MONEY COMMENT
The £2 Trillion Protection Gap

By Cliff D'Arcy
May 14, 2003

Every year, Swiss Re Life & Health, the world's leading life & health reinsurer (an insurer of other insurers) produces an industry analysis of the sales of individual life assurance and other personal protection products. Although the report is not available to the general public, it makes for interesting reading, as many leading companies use it to help refine their sales strategies.

It's clear that things are looking rosy for protection providers, as the number of policies sold of their three main products have all hit record highs:

Product          Sales 2002    Sales 2001     Change
Term assurance        2.05m         1.57m        31%
Critical illness      1.17m         0.87m        34%
Income protection     0.25m         0.2m         20%

However, more than half of these policies were arranged alongside mortgages, always a rich source of protection business. However, this heavy dependence on the housing market could cause headaches for providers when house prices come off the boil.

What's more, around 9 out of 10 customers prefer to buy these products in face-to-face consultations. On the other hand, we Fools believe that the web lends itself brilliantly to online comparisons of the cost and benefits of these policies, making shopping around as easy as visiting advisers.

One stark warning to emerge from Swiss Re's report is how grossly under-insured the UK is, despite booming sales in recent years (housing boom, anyone?) Swiss Re Life & Health estimates that the gap between the term assurance we have and the cover we need is a mind-boggling £2 trillion. For income protection (cover against long-term sickness), the gap is £130 billion in annual benefit. Of course, as a leading underwriter of risk in this area, Swiss Re is always going to make this gap appear as large as possible but, even at a fraction of this figure, it's still an eye-opener.

So, as far as protection is concerned, Britain's school report for 2002 reads: "Bought very enthusiastically and sensibly, but still has a long, long way to go"!

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