The Future of UK Protection 2009

Published by: Datamonitor

Published: May. 29, 2009 - 264 Pages

Table of Contents

Overview

Catalyst

Summary

EXECUTIVE SUMMARY

The total regular premium life market contracted over the last five years

Term assurance continues to be highly commoditized and easily sacrificed by consumers

Consumers have a low perception of need for income protection

Providers should simplify the critical illness insurance product to revive sales

There has been bolder innovations from competitors in the protection market

Providers are expanding their distribution capabilities to capture more market share

Table of Contents

Table of figures

Table of tables

THE FUTURE OF THE PROTECTION MARKET

The total regular premium life market has declined by a compound annual rate of 4% over the last five years

Sales of savings-related term see resurgence as the housing market continues to negatively affect mortgage-related term

Income protection sales saw a slight reversal in fortunes in 2008

Sales of CII have declined as economic factors continue to weigh heavily against writing new business

Consumer caution regarding household financial stability saw an increase in sales of whole-of-life insurance

The rider market is a vitally important element of regular premium sales

The regular premium life market will see a slight growth over the next five years

Datamonitor forecasts the regular premium life market to grow by a slender 2% over the next five years

Future sales of mortgage-related term will be impacted by the current pessimistic housing market

Sales of savings-related term are expected to rise as customers grow more cautious over their finances

Income protection will continue to have small market share

Critical illness insurance sales will only recover once customer and advisor confidence in the product is restored

The collapsed customer demand for endowments will not see a reversal in fortunes

Providers are not impressing consumers enough about the need for protection

Consumers are sacrificing adequate financial protection with rising personal debt

Consumers believe they do not need protection

Consumers also overestimate the cost of cover

Consumers' mistrust for the protection industry is also fuelled by negative press

However, providers have given out most CI and IP claims to improve consumer confidence

'Trigger' events in people's lives induce significant protection behavior

The protection gap still persists at £2.3trillion in the UK

In times of falling mortgage markets, term assurance sales can be bolstered by making it more tangible for customers

Providers need to focus on customers rather than price too boost term sales

A shift in emphasis from price to quality is needed to make term meaningful to consumers

Example of successful strategy: PruHealth rewards customers who make an effort to lead healthier lifestyles

In times of falling mortgage markets, term sales must be bolstered through customer education

Simplicity is key to regain consumers' and advisors' trust in critical illness insurance

Many consumers and advisors have lost trust in CII

ABI members must cover the 23 ABI critical illness conditions in their policies

Advisors have a vital role to play to curb any confusion at the outset

Regulatory bodies have worked to make definitions of critical illnesses clearer but this may not improve public attitude towards the product

Offering CII-lites may be an opportunity to reduce the cost of policies and further capture consumers' interest

The ongoing global financial crisis is also restricting new critical illness business

There is growing but wary interest in severity-based critical illness among providers

A severity-based model may be a better fit for advances in medical science

However, concerns around product complexity is making providers wary about introducing severity-based cover to the market

PruProtect introduced the concept of severity-based CII cover in 2006

Providers should raise 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

Government welfare reforms will initiate the UK workforce to re-evaluate how they protect their income

Insurers should also consider offering hybrid products to meet a variety of customers' needs

The misfortune of rival products creates fertile ground to revive IP sales

Providers should continue to speed up 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

Tele-underwriting is an effective tool in reducing non-disclosure

However, different levels of tele-underwriting causes the customer experience to differ with each provider

Financial and medical underwriting can take a significant amount of time

THE FUTURE OF PRODUCT INNOVATION IN PROTECTION

Providers have put further investment on the value of tele-underwriting and the increased disclosure it delivers

Life companies have allocated more resources to advisors' extranet capabilities and target more protection business

Providers increased training available to advisors to help maintain their market share

Friends Provident have stated to potentially offer protection policies on wrap platforms

However, providers need to ensure that propositions truly complement the many different IFA models

The protection market is highly concentrated

Legal & General writes the highest in new business premiums in term assurance and critical illness insurance

Legal & General's strength lies in distribution

Legal & General has a strong relationship with IFAs

Legal & General also has strong historic relationships with banks

HSBC and Friends Provident dominate the income protection market

HSBC's income protection policy allows customers to decide when benefits start

Friends Provident regularly moves to enable faster processing of applications

Friends Provident extends its protection distribution by partnering with Tesco Personal Finance

THE FUTURE OF PROTECTION DISTRIBUTION

Protection distribution remains focused on the IFA channel

IFAs are the dominant distribution channel for protection products

Advisors have a prime opportunity to revisit clients and increase consumer awareness and change perceptions of protection

Providers are broadening their online sales capabilities through aggregator sites

Aggregator sites challenge the protection distribution landscape

Aggregator sites have become a trusted source of financial service in the current climate

Technology is affecting the way protection business is being conducted

Increased competition could lead to pressure on margins

However, concerns and criticisms are being leveled at non-advised sales

Problems also arising between direct sales and advisor channels

Protection products will increasingly be distributed through non-intermediated channels over the next 5 years

Protection products are expected to be increasingly distributed direct-to-consumer

Friends Provident is to partner with Tesco to extend the reach of its protection product distribution.

APPENDIX

Definitions

Critical Illness

Income Protection

Term assurance

Convertible term assurance

Decreasing term assurance

Increasing term assurance

Level term assurance

Mortgage-related term assurance

Pension term assurance

Renewable term assurance

ABI definitions of distribution channels

Independent Financial Advisors (IFAs)

Direct sales forces

Tied agents

Multi-tied agents

Bancassurance

Direct marketing

Telesales

Other

Further reading

Ask the analyst

Datamonitor consulting

Disclaimer

List of Tables

Table 1: Regular premium life market, new business premiums 2004-2008, £m APE

Table 2: Total regular premium life market adjusted for rider products, new business premiums, £m APE

Table 3: Forecasts regular premium life market, new business premiums 2009-2013, £m APE

Table 4: Forecasts total regular premium life market adjusted for rider products, new business premiums 2009-2013, £m APE

Table 5: Term assurance new business premiums 2004-2008, £m APE

Table 6: The top 20 term assurance competitors, new business premiums 2008, £m APE

Table 7: The top 20 critical illness insurance competitors, new business premiums 2008, £m APE

Table 8: The top 20 income protection competitors, new business premiums 2008, £m APE

Table 9: Regular premium life market, new business premiums segmented by distribution channel, £m APE

Table 10: Forecasts regular premium life market, new business premiums 2009-2013, £m APE

List of Figures

Figure 1: The total regular premium life market has declined by 4% over the last five years

Figure 2: Premiums for CII written as a rider to term assurance see an upturn in 2008

Figure 3: The regular premium life market will grow by a slender 2% over the next five years

Figure 4: Consumers perceive protection insurance as either unnecessary or unaffordable

Figure 5: New business premiums for term assurance has declined by 4% over the last 5 years

Figure 6: PruHealth makes health insurance more tangible by rewarding customers who lead healthier lives

Figure 7: The term assurance market is dominated by Legal & General

Figure 8: Legal & General commands top spot in the critical illness market

Figure 9: HSBC and Friends Provident were the top income protection insurers in 2008

Figure 10: IFAs are the main distribution channel for protection products

Figure 11: Online price comparison sites and banks are the most trusted financial institutions

Figure 12: Non-intermediated channels will gain market share from IFAs over the next 5 years

Abstract

• Examines the current shape of the protection industry and explore factors that are currently limiting new business.
• Assesses strategies to combat barriers to consumer engagement with term, critical illness insurance and income protection.
• Identifies key competitors and examines their differing strategies in the UK protection market.

• Gain valuable insight into how to react to the latest innovations and developments in the protection market.
• Understand the protection market, the distribution trends and the key drivers of new business for term, CII and IP.
• Access Datamonitor's forecasts for the market and valuable knowledge of how the sector is set to develop.

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