Douglas Kitchen
Douglas joined Mintel in 2018 as a Financial Services Analyst, researching and writing Mintel reports. Prior to this, Douglas spent three years gaining experience in both Market Risk and Operations. He has a BA (Hons) in politics and international relations from the University of Reading.

Prior to the COVID-19 pandemic, the income protection market experienced relatively strong growth, with this trend set to continue this year. Here we look at the trends that are likely to shape the industry due to the virus – in the short to long term, and how providers need to adjust to this ‘new normal’.

Short term pain

Due to the COVID-19 lockdown, in the short-term we expect the income protection market to experience a sharp contraction in sales due to the loss of mortgage cross-sale opportunities.
The Government’s easing of restriction, to now allow viewings to be carried out and conveyancers to restart operations, could mean in the medium term there’s a possibility of a small initial bounce as housing market activity restarts. However, overall sales will remain sluggish as housing market activity is subdued for the rest of 2020.

The expected COVID-19 recession will result in a sharp rise in unemployment and increased pressure on household finances. The industry will face the dual blow of a possible increase in claims costs, and a hit to sales as a result of consumers trying to cut outgoings to a minimum.

Long-term scope for optimism

People are waking up to how vulnerable they are to a lengthy period off work, and this should lead to more considering cover in the future if the industry can tap into this sentiment in the right way.

The prospect of mass unemployment has brought the issue of financial resilience into the spotlight.

Brands can use this period to develop strategies for products and promotions that will be more relevant in the post-COVID environment, as well as focusing on delivering services to existing customers and providing much sought after reassurance.

Despite the opportunities for increased engagement, it’s proved more challenging to shift attitudes among the wider population attitudes towards protection income over the years. Interest in the product is not reflected in ownership, largely due to a combination of a lack of understanding, and a lack of flexibility in the products to meet people’s individual needs. More targeted campaigns that connect with the challenges faced by specific groups, such as renters, will be more effective. 

Reshaping the protection landscape

Building on this increased awareness and engagement will require providers and the wider industry to tackle some of the persistent issues which have undermined the reach of income protection among mass-market consumers.

This includes general confusion about what the product covers, and where it fits in relation to other, often overlapping, protection products such as critical illness cover.

Income protection providers will need to be more effective at explaining their policies

Uncertainty creates hesitancy and in financial services this will result in avoidance more often than not. Consumers looking to address their concerns about protecting income need confidence and clarity, particularly if they are doing so without the help of an intermediary. 

Product distribution is another issue that will be brought into focus by the crisis. Intermediaries remain a key and effective way of reaching people at crucial milestones such as buying a home. However, in reality most mass-market consumers have limited interaction with financial advisers over the course of their life. 

Protection providers have placed more attention on direct business channels in recent years and this will be even more important in the coming months as mortgage cross-sale opportunities significantly decline. This will require straightforward products that meet the post-COVID-19 demand for reassurance and transparency, and resonate with prevailing consumer trends. This includes solutions that can meet the needs of the self-employed and gig economy – who require a more flexible approach.

Wellbeing takes on new significance

Mintel’s Wellbeing Trends Driver explores how consumers’ desire to seek physical and mental wellness is a key factor in how they act and what products and services they engage with. Wellbeing was identified as a key trend prior to the COVID-19 outbreak, but now both physical and mental wellbeing has additional prominence in people’s lives. 

Wellbeing is becoming more important issue in how consumers make decisions

Many income protection providers have already ventured into this arena both in product coverage and through additional benefit services. However, the crisis has brought certain issues into focus such as support services for mental health, virtual access to professional medical advice and helping people to maintain health regimes from home. Mindfulness is also a growing trend that will resonate with more people in the post-COVID-19 world. Income protection and the wider protection market are well placed to help consumers engage with and access these services and to promote them as part of a wider and more holistic income protection offering.

Providers face a tricky balancing act in response to crisis

While the pandemic will create opportunities for increased engagement about protection insurance, providers face a tricky balancing act to avoid being seen as opportunistic. It is crucial that providers find the right tone and approach and offer reassurance rather than playing on fears among an already anxious society.

Insurers also need to be mindful of the reputational risk at this time of intense scrutiny and heightened emotion. The wider insurance industry has already faced close examination over its responses to travel insurance and business interruption claims. Income protection has not been immune from the challenge of adapting to the fast-moving conditions. Some insurers have added COVID-19 exclusions to policies, while others have withdrawn policies with shorter deferral periods. Consumer trust cannot be taken for granted and insurers who are not seen to deal with the situation sensitively and fairly are in danger of attracting negative coverage and significant damage to their brand.