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Income Protection - UK - February 2015

Income Protection - UK - February 2015

“The majority of UK households have no income protection insurance, and a low level of savings. Providers must continue their efforts to lower the barriers that are preventing the market from reaching its full potential: low product awareness or, at least, ongoing confusion over the different product types available, as well as high levels of consumer inertia.”

– Sarah Hitchcock, Senior Analyst – Financial Services

This report discusses the following key topics:

Educating mortgage borrowers will help improve the market’s fortunes
Trade body promotes the idea of group income protection to reduce the sickness absence bill
Welfare reform creates a fresh opportunity to remind people of the benefit of having income protection


INTRODUCTION
Product definitions
Income protection versus ASU cover
Figure 1: Summary of the main differences between income protection and ASU cover
Other related long-term protection products
What income protection offers
Abbreviations
EXECUTIVE SUMMARY
The market
Individual sector is not expected to see real growth until 2018
Figure 2: Forecast of new individual (long-term) income protection premiums – Fan chart, 2009-19
Recent performance – Individual sector
Recent performance – Group sector
Market factors
Low product take-up
Competition from short-term protection products
Demand inhibitors
Recent and forthcoming regulation
Company, brands and innovation
Leading providers
Figure 3: Estimated market shares of the top five providers of new individual income protection,
based on volume sales, 2013
Product innovation
Brand reinforcement
Distribution trends
Figure 4: Distribution of new income protection premiums, by sector and channel, 2014
The consumer
Penetration of income protection and related products
Figure 5: Ownership of long-term and short-term protection products, by total sample, mortgage
holders and those in work, November 2014
Significant financial commitments
Figure 6: Current financial commitments and obligations, November 2014
Long-term income protection gives owners peace of mind
Figure 7: Financial capability if unable to work for six months or more, November 2014
37% of non-insured consumers feel they could cover living costs from savings
Figure 8: Contingency financial options if unable to work for six months or more (top eight only),
November 2014
Reasons for not having insurance protection
Figure 9: Reasons for not having income/mortgage protection (top five only), November 2014
Attitudes toward income protection
Figure 10: Extent of agreement with statements about to protection insurance, November 2014
What we think
ISSUES AND INSIGHTS
Educating mortgage borrowers will help improve the market’s fortunes
The facts
The implications
Trade body promotes the idea of group income protection to reduce the sickness absence bill
The facts
The implications
Welfare reform creates a fresh opportunity to remind people of the benefit of having income
protection
The facts
The implications
TREND APPLICATION
Trend: Prove it
Trend: Survival Skills
Trend: Why Buy?
MARKET DRIVERS
Key points
A growing workforce should help drive demand for income protection
Figure 11: Annual level and rate of employment and unemployment – UK (seasonally adjusted),
2005-14
Number of house-purchase loans up by a quarter in 2014
Figure 12: Volume of house purchase loans, by type of borrower, 2006-14
There’s a huge income protection gap in the UK
Figure 13: Ownership of long-term and short-term protection products, by total sample, mortgage
holders and those in work, November 2014
Welfare reform creates new opportunities for insurers
Around a third of employees would only get Statutory Sick Pay from their employer if they
were absent for more than three days due to illness
Assessing the need for income protection
ABI proposes further workplace reforms that centre on group income protection
Only 9% of individual income protection claims are rejected…
Figure 14: Summary of protection claims paid and declined, by product type, 2013
…with around half of these being due to not satisfying policy definitions
Figure 15: Proportional distribution of declined claims, by reason and product type, 2013
REGULATION ROUND-UP
Key points
Recent and forthcoming regulation affecting the protection insurance industry
Industry initiatives
MARKET SWOT ANALYSIS
Figure 16: Income protection market – strengths, weaknesses, opportunities and threats, 2015
WHO’S INNOVATING?
Key points
Summary of recent activity
MARKET SIZE AND FORECAST
Key points
Over the past two years, sales of income protection have declined by nearly half
Figure 17: New individual (long-term) income protection sales and average premium, 2009-14
Group premiums are three times the value of individual premiums
Figure 18: Volume and value of new group (long-term) income protection sales, 2009-14
Business in force
Long-term versus short-term income protection
Figure 19: Premium income related to new and in-force long-term income protection business and
short-term ASU business, 2009-13
Market forecast: Real premium growth will remain a challenge in the short term
Figure 20: Forecast of new individual (long-term) income protection premiums – Fan chart, 2009-
19
Figure 21: Forecast of new individual (long-term) income protection premiums, at current and
constant prices, 2009-19
Forecast methodology
Fan chart explanation
MARKET SHARE
Key points
Friends Life sold the most individual policies in 2013
Figure 22: Estimated market shares of the top five providers of new individual income protection,
based on volume sales, 2013
Unum is the market leader in the group sector
COMPANIES AND PRODUCTS
Friends Life
2013 ranking
2013 claims paid
Description
Protection product range
Distribution
Recent financial performance
Figure 23: Key financial data for Friends Life’s UK division, full year 2012-13 and half year 2013-
14
Recent activity
LV=
2013 ranking
2013 claims paid
Description
Protection product range
Distribution
Recent financial performance
Figure 24: Key financial data for LV=’s Life business, 2012-13
Recent activity
Legal & General
2013 ranking
2013 claims paid
Description
Protection product range
Distribution
Recent financial performance
Figure 25: Key financial data for Legal & General Assurance Society, full year 2012-13 and interim
3Q 2013-14
Recent activity
BRAND COMMUNICATION AND PROMOTION
Key points
Limited above-the-line adspend on income protection products
Figure 26: Total advertising expenditure on protection products, by product category, 2010-14
Insurers experimenting with digital channels
Aviva uses radio to highlight the need for family protection
Figure 27: Top three advertisers of income protection products, 2010-12
CHANNELS TO MARKET
Key points
The vast majority of protection business is sold with advice
Restricted advisers grew their share of individual income protection in 2014…
Figure 28: Distribution of new individual (long-term) income protection premiums, by channel,
2013-14
…but play no part in the group sector
PRODUCT OWNERSHIP
Key points
Survey background
Protection products continue to record low penetration rates
Figure 29: Ownership of long-term and short-term protection products, by total sample, parents,
mortgage holders and those in work, November 2014
More have short-term than long-term cover
Significant product crossover
Figure 30: Ownership of protection products – Cross-analysis, November 2014
Take-up is highest among the 25-44s, but thereafter starts to decline
PERSONAL FINANCIAL COMMITMENTS
Key points
Most people have at least one financial commitment to take care of
Figure 31: Current financial commitments and obligations, by total sample, parents, mortgage
holders and those in work, November 2014
Many are encumbered with multiple responsibilities
Figure 32: Current financial commitments and obligations, by top three commitments, November
2014
There’s considerable scope to grow the income protection market
Figure 33: Current financial commitments and obligations, by ownership of protection products,
November 2014
FINANCIAL FORTITUDE
Key points
Only 17% would be able to maintain their current standard of living if they couldn’t work for
six months or more
Figure 34: Financial capability if unable to work for six months or more, November 2014
Those who have long-term income protection are much more confident in their predictions
Figure 35: Financial capability if unable to work for six months or more by ownership of short or
long-term term income protection, November 2014
11% of the non-insured have no idea how they would fare
Those with unsecured debts are in a particularly vulnerable position
Figure 36: Financial capability if unable to work for six months or more by top three financial
commitments, November 2014
NON-POLICYHOLDERS’ CONTINGENCY PLANS
Key points
Most people would draw on their savings if they were unable to work for a long spell
Figure 37: Contingency financial options if unable to work for six months or more, by parents and
mortgage holders, November 2014
Relying on savings is unrealistic for most households
Figure 38: Level of personal savings, by working households and the non-insured who would rely
on savings in the event of being unable to work, November 2014
REASONS FOR NOT HAVING COVER
Key points
Cost is the number one objection to taking out income protection
Figure 39: Reasons for not having income/mortgage protection, by total sample, parents and
mortgage holders, November 2014
A lack of trust is still holding back the market
ATTITUDES TOWARD PROTECTION INSURANCE
Key points
Many people recognise there is an even greater need for insurance as a result of welfare
changes
Figure 40: Extent of agreement with statements about to protection insurance, November 2014
A recognition that State support will have to be reduced
Two thirds of parents agree that it’s worth considering anything that financially protects their
family
Figure 41: Agreement with statements about protection insurance, by total sample, parents,
mortgage holders and those in work, November 2014
APPENDIX – MARKET SIZE AND FORECAST
Best- and worst-case scenarios
Figure 42: Forecast of new individual income protection premiums – Best- and worst-case
scenarios, at current prices, 2014-19
Forecast methodology
Fan chart explanation
UK RESEARCH METHODOLOGY
Consumer research
Sampling and weighting
Definitions
Qualitative Research
Further Analysis
Brand & Social Media Research
Trade research
Informal
Formal
Desk research
Statistical Forecasting

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