23 February 2022
Supporting vulnerable customers in the over-50s life insurance market
Over-50s life insurance products are most often bought by those who are unable to afford standard whole-of-life insurance policies or funeral plans. This is undoubtedly a more financially vulnerable cohort, whose low financial resilience increases the chance they may default on their policies. And of course in the over-50s market, if you stop paying into your plan, you risk losing all the premiums you’ve already paid in – as well as the guaranteed payout.
To prevent customers from ending up in this situation, certain ‘safety net’ product features are offered by some over-50s life insurance policies, such as payment holidays, reduced monthly payments, missed payment allowances, and protected payouts (where the policy offers the customer a proportionate amount of money back if they choose to cancel after paying 50% or more of the scheduled monthly payments).
Our data show that since 2019, the proportion of over-50s life insurance policies offering these safety net product features has steadily increased.
The distribution of these product features, however, is uneven. A small number of products excel in supporting financially vulnerable customers, while others fail to offer meaningful protections for customers at risk of defaulting or missing payments.
National Assurance is the only product on the market with no safety net features. Both Sainsbury’s and Legal & General offer policies with limited safety nets, in that they allow customers to reduce their monthly payments after a year. At the other end of the spectrum are Co-operative Insurance and Royal London, both of which offer over-50s policies with the full range of safety net features.
Implications for Fair Value
The clock is ticking on firms to complete their first ‘Fair Value’ assessments by the 1st of October 2022. The Financial Conduct Authority (FCA) defines fair value as a reasonable relationship between the overall cost to the end customer and the quality of the products and services. In essence, the overall price of the product needs to match its quality and suitability for the target audience.
Since it is likely that over-50s life insurance customers choose this type of cover because they can’t afford the alternatives, it is fair to assume that customers in this market are closer to financial vulnerability than the average customer.
This means that over-50s life insurance providers should design their products to meet the needs of potentially vulnerable customers. Adding safety net features such as payment holidays, missed payment allowances of at least 60 days, and protected payouts, would give customers greater security and provide them with breathing space to sort out their affairs. They would also demonstrate that providers are offering fair value more broadly.
There’s obviously a trade-off between including these features and the size of the payout. But at the very least, customers should be given the option to include these features - and to understand what impact that will have on their payout.
At Fairer Finance we have built a framework to assess if firms are providing fair value and identify ways in which firms can prove it. If you would like to get in contact with us to discuss ways in which we can help firms pass the upcoming assessment then please contact us at firstname.lastname@example.org.