1- Market Factors and Trends in Financial Protection Planning Flashcards
In what scenario is insurance most effective role to play?
E.g. Frequency and Intensity
Low frequency, high impact
Life assurance - Why have they changed through the years
E.g. After WWII
Lifestyle changes - British Household Panel Study, Life is now less predictable.
What is the insurance purchased by many people in 1950s?
Middle, lower middle class and working class population
Industrial insurance also known as home service, sales force.
Typically how much did life assurance cover in employees earnings (1950s)
2-4x their earnings. Typically paid by employer
Who were the people offering life assurances to homes in the 1950s?
How did they do this?
Industrial Sale force. They came to homes to collect premiums each week or month, was very effective to maintain contact with poeople from homes.
What caused the change from the traditional insurance purchases to more like modern times?
Retail Distribution Review, attention to “sale” of protection.
What is an alternative to purchasing from provider?
Non-advised selection of market.
What is the simplest type of life cover
New level term assurance policies
How has society changed the attitude towards insurance?
(4)
Welfare state - The State will look after you
Growth of Consumerism
Technological Developments - Affects delivery of insurance
Changes in attitude to risk
What is a consistent finding that surveys found about people who are insured?
They overestimate the cover they have.
What is the most common financial protection people have in the UK
Life Assurance
What is a common issue that individuals have when purchasing insurance as found through ICM Research survey?
People do not understand different types of protection insurance
Why might people not take any financial protection cover?
State of the Proteciton Survey - Royal London
- Too expensive
- Not trusting of life assurance provider to pay out on claim
What were the reasons “Millenials” not take out financial cover?
Main reason - Dont need it
No Dependents
No Mortgage
Sufficient Cover from work
Least reason: Cost
What is a barrier that financial advisors faced when issuing financial protection with regards to consumers?
Trust. Consumers highlighted if service offered is unbias and represented good value for commission fees.
- What is driving the aggregate demand for life assurance policies
- Affordability
- Movements in housing market
- Income per head
- Dependents
What is a key determinant in how much cover is taken?
Income
What is the life assurance protection gap
The shortfall in the amount of cover necessary to maintain the current living standard of dependents
Formula for Protection Gap
Resources needed - cover in place through individual policies and through employer-sponsored group life gap = protection gap
What does the protection gap represent?
Represents the amount of life cover which should be in placed, based on national average salairies.
The UK life protection gap is calculated to be £2.4trn. The protection gap for IP is £200bn per year. Why is this?
Size of gaps underlines reality of differentce in ideal measure of cover and assessment by customers. Customers do not understand and also firms.
Why is affordability a factor to influence demand for protection
Guidewire - 10% would cancel health insurance in light of increased Cost of living
If costs of mortality cover falls - amount of cover purchase increase.
Why is housing market a influence to demand for proteciton?
Life and critical illness package are commonly sold to protect financial commitments. More rent less packages.
Why is Economic Factors a influence to demand for protection
Income is a key determinant of how much cover individuals purchase
Inflation has a negative correlation with life assurance purchases
What are some recent changes in trends of 21st century that may increase need for life proteciton?
- Self-employed/changing jobs quite frequently
- People with disabilities expected to work
- Women now working
What do insurers focus on in an individual before creating an offer?
Nature of someones work
Current and past health history
What was the date where insurers stopped charging different rates to males and females?
21 December 2012
What was smoker/non-smoker products in UK an example of
Anti-selection (Adverse information) - asymmetry.
What is Preferred life policy
Followed principle of “cherry-picking risk”. Gives discount to applicants that can meet preferred lifestyle habits (as they have lower mortality risk)
What did the British Insurance Brokers Association introduce in 2020
Caxton House statement - support people with disabilities and pre-existing medical conditions, covers life assurance, critical illness or income proteciton.
What is the service that helps with Caxton House statement
Find Insurance they operate across personal insurance, business protection and group risk policies
