Thirty years ago there were 36 insurers offering both life and critical illness cover. While many have since disappeared through consolidation and acquisition, within eight years annual sales of critical illness policies exceeded one million – around double the volume seen in more recent years.

 

 

There isn’t a single answer. Instead, it’s a combination of factors that, over time, has reduced the number of insurers, the number of advisers and, ultimately, the number of consumers taking out protection.

 

Regulation arrived in the UK in April 1988 with FIMBRA. While it represented an important step towards formal oversight, the Conservative government concluded that self-regulation had failed. In 1994, the Personal Investment Authority (PIA) replaced both FIMBRA and LAUTRO, the organisation responsible for regulating insurers and unit trust providers.

 

The PIA adopted a far more interventionist approach, most notably through the two Pension Reviews. This period also coincided with the end of door-to-door collections by the ‘Man from the Pru’ in 2001 and Pearl Assurance in 2002. Alongside providers such as Refuge, the Co-op and United Friendly, these industrial branch insurers primarily served lower-income households who either did not have bank accounts or had limited access to other ways of funding insurance.

 

These products were not considered good value by today’s standards, but they introduced millions of people to the concepts of insurance and long-term saving.

 

Thirty years ago, close to 200,000 insurance salespeople operated across the UK, many employed by firms such as Allied Dunbar, Abbey Life and Albany Life, all of which ceased trading between 1997 and 2001. The term Independent Financial Adviser (IFA) came into widespread use following regulation and was largely adopted by those previously operating as insurance brokers.

 

Today’s perception of financial advisers as wealth managers and pension specialists simply didn’t exist. While the introduction of personal pensions in 1988 transformed the pensions market, insurance and mortgages remained the main source of new business, with pensions and investments playing a much smaller role.

 

Over the past 30 years, adviser numbers have fallen by more than 80%, while the number of insurers has reduced by over 75%. Inevitably, that has meant less choice, less advertising and, perhaps most importantly, fewer conversations between advisers and consumers about protection.

 

The PIA itself was replaced by the Financial Services Authority (FSA) in 2001. Six years later, FSA Chairman Callum McCarthy introduced the Retail Distribution Review (RDR), a programme of regulatory reform that resulted in many advisers leaving the profession ahead of the introduction of higher qualification requirements. The FSA itself was subsequently replaced by the Financial Conduct Authority (FCA).

 

Today, the industry talks constantly about the protection gap, yet its continued existence should perhaps come as less of a surprise. The market that existed thirty years ago simply isn’t the market we have today.

 

Recent research from CIExpert highlighted a number of behaviours and challenges that continue to limit consumer engagement with protection. While reducing the protection gap remains an important objective, it is unlikely ever to disappear completely. Consumer apathy, the desire for instant gratification and the financial pressures many households continue to face mean there will always be barriers to overcome.

 

The research identified several key issues:

 

• Consumers either mistrust advisers or continue to believe that any protection conversation will result in a fee.
• Many consumers remain sceptical that insurers will pay claims.
• There is a widespread lack of understanding about what different protection products actually do.
• Some consumers believe protection can be researched and purchased just as effectively through comparison websites or direct-to-consumer providers.

Today’s consumers are navigating an increasingly noisy world. Social media, influencers, comparison websites and a constant stream of competing financial messages all make it harder than ever to engage people in meaningful conversations about long-term financial resilience.

 

None of this suggests the protection gap cannot be reduced. It can. But expecting it to disappear altogether ignores the realities of modern consumer behaviour, financial pressures and the structural changes our profession has experienced over the past three decades.

 

If we’re serious about narrowing the protection gap, rebuilding trust, improving consumer understanding and creating more opportunities for advisers to have meaningful protection conversations may prove just as important as product innovation itself.

 

CI Expert