Roger Edwards: Cafe slogans won’t work anymore

“Stopping buying a coffee a week is all it takes to fund a protection policy.”

Do you remember any marketing campaigns like that? We’ve used this approach in the protection industry for as long as I can remember.

I wrote similar lines as a junior salesman and signed such slogans later as a marketing manager.

You can see the same approach in financial services, including the recent and more controversial message that millennials should give up their desire for avocado toast every morning if they want to set foot on the property ladder. .

But things are different now. People are having to ditch coffee, avocados and many other staples as the cost of living crisis slashes household incomes.

Cost of living crisis

Every Saturday morning I teach an early morning fitness class and then I go to Fisherrow Harbour, just outside Edinburgh, for a coffee and a walk. It’s a beautiful place and a good time to reflect on the past week.

This week the lady behind the counter asked for 15 pence more for my large black Americano than I expected. Last week coffee was £2.80 and now it’s £2.95. Earlier this year the same coffee was even cheaper at £2.45.

It was my moment to realize the reality of the cost of living crisis we are facing. Stagnant income eroded by massive increases in fuel and grocery bills. Petrol prices approaching or exceeding £2 per litre. In the worst case, people have to choose between heating their homes or feeding their families.

We will no longer cut corners on a few coffees to finance a protection policy. They will scale back a lot more just to stay afloat.

And those with protection policies might wonder whether to keep them in place or whether to stop paying premiums and use the money to pay exorbitant fuel bills.

Protection Advisors will have conversations with their clients about the dilemma they face.

If the policy lapses, you will lose coverage which you may not be able to recover due to changes in your condition.

Or that buying coverage in the future, once the crisis has passed, could be much more expensive because they will be older.

What will protection product providers do in the face of the potential wave of lapses heading their way? Most already have processes in place to reduce the number of lapses.

Work with advisors to explain to people the consequences of stopping premium payments.

But in times of low inflation and falling fuel prices, some failures were genuinely the result of people forgetting what the hedge was for.

Or a change of address or bank resulting in an accidental cancellation of a direct debit. A few conversations usually prevented forfeiture or allowed quick reinstatement.

But what if people just can’t afford to keep paying for their coverage, even though they fully understand the consequences?

Some policies, especially income protection, offer premium vacation options, but will they be enough? And does the coverage continue during such a break?

The industry needs creative product development and actuarial thinking to solve this problem and we need it fast.

Protection insurance coverage

The Covid-19 pandemic has certainly shown that the protection industry can act quickly if it too needs to. The duration of pre-pandemic product development projects of more than 18 months quickly gave way to the rapid deployment of new processes and underwriting issues.

Vendors won’t want to lose in-force book revenue at a time when the same cost-of-living pressures will affect new business signings. But how generous can they be in terms of premium holidays and allow coverage to stay in place without premiums funding it?

It all sounds like a puzzle.

I’m surprised we haven’t heard more about potential protection issues given that the cost of living crisis has been brewing for six months.

There’s no doubt that the actuaries and product proponents are meeting to talk about it as I write, and are probably drinking copious amounts of coffee as well. I can’t wait to see what solutions they will come up with.

Roger Edwards is Managing Director of Roger Edwards Marketing Ltd and Marketing Director of Protection Review

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