We enter 2019 in a position of relative strength, with the most recent data from IRESS, Equifax Touchstone and other sources suggesting that notwithstanding GDPR and the introduction of the Insurance Distribution Directive, the industry has experienced growth in demand for advice and in sales for individual protection over the course of 2018.
This is great news, but let’s not rest on our laurels, as the next 12 months will bring continued economic uncertainty plus continued low wage growth and frozen working age welfare benefits. This plus a combination of increased living and transport costs, plus increasing auto-enrolment pension contributions rates, mean household disposable incomes will continue to be squeezed and constrained.
This renewed pressure on household budgets requires us to work even harder in demonstrating the value and benefits of appropriate financial protection advice, products and services.
A challenge for mortgage holders
April 2018 saw the biggest reform to the mortgage welfare safety net in 70 years. This came in the form of Support for Mortgage Interest (SMI), the safety net which has underpinned mortgaged homes for nearly 70 years, switching from being a benefit to becoming a loan from the Department for Work and Pensions (DWP). Changes include a rolled-up compound interest, a property charge and the loan being repayable when the owner returns to work or sells the property.
In addition, a further development for mortgage holders applying for this welfare support is the introduction of a "no-earned" income requirement as a prerequisite to access the loan. This is of particular relevance to joint mortgaged, dual income households as the support will only be available if both parties to the mortgage are not earning anything at all.
With Universal Credit now being fully rolled out to all new welfare claimants no matter where they live in the UK, and many mortgage households lacking financial protection, SMI is still the only back-up in place for many families if they were unable to pay their home loan. Taking out a mortgage is the biggest financial commitment many of us will ever make, and these changes provide a timely opportunity to broach an appropriate financial protection conversation with clients, both old and new.
Regulatory change continues apace too, with the extension of the FCA Senior Managers Regime to intermediary firms from December 2019. This builds on the Markets in Financial Instruments Directive (Mifid), General Data Protection Regulation (GDPR) and the Insurance Distribution Directive (IDD) introduced in 2018.
In addition, we need to be mindful too of the FCA’s concerns with regard to improving access to insurance and the treatment of vulnerable customers.
Looking at the issues ahead impacting protection, I would highlight the DWP’s roadmap response to their "Improving Lives" green paper, the Stevenson-Farmer and Turner reports, the government’s review of private rental tenancy/resilience, housing market stimulation and the long awaited Social Care Green Paper consultations. Not forgetting the IHT simplification consultation and IR35 changes for private sector contractors. Collectively and individually, these issues will provide the industry with the opportunity in 2019 to demonstrate the role that we can play in improving consumer financial resilience to life events. Especially income shocks following life changing and/or limiting medical diagnosis.
In addition, the launch of the new Single Financial Guidance Body is very welcome. It’s important that both as an industry and profession, we work with the new body to better engage consumers and raise awareness of the benefits of improving personal and household financial resilience - especially to income shocks related to health events. It’s essential that the new body stands in customers’ shoes and reflects on the extensive financial changes that have impacted the UK. These include the reduction in household savings to historic lows, the shift from defined benefit to defined contribution pensions, as well as the raft of reforms to working-age welfare provision.
Enhanced adviser support in 2019
Finally, 2018 saw significant innovation to simplify the protection process, from quotation to underwriting. For me though, the key innovation was seeing an increasing number of wealth, mortgage, and employee benefit advisers now working in collaboration with protection specialists. In 2019, this enhanced adviser support and capability will start to pay dividends as providers improve the promotion of claims stats and improved outcomes.
To hear more from Johnny, read his previous blogs on the Scottish Widows Protect centre.