Arranging protection? ‘Show me the money!’

Why it pays to talk about payout rates with protection clients

It’s well known that the most common reason consumers give for not taking out protection insurance is that they feel it’s ‘too expensive’. What’s less well known is that many consumers seriously underestimate the percentage of claims that pay out, compared to those that are declined.

But insurers don’t pay out, do they?

In the 2015 Drewberry Protection Survey,1 2,000 workers were asked what percentage of claims for life insurance they thought were paid across all major insurers, and the result was surprising – the median survey participant believed that only 50 per cent of life insurance claims actually paid out.

This figure seems surprisingly low. It’s almost unbelievable that consumers really think that insurers are that bad at paying claims. For the curious, the actual payout rate from term insurance plans across all insurers in 2015 was 98 per cent, as published by the ABI here.2

Maybe some of the survey participants didn’t really think that payout rates were as bad as that, but were exercising some kind of ‘protest vote’. But this much is clear: the poll highlights the lack of fondness and trust that consumers have for insurers, whose products we recommend.

Furthermore, in the Drewberry survey 1 in 5 respondents said they didn’t have life insurance because they didn’t trust insurers to pay out on valid claims. The figure for income protection was comparable.


Years of negative PR to overcome

Over the years, most of us have seen stories in the national press along the lines of ‘Left Stranded After My Insurer Refused to Pay Out’. Across the national papers there is usually a story like that every month or so.

Clearly, for those trying to sell newspapers, a declined claim is news – a paid-out claim just isn’t a story. So despite the fact that paid claims vastly outnumber the ones that are declined (by a ratio of 50 to 1), the general public has steadily absorbed the message that insurers will find any excuse to refuse to cough up.

To be fair to journalists, the industry of yesteryear did provide enough ammunition to help create this reputation in the first place. However, over the last 10 to 15 years payout rates have improved dramatically. For example, the ABI states that the average payout rate for a critical illness policy was just 80 per cent in 2005, as compared to over 93 per cent in 2015.


Make the point about payout rates – it really matters

To return to the first point, the main reason that people give for not taking out protection insurance is that they feel it’s too expensive. A big part of the role of the adviser is to sell the value of a product and explain why it costs what it does.

However, given that the public also believes that only 50 per cent of claims will pay out, it’s no wonder they consider protection to be too expensive. By correcting the misconception about payout rates, we advisers can help people to see the cost in a far more favourable light.

The vast majority of insurers now publish their payout rates – and they are generally excellent. You can use this tool to access the last three years of payout rates across all insurers for life insurance, critical illness cover and income protection. With years of negative PR to overcome, it’s hugely helpful to discuss with clients how good payout rates are today, either during the initial fact find or when making a recommendation.

First and foremost, this will help to convince clients that they are making the right decision, and will help to demonstrate product value. Furthermore, with advisers being on the front line, we have a big responsibility in helping to reshape consumer trust in the market.


1)      Drewberry Protection Survey -

2)      ABI payout rate statistics -

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