To close the protection gap IP needs to work harder

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.

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.

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.

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.

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.

1. Financial Lives 2022 survey | FCA
2. Record numbers not working due to ill health - BBC News
3. UK long term sickness figures 2023 | Statista
4. Health is wealth?
5. Average UK first-time buyer is now older than 30, says Halifax | First-time buyers | The Guardian
6. Vitality analysis of market Guaranteed Insurability Options, 2023.