Prompted by rising energy costs, inflation hit a 40-year high of 10.1% this summer, and in turn, has caused huge price rises for food, drink, and household essentials.
To try and limit the effects of rising inflation, the Bank of England has raised the Base Rate by 1.65 percentage points, from 0.1% to 1.75%, but this has increased mortgage, credit card, and personal loan bills for millions of people.
With these huge pressures affecting households, many people are already digging into their rainy day funds to find the cash they need to pay for essential outgoings. However, this means that consumers will soon have little to no savings, and no safety net should the worst happen. It’s also at this time that some families will look to cut protection and insurance policies as a potential cost saving, but this risks having a devastating impact on families.
A necessity, not a luxury
At a time of financial uncertainty, protection is now more essential than ever. Life insurance exists to protect loved ones from the financial impact of death, whether that leaves families struggling to pay their bills or losing their home. It can help ease the burden at what is always a hugely difficult time. However, because there is no immediate, tangible benefit, it can seem like an easy expense to cut when monthly outgoings need to be reduced.
The insurance industry has faced issues with policies being overly complicated, particularly with critical illness and income protection cover. This means consumers often don’t understand the full benefits of these products. Usually, it is the groups that are most likely to benefit from insurance that understand it least.
For example, younger people are typically less likely to consider life insurance as they are less concerned about critical illness or death, but if they are stepping onto the housing ladder, getting married, or looking to start a family, it’s vital they take into account protection.
How can brokers help?
It has been the case that when the housing market is busy, protection sales decline. Protection is vital regardless of how high demand in the mortgage market is, but with activity in the sector now cooling, this is a great time to check in with clients and assess whether their circumstances have changed, particularly as they face the cost of living and energy crises.
Brokers have a vital role to play in supporting clients at this time and offering flexible solutions to ensure their clients remain protected. Even if outgoings need to be reduced, perhaps a solution can be found where the level of protection offered could be altered or clients could switch to a different provider.
Brokers should also ensure clients are aware of the potential risks of cancelling insurance and how that could leave their loved ones exposed should the worst happen.
Those who only operate in one sector, for example mortgages, could also direct clients to insurance brokers to discuss their protection needs. This could help stop insurance from being viewed as an ‘optional extra’, rather than the essential expense it actually is.
This opportunity to revisit protection policies comes at a crucial time for the intermediary market. The Financial Conduct Authority (FCA) released its new Consumer Duty this summer, setting the bar for advisers and financial firms operating in the protection sector. The regulator has issued a stark warning that cost of living pressures could leave some households with no choice but to cut back on their spending.
Unlike many financial services firms, brokers have a direct and personal relationship with their clients and are a trusted source of advice. There is a perfect opportunity for brokers to demonstrate they have the long-term wellbeing of their clients at the heart of their business, as the new Duty recommends, by raising and reviewing protection policies as a matter of importance.
The Pandemic highlighted the importance of protection and ensuring households are covered should the worst happen. As we enter a new period of financial difficulty, brokers have a responsibility to ensure their clients understand the value of protection, and continue to keep these vital policies in place over the months ahead.