Providing peace of mind.

OUR SOCIAL ROLE

Insurance products help to protect individuals and businesses against the financial consequences of a wide range of risks – everything from poor health and natural disasters to the risk of outliving savings in old age. By reducing the impact of these problems, the insurance industry allows people to bear risks with greater peace of mind and reduces potential reliance on the state.

Finance plays a role in everybody’s life, and good financial companies are those which connect with customers’ lives accordingly. They facilitate household budgeting and long term saving, enable people to get through the financial consequences of unfortunate or catastrophic events and are there for customers when they are needed.

Our core purpose as an industry is to provide our customers with ‘safety in numbers’, enabling the pooling of premiums and sharing of risks to spread the financial impact of the negative events that will inevitably happen to some of them.

Without our industry each of those individuals would have to provide for their own future independently, without the benefits of sharing the burden of the risk with others. For the majority, this just would not be possible.

In addition to delivering returns for our shareholders and customers we believe that as a business, we have a responsibility to take a position of leadership in broader society. We aim to ensure that we relate to the day-to-day lives and concerns of our customers, and as a shareholder we aim to set new and higher standards of stewardship and engagement with the businesses in which we invest.

Not enough people in Britain are privately insured against accidents, ill health or loss of income. People expect the Government to provide them with some level of financial protection against these events and this is wholly appropriate. The private sector can, however, provide advanced welfare services that can help families long before they might need to become a client of Jobcentre Plus or other services.

In 2009, the Insurance Industry Working Group (IIWG) highlighted the importance of partnership between the state and the private sector in the provision of cover for what is known as ‘addressable risk’ in the UK. This means each side picks up its part of the costs of ill health, healthcare, unemployment and pensions.

At present, the Government is responsible for some 65% of all addressable risk through its various benefit systems while 35% is covered by the insurance industry through the products provided to clients.

This idea of risk transfer from the state to the private sector was given greater impetus by the Chancellor’s Emergency budget in which he specifically identified the welfare budget as somewhere he was looking for additional cuts.¹

The IIWG report (July 2009), jointly written by Alistair Darling and industry leaders, suggested that if the public sector transferred 5% of its risk to the insurance industry, taxpayers could save roughly £17bn a year.²

More recently, the publication of 21st Century Welfare made clear the Secretary of State, Iain Duncan Smith’s determination to focus welfare resources on those in most need, and his ambition to improve the quality and variety of service provision.³ We believe that the debate about how best to allocate risk between the state and private sector is a valuable opportunity to save taxpayers’ money and improve services.

The insurance industry has the expertise and the capacity to help the state increase the quality of welfare provision and save money by growing a complementary private sector safety net with well-designed tax incentives and simpler regulations. One example would be to focus on the potential to maximise the benefits of Group Protection, but the broader principles of risk-sharing also apply to pensions and potentially long-term care.

Legal & General has been providing income replacement and other social protection products since 1836. We believe that our skills in rehabilitation and enabling individuals to return to work could help the DWP to provide more effective services at reduced expense. Put simply, if we can help a family keep most of their income when times are hard, they are less likely to need to rely on the welfare system.

Our industry already assists people in planning for their retirement. This is another area that has seen much focus from Government in recent months. We have responded to a number of consultation papers on proposed changes to the pension system and continue to work with government departments to help inform improvements to the system such as the removal of the default retirement age and the compulsion for individuals to annuitise at age 75.