Johnny Timpson is a protection specialist at Scottish Widows
We start the year in position of relative strength, with the most recent data from IRESS, Equifax Touchstone and other sources suggesting that the industry has experienced growth in demand and sales for individual protection over the course of 2017.
But let’s not rest on our laurels as the next 12 months will bring continued economic uncertainty and stagnant wage growth.
A combination of increased living and transport costs, the increase in the Bank of England base rate and increasing auto-enrolment pension contributions rates mean household disposable incomes will continue to be squeezed and constrained.
This renewed pressure on household budgets will require the industry to work even harder and more effectively at demonstrating the value and benefits of appropriate financial protection.
The government’s programme of welfare reform will also continue into 2018 and we’re just weeks away from the biggest reform to the mortgage welfare safety net in seventy years as Support for Mortgage Interest (SMI), the safety net which has underpinned mortgaged homes for nearly 70 years, switches from being a benefit to becoming a loan from the Department for Work and Pensions (DWP).
It will be subject to rolled-up compound interest, a property charge and will be repayable when the owner returns to work or sells the property.
And a further development for mortgage holders living in universal credit areas is the additional introduction of a “no-earned“ income requirement as a prerequisite to being able to access the new mortgage interest loan support being introduced.
Worryingly, SMI is still the only back-up in place for many families if they were unable to pay their home loan.
Taking out a mortgage is the biggest financial commitment many of us will ever make, and these changes provide a timely opportunity to broach an appropriate financial protection conversation with clients, both old and new.
Regulatory change continues apace too, and in addition to the challenges of the Markets in Financial Instruments Directive (Mifid), General Data Protection Regulation (GDPR) and the Insurance Distribution Directive (IDD) we need to be mindful of the FCA’s concerns with regard to improving access to insurance and the treatment of vulnerable customers.
Looking at issues, I would highlight the DWP’s roadmap response to their “Improving Lives” green paper, the Stevenson/Farmer and Turner reports, and the government’s revenue of private rental tenancy/resilience, housing market stimulation and the social care green paper consultations.
Collectively and individually, these will provide the industry with opportunity in 2018 to demonstrate the role that it can play in improving consumer financial resilience to life events and especially income shocks following life changing and/or limiting medical diagnosis.
In addition, the progress of the bill to shape the new single financial guidance body offers scope to include an accountability for engaging consumers and raising awareness of the benefits of improving their financial resilience.
The new body must stand in customers’ shoes and reflect on the extensive changes that have impacted the UK, including the reduction in household savings to historic lows, the shift from defined benefit to defined contribution pensions, as well as the raft of reforms to working-age welfare provision.
Finally, 2017 brought in huge amounts of innovation to simplify the protection process, from quotation to underwriting.
For me, though, the key innovation was seeing an increasing number of wealth, mortgage, and employee benefit advisers working in collaboration with protection specialists.
In 2018, this enhanced adviser support and capability will start to pay dividends as providers improve the promotion of claims stats and improved outcomes.