within the industry is on upstream interventions, at the point at which someone is already unwell and facing the prospect of a long-term sickness absence (or already off work).

By integrating a comprehensive behaviour change programme and associated benefits like the Vitality Programme alongside IP cover, insurers can help people make the necessary lifestyle changes to live in better health, whilst giving them a financial safety net.

Through this, a health and wellbeing programme focused on driving positive behaviour change can also unlock more value for clients and deliver tangible, meaningful rewards.

By taking this Shared Value Model a step further and integrating it into Vitality’s IP plan, clients are now also rewarded through enhanced pay-outs if they take steps to improve their health prior to any claim arising. This is based on the understanding that the better someone’s general health is, the more chance there is of a speedier recovery.

If and when a claim does arise, appropriate recovery and rehabilitation is also critical to delivering a good outcome. At a time when the NHS is under severe strain, Vitality’s contractual enhanced recovery pathways, for example, provide private medical insurance clinical expertise to ensure clients get end-to-end support – from prevention through to recovery too – as well as the financial protection they clearly might need.

Ultimately, only through responding to the very clear and present challenges we face as a nation will we start to erode the protection gap we have in the UK. Ensuring IP remains relevant to the changing needs of clients would be a good place to start.

Find out more about how Vitality's Income Protection Cover can offer more relevant, flexible cover for your clients:

Where to next?

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