Shifting the balance of protection

In a recent paper, snappily entitled “Vision for the insurance industry in 2020”, a committee jointly chaired by the Chancellor of the Exchequer and the Head of Insurance company, Aviva, considers whether some of the “risk management” market could be transferred to the insurance industry.

Those in the 'corridors of power' are looking at the future

By “risk management”, what they mean is things like healthcare, income protection, accidental injury and retirement provision so we can only apologise, on behalf of the insurance industry, for the jargon!

It might come as a surprise to learn that only about 65% of this is provided by the government with the balance being provided by insurers. However, since this includes pension provision, perhaps the figures are not quite so strange.

The interesting thing is that shifting 5% of the risk from the government to the insurance industry would cost about £9.7 billion in additional capital. So while people are discussing this document, some will suspect that there might be an element of 'special pleading' by insurance companies to be allowed to retain more profit in order to provide this additional capital.

Looking behind the report
What is really telling about this report is that it was deemed necessary in the first place. Everyone knows that there is a basic level of state care provision, which is topped up by various levels of private provision related to healthcare, income protection and pensions.

What is more disturbing is a tacit recognition that the state will not be able to sustain the current level of support into the future without massively increased taxes, or borrowing – or slashing other services. As we know from the way the population is developing, we are an aging nation, so that the number of people in work is falling compared with the number of people entitled to benefits.

If this were largely young people, it would not matter, because they would eventually filter into the job market and start paying taxes and national insurance contributions. Unfortunately, this is not the case, it is the older section of the population that is growing fastest.

But you don’t need a crystal ball to plan

So where are we?
In the current economic climate, the chances of tax increases are high – but largely to service recent emergency borrowing, rather than to provide extra benefits for those in need. In practice, this is likely to mean that some services will have to be cut; or at the very least their value will fail to keep up with inflation.

2020 may sound a long way off, but in fact we are almost half way there, since the Millennium. So thinking about the provision of protection for our families is something that cannot be left for tomorrow.

A simple checklist
Even those without families should consider the need for income protection insurance. For anyone with family responsibilities the list is longer and should include at least:

• Life insurance to cover lost income and clear any borrowings;
• Health insurance to replace income and possibly provide a lump sum;
• Medical expenses insurance, at least for cases where the NHS cannot provide immediate care;
• Planning for retirement and care later in life.

You should take individual professional advice before making any decision relating to your personal finances.

NOTHING CONTAINED IN THE ARTICLE SHOULD BE CONSIDERED AS GIVING INDIVIDUAL FINANCIAL ADVICE. PLEASE NOTE THAT THERE MAY BE VARIATIONS FOR THOSE LIVING IN SCOTLAND AND NORTHERN IRELAND. 

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