We’re in the midst of a life insurance crisis – but here’s how we fix it.

It was simpler in the old days.

In the old days, the Man from the Pru would appear regularly at your front door, selling insurance and doling out financial advice.

In the old days, you were legally required to take out life insurance when you got a mortgage, so that, in the event of your death, your loved ones wouldn’t be saddled with the debt.

How things have changed.

A number of years ago (in the wake of the PPI scandal), the law was changed so that the purchase of life cover alongside a mortgage was no longer legally enforceable. With this law went the specialist advisors, who used to be a reliable present in every branch, their role largely replaced by IFAs.

These changes have had a serious consequence: there are now trillions of pounds of under-protected people in this country.

Swiss Re estimate that the protection gap stands at £2.4 trillion.

This issue is particularly likely to affect the mass market, with only a small, financially literate demographic being driven to take out life cover. In fact, according to recent Starcount research, approximately 80% of UK consumers have no life insurance at all. As a result, the market has declined in volume, has become less innovative and has grown stagnant, with the same products being sold for at least a decade.

So, whose responsibility is it to untangle this chaos?

While the onus is technically now on the consumer to sort out their own life insurance, there are several misconceptions that prevent them initiating the process of taking out cover, on their own terms.

Many consumers have a severe lack of awareness of the need to have it at all, or a reliance on the ‘Death in Service’ pay-out or State benefits, despite the fact that these will never be sufficient to cover the cost of a mortgage, for example.

What’s more, as life is becoming more expensive and people are living under stricter budgets, there’s an increasing tendency to file life insurance away mentally as an ‘unnecessary expense’. Modern customers are far more likely to compare the monthly insurance payments to instant gratification spend, such as Netflix or Amazon Prime – both services that allow consumers to see and receive immediate benefits. There is a perception that they simply can’t afford it or are too young to need it, as well as an element of ‘it won’t happen to me’ syndrome.

Finally, life insurance is a complex product and the process of taking out cover can be complex. The majority of people are put off by the prospect – something which isn’t helped by marketing communication from banks, which tends to assume a certain amount of preparation and knowledge on the customer’s behalf.

The general public’s level of confusion, apprehension and unawareness around life insurance makes it impractical for life insurance providers to be complacent – particularly when there’s an enormous untapped market of millions of people, including mortgage owners, parents and renters.

Educate; elucidate; communicate.

Solving the life insurance crisis won’t happen overnight; it will require providers, employers and government to make a long-term commitment to consumer financial education.

It’s clear that life insurance providers must shoulder the brunt of the responsibility of educating the consumer, creating a multi-wave strategy that emphasises the benefits of life insurance, and personalising communications based on data-driven insight into different customer segments. What’s more, these communications should emphasise benefits that are tailored to the motivations of these diverse consumer groups; for example, cost-conscious renters are likely to have different priorities to home-owners with children. It’s also crucial to consider how customer groups perceive their outgoings, in order to communicate with them in their own financial vocabulary (e.g. ‘For less than the cost of a cup of coffee per month…’).

Next, it’s time to think practically about how your marketing efforts are coming across. How does the text look on a page or screen? What’s the font size – and what does it imply to the reader? Would a particular customer segment prefer direct mail or a social media campaign? How can you create the best and most accessible customer experience for the average consumer?

Life insurance is an emotional product, but it’s rarely marketed that way. By simplifying the product and the way it’s explained, making data work harder and tailoring communications, life insurance providers can protect their customers’ best interests and access an untapped market with enormous financial potential.

It’s time that government, industry and employers stood together to encourage consumers to become more financially literate. It’s time for us to take action and help people and, importantly, to start to educate the youth of today to ensure we minimise the risk for future generations.

Jonathan Burston is a financial Client Director at Starcount.

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