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Defaqto study highlights IPI failings

A new study by Defaqto claims that income protection insurance policies could breach the principles of the Financial Service Authority’s Treating Customers Fairly initiative.

In its first report into UK long-term IPI products, Defaqto cites the consumer detriment caused by the complexities and inconsistencies in policy terms and conditions as providers seek competitive advantage rather than consumer benefit.

One such example is the fact there are 13 different methodologies used by providers for the calculation of the maximum insurable percentage of salary. The complexity surrounding these rules means that the likelihood of setting a realistic level of benefit is remote, undermining faith in the product. Also, there is generally no contingency to refund overpaid premiums.

Among issues highlighted in the report are the dangers of diluting the IPI proposition in an attempt to take market share from mortgage payment protection insurance providers and the difficulties advisers face in recommending reviewable premium rates. The review terms across the market are far from consistent with as many as six different approaches being taken by providers.

Also explored are the reasons behind why income protection sales are failing to get anywhere close to their potential and why they are losing out to critical illness.

Nick Telfer, head of life and protection at Defaqto, says: “I believe that income protection should be the most important item on anyone’s protection shopping list but, as highlighted in the report, the industry will need to change significantly before consumers and advisers warm to these products and I do not see any evidence of this at the moment.”

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