The past decade has seen a huge rise in the numbers renting as opposed to buying. Renting overtook ownership in 2004 for 21-25 year-olds, and in 2011 for 26-30 year-olds. 

Historically, there was a perception that renters largely didn’t need protection cover. But for today’s renters, the loss of an income would be just as devastating as for someone with a mortgage.  This is worrying, as the protection industry is largely not currently set up to handle generation rent.

According to Swiss Re the mortgage market typically makes up between 35%-55% of total new term sales and as a result ‘generation rent’ has historically not been an issue as, leaving aside prime rentals which were often short term solutions, the rental market was limited to people for whom homeownership was often not an option.  For these renters the state regularly provided a safety net and so there was little incentive to buy protection.

While some renters understand the need for protection and are happy to buy online, the reality is that the bulk of protection policies are ‘sold’, and most of these are sold alongside a mortgage, and almost never a rental contract.

While it’s true that the aggregator market is picking up, its impact in protection sales is far less than almost any other financial product and a long way from filling the gap.

Today’s generation rent has expanded and it’s no longer those people for whom a mortgage was always likely to be a challenge, but now includes people who could get a mortgage but aren’t able to afford to buy. According to research by PwC, just 26% of those currently aged 20-39 will own their own home by 2025. This compares with 64% of households born in 1960 and 1970 who owned a house by the time they were 35.

The English Housing Survey also shows that since 2002, the private rented sector has almost doubled, from 10% to 19% in 2014-15. The proportion of families with children living in the private rented sector increased from 30% in 2004-05 to 37% in 2014-15. This equates to about 912,000 more households with children in the private rented sector in the past 10 years.

In the absence of another serious recession and major correction in property prices, the current situation vis-a-vis rent and ownership is likely to remain the same for the foreseeable future and therefore these renters need protection. But, the question is; how can you get them into an ‘advised’ situation?

The obvious solution is for mortgage brokers or IFAs, many of whom already have links with or are employed by estate agents, to also cover the lettings side. Other relationships could also be established with the more upmarket lettings agents that are not also estate agents.

Key, however, in the short term is for advisers to make contact with those agents most likely to manage appropriate clients. Most agents are unlikely to have considered their tenants protections requirements and almost certainly won’t have any form of needs-assessment or processes in place.

It’s probably worth noting (and this is only subtle promotion for LifeQuote) that this could be done in a light touch way for advisers. Subject to a relevant introduction from a letting agent, the adviser could opt for face to-face advice or they could direct the client to their own protection comparison services if they can offer it on-line. The most successful approach is probably a combination of the two, and then passing on the administration to LifeQuote to process it on behalf of the adviser. LifeQuote works with advisers in a number of ways - providing the administration which covers all client and insurer liaison, to the client being placed on cover, typically on a commission share or a fee basis.

As noted when we talk about generation rent, we are in reality talking about the people who, in previous generations, would have purchased their home. The traditional rental market is still, and wrongly in my opinion, a protection free zone.  And with welfare reform and the introduction of Universal Credit, the incentive for many not to take out protection is even greater for fear they may lose benefits as a result.  This is a nonsense position and I personally feel that anyone who has sacrificed some of their spending to buy a product that can support them or their families should not be penalised. But that’s a debate that I won’t win.

Given that in the recent budget the government announced that it would no longer allow letting agents to charge fees, it is also quite possible that some might look for regulatory permissions to sell protection themselves. With letting agents reporting the average letting fee being around £200, the commission received from selling or introducing protection policies could more than cover this financial loss as a typical commission on an income protection policy is over £600. But, in my opinion, the best way forward is a stronger link between IFA or mortgage broker and letting agent, along the same lines of that that exists with estate agents.

There’s much that can be done to ensure protection policies reach those that may benefit from them the most, but in order for this to happen there needs to be a significant shift in the way they are currently sold.

Neil McCarthy, Sales & Marketing Director, LifeQuote

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