IP might seem a modern idea, but its roots go back to the Industrial Revolution in 18th century Britain. As factories and machines transformed the country, the workforce grew along with the risks. Injuries, illnesses and long hours became common, making it clear that workers needed more than just physical protection.
This led to the beginning of friendly societies, groups where workers pooled their money to support each other in times of need. If a member fell ill or got injured, the society would step in to help financially. These early mutual aid groups were the first form of IP.
The 20th century brought big changes. The number of friendly societies declined, but the concept of IP remained strong. By the 1990s and 2000s, IP evolved into the more sophisticated and flexible products we see in the market today.
The debacle of Payment Protection Insurance (PPI) mis selling contributed hugely to misunderstandings, as well as consumer trust, with the demise of bancassurance and home services creating a nation under protected – and leading to stricter regulations.
The Income Protection Task Force (IPTF), which formed in 2005, raises awareness about income protection and their "7Families" campaign highlighted real-life stories, showing how crucial IP can be when ill health or injury threatens a family's livelihood.
Where We Are Now
Today, IP is more important than ever. Modern living requires us to buy all sorts of insurance products, all paid for by our ability to earn. It is encouraging to see that with record sales (a 10% increase in 2023 according to Swiss Re) more people are recognising the value of protecting their income against unexpected events. The covid-19 pandemic was a very real case study and only reinforced this need, as many faced financial uncertainty due to health issues.
Modern policies offer flexibility and customisation, allowing policyholders to tailor coverage to their needs. Despite its long history, income protection remains a vital safety net for millions of workers, providing peace of mind in an unpredictable world.
New products and variations of income protection are also on the rise, including accident only cover and unemployment cover, the demand for which shouldn't be underestimated.
IP products are increasingly evolving to become more inclusive to those with medical conditions and exclusions, such as the ‘right to be forgotten' initiatives and alternative products for those with complex medical histories.
Looking Ahead
Sales are on the increase and the future of income protection looks promising. As awareness continues to grow and products become even more tailored to individual needs, we can expect to see further innovation in the market.
Affordability will continue to be vital with the rising cost of living. Providers will need to find innovative solutions to offer quality insurance that is accessible to all types of people and budgets.
A further issue is process. Full IP underwriting has become incredibly detailed, creating a vast underclass of consumers often unable to get cover, where too much of the market is obsessed with attracting the clean risks and straight through processing.
We need to consider different ideas including underwriting later, temporary moratoriums, wider use of exclusions, optional ratings with exclusion as an alternative, with more emphasis on lifestyle underwriting rather than medical history.
Essential cover options are also in demand, since traditional protection often focuses on catastrophe situations, leaving many daily risks unaddressed. Might we see a time when IP includes accident, illness, unemployment and death as standard?
In the next ten years, income protection could become an even more essential part of financial planning, helping more people safeguard their livelihoods against life's uncertainties.
Demand is high, consumer education is growing, the future for IP could be immensely bright – as long as we keep listening and keep changing.
