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Financial Advice Market review – an opportunity to close the Protection gap

Joseph Ahern, Policy Adviser, Protection Joseph Ahern, Policy Adviser, Protection

In October last year, the Government launched its Financial Advice Market Review (FAMR). Run jointly by the Treasury and the FCA, it is looking at all aspects of financial advice, identify gaps, and set out recommendations by Budget 2016.

Whilst the review focuses on investments, savings, and retirement products, it is clear that other areas should be considered as part of its scope. In particular, protection should be on the agenda, given the low levels of cover for too many individuals and families.

a survey by the Money Advice Service (MAS) recently found that almost half of working age couples and families don’t have life cover.

For instance, take up of Income Protection in the UK remains low by international standards at around 11%, and a survey by the Money Advice Service (MAS) recently found that almost half of working age couples and families don’t have life cover. However, the risks of not having cover are clear. Research carried out by the Centre for Economic and Social Inclusion, commissioned by the ABI, has found that 10.6m households, more than 60 % of working families, would see their income fall by more than a third if the main earner had to stop work due to ill health.

Closing the protection gap should be a priority for Government. At a time of severe long and short term fiscal pressures, increased take up of protection insurance products could bring much needed help to the Exchequer in the form of reduced expenditure on benefits, increased tax revenue, and improved productivity.

The FAMR recommendations must therefore consider how advice and guidance can be improved to help consumers understand the benefits of protection insurance. I attended a discussion of insurers and intermediaries at the Finance and Technology Research Centre’s Protection Forum on FAMR, and it was agreed that while there is not the same need for regulatory changes to protection advice that there is in the investment space, there are still issues the review could address.

Clearer and simpler regulation of advice is one aspect of this. However, this must be supplemented by an effort from a range of stakeholders to improve public knowledge about lack of financial protection. Without improved demand for advice it is simply not feasible that we will see significantly increased take up of protection insurance products. The industry is leading the way here, such as through our work with MAS and the 7Families initiative.

Government and employers can also contribute to this effort. As part of our FAMR submission the ABI is calling for the Government and employers to develop a workplace ‘Protection Statement.’ This would allow people to check their combined income from the State and their employer in the event that they could not work due to illness or injury. This statement could be communicated as part of people’s P60 or Digital Tax account and would give people a much clearer and accurate picture of the financial support actually available to them.

We know that informed consumers who make informed choices are more likely to end up in a stronger financial position and ensure their finances are protected. We need to ensure that consumers are aware of their own financial position and understand their options with relevant information and advice to ensure they are supported if they are unable to work.

Joseph Ahern is Policy Adviser, Protection at the Association of British Insurers (ABI)

This blog was was first published on the Money Marketing website.

Last updated 29/06/2016