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UK Protection Insurance: Term and Whole of Life

UK Protection Insurance: Term and Whole of Life


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Executive Summary

The life market has contracted significantly over the last couple of years since the introduction of the Retail Distribution Review (RDR) and the subsequent exodus of banks providing advice, so that now both the number of contracts and the value of premiums are at much lower levels than before. With minimal change in either variable over 2014 and 2015, a new normal is taking hold in the market.

Key Findings

The sheer size of the total term market dictates the overall protection market direction, with the reduction in premium value every year from 2012 pinning the protection market back. Following a 3.6% drop in term premium income in 2015, the total protection market was only able to register 0.2% growth.

There has been very little activity within the term market itself to inspire growth, and the product is reasonably commoditized to make it a price-driven market. As a population, many UK consumers are under-insured, but are failing to engage with the product. Term is still a product that is sold rather than bought, and for a product which might well never pay out, the new business figures suggest that a sale is increasingly difficult for consumers and advisors alike.

Synopsis

This report examines the protection side of the life insurance market, the side that broadly provides financial compensation in the risk-measured event of death or severe health issues. Taking protection as a whole, it focuses on the major and closely related product lines of term and whole of life insurance. It also highlights the impact of the RDR and provides a forecast for the next five years.

Reasons To Buy

Review your strategy against both the existing and new challenges facing the term and whole of life insurance markets.

See where the opportunities are for digital disruption and how insurers need to respond.

EXECUTIVE SUMMARY

Protection has reached a new normal and needs to reinvigorate itself

Key findings

Critical success factors

MARKET DYNAMICS

Introduction

The protection market has reached a 'new normal' of lower business levels

Contract levels have reduced due to the RDR

Banks have retrenched to core business and reduced their advisory capabilities

Non-mortgage term insurance remains the dominant product

Protection products are performing differently

The term insurance sector is facing a challenging time

Term continues to dictate the protection market

The mortgage market heavily affects opportunities for term insurance

The number of term contracts has declined

Premiums dropped across all product types in 2015

Product market share echoes the premium performance

The whole of life market is a market of two halves

Guaranteed acceptance is the dominant whole of life product

Whole of life contracts have declined

Premiums have held their own due to rate increases

The whole of life market is more dynamic than term

Pressure from new regulation is currently minimal

The protection market is out of the spotlight for now

All is quiet on the regulation front

The RDR has effectively excluded less affluent consumers from the market

Digital and societal changes are being felt

Subtle social change is taking place, while a lack of proactive customer engagement means the market has stalled

Industry disruption has been catching its breath

Insurers are focused on operational pressures

PRODUCT DISTRIBUTION TRENDS

The RDR has changed the distribution landscape for protection products

The total protection market picture reveals the collapse of restricted advice

However, the premiums story shows the value of advice

Distribution of term products is still dominated by IFAs

IFAs are well placed to upsell to wealthier customers as part of conversations about savings and mortgage protection

Direct channels have not been able to fill the advice gap yet

Distribution of whole of life products is as divided as ever

Guaranteed acceptance products are predominantly sold through the non-advised channel

IFAs are upselling with critical illness to drive up the underwritten market

Frustrations are creeping in among advisors

THE MARKET GOING FORWARD

The national climate of uncertainty will hold the protection market back

It will be a long road back for customers shut out by the RDR

Post-Brexit, the UK's future is uncertain

The domestic political picture is also in turmoil and could change everything

The term market forecast will see an overall drop in premiums to 2020

Sales growth will be driven by the mortgage market and digital technologies

Sales will be inhibited by the advice gap and weak engagement

Whole of life market forecast predicts growth at the expense of term

Sales growth will be driven by changes in inheritance tax

Sales will be inhibited by product perception

INSURERS NEED TO ADAPT THEIR BUSINESS MODELS

Time to move on from life stage journeys and consider the end-to-end customer experience

Insurers have work to do to deliver on hygiene factors

Inability to step away from complexity creates the right conditions for disruption

The distribution challenge centers on digital

Top-down and bottom-up approaches are both needed to solve the digital distribution dilemma

Automated advice offers opportunities to all stakeholders, but fair costs will be key in closing the advice gap

Slow progress on the digital agenda will continue to hold back operations and processes

APPENDIX

Abbreviations and acronyms

Methodology

Bibliography

About Verdict Financial

Disclaimer

Figure 1: The market for protection products has contracted

Figure 2: Whole of life with critical illness has performed the best

Figure 3: The term insurance market will struggle in the next few years

Figure 4: The whole of life market will grow over the next five years

Figure 5: BetterProtect provides an easy quotation service

Figure 6: Life Search provides an online quotation service

Figure 7: Underwrite Me looks to make the purchasing process slicker

Table 1: Number of new contracts/lives, regular premium protection, 2011-15

Table 2: Total life protection market, regular premiums (GBP000s), 2011-15

Table 3: Regular premium protection products: change year-on-year (%), 2011-15

Table 4: Share of market by protection product, 2011-15

Table 5: Number of term contracts, 2011-15

Table 6: Term product premium breakdown (GBP000s), 2011-15

Table 7: Term product premiums change year-on-year, 2011-15

Table 8: Share of term market by individual product lines, 2011-15

Table 9: Number of whole of life contracts, 2011-15

Table 10: Whole of life product premium breakdown, 2011-15

Table 11: Share of whole of life market by individual product lines, 2011-15

Table 12: Total protection market, split by distribution channel, 2013-15

Table 13: Term market split by distribution channel, 2013-15

Table 14: Whole of life market, split by distribution channel, 2013-15

Table 15: Forecast of term market, 2015-20

Table 16: Whole of life market forecast, 2015-20f

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AXA, Sun Life, AIGLife, Zurich, Beagle Street, MoneySupermarket.com, Momentum YourWealth, PayingTooMuch.com, Assureweb, UnderwriteMe, Airbnb

Life, Term, Whole of Life, RDR, Protection, Advisor


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