The long-term implications of people being affected by COVID-19 is not fully understood and this is set to affect everything, including income protection. While most people infected by the virus experience a mild or moderate illness that eventually improves on its own, an increasing number of people are experiencing long-lasting symptoms that linger after recovering from the initial infection.
Underwriting changes in income protection means that new policyholders have more restrictive plans than existing policyholders. This situation could leave an important proportion of the population financially at risk if they are unable to work, as the household saving ratio remains at a record low in the UK.
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GlobalData’s 2019 UK Insurance Consumer Survey finds that 43.9% of income protection policies sold were for accident and sickness cover in 2019. Only 14.1% were unemployment cover policies, and 42% provided comprehensive cover (accident/sickness and unemployment cover). The uptake of income protection products is low, making it one of the smallest protection products.
The low uptake in income protection insurance is due to it not being linked to mortgages nor bolted onto other life cover products. This illustrates that consumers who did purchase income protection did so through their own initiative, even though many would have done so as a result of getting a mortgage.
However, as uncertainty continues over the virus, there has been an increase in demand for income protection insurance. At the same time, though, insurers have been trying to mitigate their risk and have had to make underwriting changes to the income protection policies.
For example, Vitality has increased the deferred period for its income protection, now stating that new customers will need to be sick for at least three months before they can get a payout. Other insurers have put similar restrictions in place. This could leave new policyholders financially exposed for a prolonged period of time. Those with existing policies – before the outbreak of the virus – will not be affected.
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By GlobalDataThere is uncertainty on how long the impact of COVID-19 will be felt in the economy or on the health of individuals. If insurers continue adding underwriting restrictions for COVID-19-related claims in the longer term, income protection will not be seen as a reliable source of income, as new customers will not be able to access the benefits in a timely manner. This will further affect insurers’ reputations, especially with younger demographics that have been more financially exposed during the pandemic.
