Another big part of the problem is how insurers can account for the profit on life insurance: specifically they typically account for all the profit on their balance sheet in year one.
This means life insurers have no incentive to provide an ongoing service to the customer. If the regulator really wants to see the protection gap addressed, this needs to change, McKenna says.
He adds: “Life insurers need to spend less time lecturing wealth advisers about why they don’t sell their products and more time understanding how financial planners and wealth managers work.
“We are never going to see the protection gap properly addressed until such time as insurers start to understand how advisers work, rather than telling the advisers to work in ways that are convenient to the insurer.”
Complexities of the market
Another challenge that has made many IFAs reluctant to enter the protection market is the perception that it is a difficult sector to operate in, due to the long process of getting insurance underwritten, particularly with larger sums assured where medicals and GP reports are required.
According to Naomi Greatorex, managing director of Heath Protection Solutions, the changing nature of protection products has been seen as difficult to keep up with by advisers who do not regularly deal with protection clients.
However, more support is now available by way of CPD programmes. Tools like CI Expert also help advisers review the differences in critical illness contracts and help give IFAs more confidence.
Greatorex adds that, now many wealth managers use cashflow modelling, this can be used to highlight the protection gap for clients.
She adds: “I believe the conversation of protection and risk sits easily with wealth planning, as clients are planning for the future. Protection deals with the risk of not having the future you planned due to ill health, loss of a partner and so on.”
Kathryn Knowles, managing director of Cura Financial Services, works with a number of IFAs in arranging protection insurance for their clients.
There are parts of the advice process into which protection conversations can be inserted. For example, where gifts are being made, the consideration of gift inter vivos policies can be considered.
Where inheritance tax is going to be due, Knowles says a whole of life insurance policy can be invaluable.
