UK Income Protection and Critical Illness Insurance 2011
Datamonitor
September 30, 2011 7 Pages - SKU: DFMN6647814
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Countries covered: United Kingdom
The protection industry continues to face the longer term issue of protection products being seen as an unnecessary luxury. This threatens to leave consumers with a shortfall in protection that they need. However, the industry may experience resurgence in future through current commitments from providers, IFAs, and government bodies in increasing consumer education on the benefits of protection.Plan your strategy effectively by having primary consumer insight to consumer attitudes and needs towards protection.
Access a comprehensive analysis of the income protection and critical illness markets to drive future innovations.
Assess the latest developments from major players to see what it means for your company.
The total protection market has observed little movement in terms of new business over the past five years between 2006 and 2010 with a compound annual growth rate of 0.2%. It is worthy to note that given the difficult operating economic conditions, new business has held instead of declining; a positive point for the protection industry.The industry may experience resurgence in future through current commitments from providers and advisors as well as Government bodies in increasing consumer education on the benefits of protection. Simplicity is key to regaining consumers’ and IFAs' trust in CII with advisors having a vital role to play in curbing any confusion at the outset.
How do players involved plan on making consumers more engaged with income protection and critical illness?
Which providers are at the forefront of innovation in the income protection and critical illness markets?
What factors limit the success of new product innovations in income protection and critical illness?
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- OVERVIEW
- Catalyst
- Summary
- EXECUTIVE SUMMARY
- Critical illness insurance and income protection are essential components within the total protection market
- Product holding of IP and CII among consumers is the lowest in comparison to other life insurance products
- Both the IP and CII markets are dominated by five providers, which command over 80% of market share
- The future for both markets hinges on simplifying the products on offer and making them affordable to consumers
- MARKET CONTEXT
- Introduction
- CII and IP are essential components within the total protection market
- CII pays out a lump sum on diagnosis of a critical illness
- IP is designed to provide a monthly income should the policyholder not be able to work through injury or ill health
- New business for IP held over the past five years, while CII fell out of favor
- The protection market has observed little movement in new business over the past five years
- Sales of non-mortgage-related term have seen a resurgence as the housing market continues to negatively affect mortgage-related term
- Consumer caution regarding household financial stability saw an increase in sales of WOL insurance
- The market for IP remained flat between 2006 and 2010
- New business premiums for CII declined by 23% over the past five years
- However, the rider market is a vitally important element of CII sales
- The CII market remains challenged by negative publicity and perceived complexity
- Many consumers and advisors have lost trust in CII
- Providers have attempted to stem the negative publicity surrounding claims with increasing numbers of payouts
- The ABI aims to reduce claims disputes further with its Statement of Best Practice for Critical Illness Cover published in February 2011
- IP suffers from a misleading association with cover for redundancy or unemployment
- The benefits of IP are harder to communicate to customers than other protection products
- Consumers do not understand the state benefits they are entitled to and the protection offered by employers
- Government welfare reforms will lead the UK workforce to re-evaluate how they protect their income
- IP is currently suffering from the Activities of Daily Life debate, but the concept may make IP more affordable
- Advisors are concerned that the ADL concept devalues the product and makes it harder for clients to make successful claims
- However, providers believe ADL enable consumers to hold IP at an affordable cost
- One way forward for IP would be to focus providers' attention on potential payment periods to make it more beneficial to consumers
- The Retail Distribution Review will be a key driver for future IP and CII business
- Under the RDR advisor charging proposals will not apply to pure protection products, leading to a greater focus on protection products from independent financial advisors
- The RDR's proposals for independence and professional standard requirements for IFAs will improve the reputation of financial advice
- CONSUMER CONTEXT
- Introduction
- Product holding of IP and CII among consumers is the lowest in comparison to other life insurance products
- Young people do not see IP and CII as the answer to unforeseen events
- Consumers continue to erroneously perceive protection as unnecessary and unaffordable
- Some consumers have not considered protection insurance at all
- In light of rising personal debt, consumers are sacrificing adequate financial protection
- Consumers consider the financial reputation and brand strength of providers as essential influences when taking out life cover
- Consumers are more likely to seek advice when taking out CII than when taking out IP
- COMPETITOR FOCUS
- Introduction
- The IP market is dominated by five providers, which command an 82% share of the market
- Resolution now has a market leading protection business with BHA and Friends Life
- Aviva continues to increase the presence of its IP offering through enhancing distribution partners and advertising campaigns
- LV= enhanced its IP offering, addressing the length of cover and maximum benefits
- Short-term income protection is proving a popular innovation for traditional IP providers
- The misfortune of rival products such as PPI also creates an opportunity to revive IP sales
- STIP products will compete aggressively with traditional IP products, but this can be used as an approach to introduce reluctant clients to the concept of protecting income
- HSBC held the largest share of the CII market in 2010, but the industry has seen high profile exits in the past year
- High-profile exits have reduced market choice for CII in the past year
- PruProtect is the market leader in severity-based CII cover, but other providers are innovating around the concept
- PruProtect leads the way in innovation following the launch of seven new products in March 2011
- PruProtect has also continued to enhance its severity-based CII cover by adding new conditions to its scope
- Bright Grey has improved its CII insurance cover with extended definitions on illnesses and the addition of more conditions to its policy
- LV= is another provider to add additional conditions to its CII offering, and has produced a layman's guide to medical conditions covered by the plan
- Innovations relating to low-cost and stripped-down policies have emerged from Holloway Friendly
- Hybrid and menu plans will allow consumers to change the level of their benefits as their lifestyle changes
- Providers continue to speed up the underwriting process and help advisors promote the importance of protection to consumers
- AEGON improves medical underwriting limits for life and critical illness protection
- Cirencester friendly launched a Big T option to simplify its IP application process in June 2011
- Friends Life is offering online protection seminars for IFAs in order to help boost sales
- Legal & General has raised medical evidence limits with the aim of increasing underwriting decisions made at the point of sale
- LV= has released a Little Book of Protection for advisors, as well as enhancing its underwriting processes
- DISTRIBUTION DYNAMICS
- Introduction
- The distribution of IP and CII remains focused on the independent financial advisor channel
- IFAs are the dominant distribution channel for protection products
- Bancassurance is a growing channel in the distribution of IP, but not for CII
- The market recently saw the launch of an innovative online intermediary through The Life Dept.
- However, insurers have paved the way to go direct, creating mixed messages for advisors
- Leading price comparison sites now offer a comprehensive range of protection including IP and CII
- IP and CII are being added at a later stage on aggregator sites
- However, concerns and criticisms are being leveled at non-advised protection sales
- THE FUTURE FOR INCOME PROTECTION AND CRITICAL ILLNESS INSURANCE
- Introduction
- Income protection and critical illness insurance will remain vital components in the UK protection market
- Standalone CII will remain a niche offering within the protection market
- IP will retain a small market share over the next five years
- Key macroeconomic drivers will impact the IP and CII markets going forward
- Protection products are expected to be increasingly distributed direct-to-consumer
- Advisors have a prime opportunity to revisit clients, increase consumer awareness, and change perceptions of protection
- Providers should seek to increase consumer understanding of the concept of protecting income rather than an adherence to product design or way of writing business
- Insurers must work with the government and industry to increase consumer appreciation for IP
- The Income Protection Task Force continues to raise advisor and consumer awareness of IP
- Simplicity is key to regaining consumers’ and advisors’ trust in CII
- (Untitled sub-section)
- Providers should continue to speed up the underwriting of protection business
- More providers should implement tele-underwriting to speed up applications
- Providers can offer either a small t or Big T tele-underwriting service for efficient disclosure
- Different levels of tele-underwriting cause the customer experience to differ with each provider
- APPENDIX
- Data
- Definitions
- Critical illness
- Income protection
- Term assurance
- Association of British Insurers' definitions of distribution channels
- Further reading
- Datamonitor research
- Secondary sources
- Ask the analyst
- Disclaimer
- TABLES
- Table: Total protection market, new business premiums (£m APE), 2006-10
- Table: Total regular premium life market adjusted for rider products, new business premiums (£m APE), 2006-10
- Table: New business premiums for Resolution brands (£m), 2010
- Table: IP competitors, new business and market share (£m), 2010
- Table: CII competitors, new business and market share (£m), 2010
- Table: New business premiums for IP and CII, by distribution channel (£m APE), 2006-10
- Table: Forecast new business premiums for the protection market (£m APE), 2011-15
- Table: Five year forecast figures for the macro economy, 2011-15
- Table: Forecast new business premiums for the protection market segmented by distribution channel (£m APE), 2011-15
- Table: Life insurance product penetration among UK consumers by age
- Table: Reasons for UK consumers not holding a life insurance policy
- Table: Reasons for UK consumers not holding a life insurance policy, split by age
- Table: Product holding of those insured with a life policy
- Table: Product holding of those insured with a life policy, split by age
- Table: Question: before you took out your most recent life insurance policy, did you take any of the following actions?
- Table: Question: what features do you look for in an life insurance product?
- Table: Question: what influences your choice of life insurer?
- FIGURES
- Figure: The protection market has remained flat over the past five years
- Figure: CII has fallen out of favor among UK consumers
- Figure: CII sold as a rider to term has partially replaced the loss in new business of standalone policies
- Figure: IP and CII have low penetration rates among UK consumers
- Figure: Protection protects are unpopular across all age segments
- Figure: Consumers perceive protection insurance to be unnecessary
- Figure: Consumers consider reputation and brand strength to be essential influences to their choice of life insurer
- Figure: More consumers seek advice before taking out CII cover than IP
- Figure: Following its acquisition of Friends Life, BHA, and AXA, Resolution holds the greatest market share for IP
- Figure: The top 10 CII providers accounted for 84% of the market in 2010
- Figure: IFAs dominate the distribution of IP
- Figure: Leading aggregators offer a comprehensive range of protection products
- Figure: The UK protection market will grow by 3% over the next five years
- Figure: Going forward, the non-intermediated channel will increase its presence in the distribution of protection
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