So , would mandating insurance , like banks mandating endowment policies in the 1980s , help to reduce the protection gap ? While it sounds plausible , there are some challenges that the industry would need to address .
1 . The mandated solution
What would clients be ‘ mandated ’ to buy ? Should every mortgage be sold with life insurance ? Or should clients be required to take out an income protection policy as well ?
2 . Insuring the uninsurable
If someone has an underlying health condition or a job that might restrict them from being able to access insurance , in a world where protection is mandated , does that mean they are unable to get a mortgage ?
3 . Forgetting the ‘ why ’ of protection advice
Protection should be viewed as an essential part of ensuring clients receive well-rounded financial advice .
Protection advice is something that needs to be considered not just at the point in time a client is taking out a mortgage , but at every life stage when there needs to be a discussion or review of a client ’ s needs .
Regulatory changes There was less regulation of life offices before the arrival of the Financial Services Authority in 2001 . The industry has also learnt a lot from the endowment scandal that arose during the 1990s through to the late 2000s .
The Consumer Duty is a marked shift away from the now- Financial Conduct Authority ’ s past view of making sure the industry is following a set list of principles . In particular , the industry is now much more focussed on delivering better customer outcomes .
Where clients are not receiving protection advice , whether mandated or not , can the adviser really say they have helped deliver better customer outcomes ?
Property tenure changes The notion of owning your own home in the UK has been weaved into society through much of the 1950s to early 2000s thanks to falling interest rates , greater access to mortgage lending and government housing policy , with initiatives like the
Right to Buy scheme .
Protection advice should not be pigeonholed to a conversation that happens only during the sale of a mortgage .
However , we are seeing a shift in the tenure of UK properties . In the 2021 England and Wales Census the number of households renting has more than doubled since the start of the millennium , while the number of households who own or co-own their property has fallen .
Renters do not have the same need to engage with a mortgage adviser compared to a prospective homeowner . Therefore , mandating protection alongside mortgage advice would still leave this growing demographic worryingly under-insured .
So what is the answer ? While I do not hold the silver bullet to solve the protection gap issue , the industry does share the collective view that the gap needs to close .
Protection advice should not be pigeonholed to a conversation that happens only during the sale of a mortgage , rather it should be viewed as essential to protecting the wealth and health of clients , no matter their circumstances .
I am hopeful that , as the Consumer Duty continues to bed in , we will naturally see a narrowing of the protection gap as it will become an integral part of the wider advice conversation .
The products and services available today are much more attractive and accessible as part of a lifestyle and aspirational conversation that will suit wealth clients , as well as those considering a mortgage .
To find out more about the products and services available to you , then visit : www . RoyalLondon . com
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