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Critical Illness Cover - UK - February 2009

Demand for critical illness (CI) policies from individuals has been in decline since 2003. Adverse media coverage surrounding claims handling and a perceived lack of transparency have tarnished the product and fostered public mistrust of the industry. The slowdown in the housing and mortgage markets has created further challenges for providers – owing to the fact that a large proportion of new CI business has traditionally been generated via the mortgage sales process.

This report examines the recent performance of the UK critical illness market and assesses its future prospects for growth. It explores the current issues facing CI providers and the developments that have been made to quieten the critics, restore confidence in the product and to breathe new life into the sector. In addition, Mintel’s consumer research reveals trends in ownership and barriers to purchase, as well as attitudes towards protection insurance and potential targeting opportunities.

Mintel asks…

  • What is the size of the CI market and how has it performed recently?

  • Who are the leading underwriters and what is their view of the market’s current health and prospects?

  • How has the credit crunch and housing slump affected demand for CI cover?

  • How is the industry tackling criticisms relating to low claims payouts and negative perceptions linked to adverse media?

  • Has there been any notable new product development recently?

  • What proportion of UK adults have CI cover and other related protection products?

  • What is their view of these types of insurance?

  • What was their experience of arranging cover?

  • Why do people not have it?

Issues explored

  • Impact of the economic and housing market slowdown – reduced affordability and low housing transactions are feeding through to lower sales of new CI policies.

  • In decline – even before the credit crisis, the market was suffering from falling demand, negative public perception and a loss of consumer confidence.

  • Claims payouts – claims costs are rising as payout levels increase, following new ABI guidelines. The industry has moved towards proportionate/partial claim payouts in accidental cases of non-disclosure.

  • Improving product/industry image – the new approach to claims is part of a concerted effort by the industry to improve its image, enhance the product’s appeal and win back trust.

  • Product development – although the CI market has not been particularly progressive historically, there have been some notable industry initiatives and product innovations over the past year. Could the market be about to turn a corner? Or will recession delay its revival?

  • Competition – as the pool of new customers shrinks, competition has intensified. Providers are seeking to get ahead by differentiating on price, service and level and flexibility of cover.

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Table of contents

  1. Issues in the Market

      • Mintel asks…
        • Issues explored
          • Market definitions
            • Abbreviations
            • Future Opportunities

              • Some cover is better than no cover
                • Customise this!
                  • Seeking security in uncertain times
                    • Holism and the complete protection solution
                      • Trust and transparency
                      • Market in Brief

                        • New business volumes continue to decline
                          • Figure 1: Volume and value of new individual CI sales, 2003-08
                        • Mortgage-related sector hit by housing market slowdown
                          • Market outlook: it’ll get worse before it gets better
                            • Economic factors weigh heavily
                              • Most CI claims are for cancer or heart-related illness
                                • Recent industry developments
                                  • New innovations cause some excitement
                                    • Market leaders…
                                        • Figure 2: Market shares of the top five CI providers, based on volume sales, 2007
                                      • …and market movers
                                        • Intermediaries are responsible for the vast majority of CI sales
                                          • CI market penetration remains steady
                                            • Figure 3: Ownership of CI cover and other related products, November 2008
                                          • Policyholder experience
                                            • Market barriers
                                              • General attitudes towards protection insurance
                                              • Broader Market Environment

                                                • Key points
                                                  • Economic downturn: implications for the protection insurance industry
                                                    • Property slump hits CI sales
                                                      • Figure 4: Number of UK residential property transactions with a value of £40,000 upwards – seasonally adjusted, 2005-08 (quartlerly)
                                                    • Volume of new mortgage sales halved in 2008
                                                      • Figure 5: Number of loans for house purchase, by type of borrower, 2000-08
                                                    • Implications for the CI market
                                                      • Falling house prices are likely to lead to lower sums assured
                                                        • Figure 6: Average sum assured for all new individual CI policies, 2000-08
                                                    • Social Trends and Lifestyle Factors

                                                      • Key points
                                                        • Living longer but not necessarily healthy lives
                                                          • Figure 7: Cohort life-expectancy at age 30, by gender, 1981-2056
                                                        • Implications for CI providers
                                                          • Core conditions covered by CI
                                                            • Lifestyle factors
                                                              • Pricing for risk
                                                                • The top killer conditions
                                                                  • Cancer risk increases with age
                                                                    • Figure 8: Age-specific incidence of all cancers, by gender – UK, 2003
                                                                  • Implications
                                                                    • Skin cancer on the rise
                                                                      • Smoking continues to lose appeal…
                                                                        • Figure 9: Prevalence of cigarette smoking among GB adults aged 16+, by gender, 1974-2006
                                                                      • Implications
                                                                        • …but obesity is on the rise…
                                                                          • Figure 10: Number of obese men and women – England, 2003 and 2010
                                                                        • Implications
                                                                          • …and a significant minority of adults regularly exceed recommended alcohol limits
                                                                            • Figure 11: GB adults exceeding specified levels of alcohol*, by gender and age, 2005
                                                                          • Implications
                                                                          • Internal Market Environment

                                                                            • Key points
                                                                              • Recent regulatory milestones
                                                                                • Industry-led initiatives
                                                                                  • Answering the critics with a new approach to claims
                                                                                    • Rising cost of claims
                                                                                      • Figure 12: Total CI claims paid and proportion of successful claims, by top five providers, 2006 and 2007
                                                                                    • Fall in proportion of declined claims due to non-disclosure
                                                                                      • Figure 13: Proportion of CI claims declined due to non-disclosure, by top five providers, 2006 and 2007
                                                                                    • Implication and opportunity
                                                                                      • Cancer is top reason for a CI claim
                                                                                        • Figure 14: CI claims segmented by cause and supplementary data, by top five providers, 2007 (unless specified)
                                                                                    • Competitive Context

                                                                                      • Key points
                                                                                        • Related products
                                                                                          • Figure 15: Number of individual protection policies in force, by type, 2003-07
                                                                                        • CI versus IP
                                                                                          • Combined solutions
                                                                                            • Disease-specific cover
                                                                                              • The life assurance and income protection gaps
                                                                                              • Strengths and Weaknesses in the Market

                                                                                                • Combating criticism to rebuild confidence in the product
                                                                                                  • Figure 16: Critical illness insurance market – strengths, weaknesses, opportunities and threats, 2009
                                                                                              • Who’s Innovating?

                                                                                                • Key points
                                                                                                  • Improvements made to the application process and claims handling
                                                                                                    • Changes to increase product flexibility
                                                                                                      • The numbers game
                                                                                                        • The ‘all-in-one’ plan from Fortis and LifeSearch
                                                                                                        • Trade Perspective

                                                                                                            • About the respondents
                                                                                                              • Cost is a factor behind the fall in demand for CI
                                                                                                                • Big improvements made to claims handling and tele-underwriting
                                                                                                                  • Extending cover and exploring untapped markets
                                                                                                                    • Tough times ahead, but providers remain optimistic
                                                                                                                      • Striking the right balance
                                                                                                                      • Market Size and Forecast

                                                                                                                        • Key points
                                                                                                                          • Data sources
                                                                                                                            • Negative perceptions drive down demand for CI
                                                                                                                              • Figure 17: Volume of new individual CI sales, by source, 2003-07
                                                                                                                            • Slump in housing market further undermines demand for CI
                                                                                                                              • Figure 18: New individual CI sales, by volume and value, 2003-08
                                                                                                                            • Mintel expects the market to begin a recovery from 2011
                                                                                                                              • Figure 19: Forecast of new individual CI sales, by volume and value, 2008-13
                                                                                                                            • Implication and opportunity
                                                                                                                              • Factors incorporated
                                                                                                                              • Segment Performance

                                                                                                                                • Key points
                                                                                                                                  • Most CI is sold with other insurance
                                                                                                                                    • Figure 20: New individual CI sales, by type, by volume and value, 2003-08
                                                                                                                                  • Non-mortgage-linked business rebounded in 2008
                                                                                                                                    • Figure 21: New individual CI rider benefit sales, by volume and value and type of insurance, 2003-08
                                                                                                                                  • Mortgage-related CI sees share of sales slip to 50%
                                                                                                                                    • Figure 22: Mortgage-related CI sales as a proportion of total new individual CI sales, 2003-08
                                                                                                                                  • Group CI – a small market in comparison
                                                                                                                                    • Figure 23: Volume and value of new group CI sales, 2003-07
                                                                                                                                • Market Share

                                                                                                                                  • Key points
                                                                                                                                    • Legal & General is still number one
                                                                                                                                      • Figure 24: Top five product providers, by volume of new individual CI sales, 2005-07
                                                                                                                                    • Legal & General strengthens its leader position
                                                                                                                                      • Figure 25: Illustration of top five product providers’ market shares, 2005-07
                                                                                                                                    • Who’s in and who’s out?
                                                                                                                                      • AIG topped the ABI life rankings in 2007…
                                                                                                                                        • Figure 26: UK life business rankings, by gross premiums, 2006 and 2007
                                                                                                                                      • Credit crisis impact
                                                                                                                                        • …and Unum moves into first position in the protection business sector
                                                                                                                                          • Figure 27: UK protection business rankings, by gross premiums, 2006 and 2007
                                                                                                                                      • Companies and Products

                                                                                                                                          • Legal & General
                                                                                                                                            • Resolution, Scottish Provident and Royal London
                                                                                                                                              • Norwich Union
                                                                                                                                                • Friends Provident
                                                                                                                                                  • Scottish Widows
                                                                                                                                                  • Brand Communication and Promotion

                                                                                                                                                    • Key points
                                                                                                                                                      • Limited advertising activity
                                                                                                                                                        • Figure 28: Total advertising expenditure on life protection products, by sector, 2006-08
                                                                                                                                                      • Norwich Union is the top advertiser of life protection products
                                                                                                                                                        • Figure 29: Top ten advertisers of life assurance products, 2006-08
                                                                                                                                                      • Direct mail accounts for the largest proportion of adspend
                                                                                                                                                        • Figure 30: Segmentation of adspend on life assurance products, by media type, 2007/08
                                                                                                                                                    • Channels to Market

                                                                                                                                                      • Key points
                                                                                                                                                        • IFAs increase their share of the CI rider market…
                                                                                                                                                            • Figure 31: Distribution of new individual CI rider benefit premiums, by channel, 2005-08
                                                                                                                                                          • …and remain the dominant channel in the standalone CI sector
                                                                                                                                                            • Figure 32: Distribution of new individual standalone CI premiums, by channel, 2005-08
                                                                                                                                                          • Implications and opportunity: IFAs working with providers
                                                                                                                                                          • The Consumer – Product Penetration

                                                                                                                                                            • Key points
                                                                                                                                                              • About Mintel’s consumer survey
                                                                                                                                                                • The presence of a mortgage and children ups the attraction of having CI
                                                                                                                                                                    • Figure 33: Ownership of CI cover and other related products, by all adults, mortgage holders and family lifestage group, November 2008
                                                                                                                                                                  • Some confusion over ownership protection products
                                                                                                                                                                    • Stable CI take-up
                                                                                                                                                                      • Figure 34: Ownership of MPPI, CI cover and IP, 2004-08
                                                                                                                                                                    • More than a fifth of ABs have CI
                                                                                                                                                                      • Figure 35: Ownership of CI cover and other related products, by gender and socio-economic group, November 2008
                                                                                                                                                                    • Implications
                                                                                                                                                                      • CI ownership is highest among the 35-44 age band
                                                                                                                                                                        • Figure 36: Ownership of CI cover and other related products, by age, November 2008
                                                                                                                                                                      • Penetration peaks around age 40, then rapidly falls
                                                                                                                                                                        • Figure 37: Illustration of product penetration, by age, November 2008
                                                                                                                                                                      • Implication and opportunity
                                                                                                                                                                        • Higher earners aged 25-44 represent the main target audience for CI
                                                                                                                                                                          • Figure 38: Target groups identified for the CI and protection insurance market, November 2008
                                                                                                                                                                        • Product crossover
                                                                                                                                                                          • Figure 39: Ownership of CI cover and other related products – cross-analysis, November 2008
                                                                                                                                                                        • One in 12 adults are ‘Fully Protected’
                                                                                                                                                                            • Figure 40: Ownership of protection product combinations, by demographic sub-group, November 2008
                                                                                                                                                                          • Implication and opportunity
                                                                                                                                                                          • The Consumer – Experience of Arranging Cover

                                                                                                                                                                            • Key points
                                                                                                                                                                              • Low response rates suggest a fair amount of customer apathy
                                                                                                                                                                                  • Figure 41: Experiences of arranged CI cover, by gender, November 2008
                                                                                                                                                                                • The over-45s more likely to have a standalone policy than the under-45s
                                                                                                                                                                                  • Figure 42: Experiences of arranged CI cover, by age and socio-economic group, November 2008
                                                                                                                                                                              • The Consumer – Take-up Barriers

                                                                                                                                                                                • Key points
                                                                                                                                                                                  • Combating CAT
                                                                                                                                                                                      • Figure 43: Top ten reasons for not having CI cover, November 2008
                                                                                                                                                                                    • Implication and opportunity
                                                                                                                                                                                      • Good scope to target more ABC1s
                                                                                                                                                                                        • Figure 44: Reasons for not having CI cover, by gender and socio-economic group, November 2008
                                                                                                                                                                                      • Invest in the young, invest in the future
                                                                                                                                                                                        • Figure 45: Reasons for not having CI cover, by age, November 2008
                                                                                                                                                                                    • The Consumer – Attitudes Towards Protection Insurance

                                                                                                                                                                                      • Key points
                                                                                                                                                                                        • Families want protection at the right price
                                                                                                                                                                                            • Figure 46: Agreement with statements about CI and related insurance, by all adults, mortgage holders and family lifestage group, November 2008
                                                                                                                                                                                          • A hierarchy of cover
                                                                                                                                                                                            • Scaling benefits
                                                                                                                                                                                              • Packaged solutions
                                                                                                                                                                                                • Having CI gives people ‘peace of mind’
                                                                                                                                                                                                  • Figure 47: Agreement with statements about CI and related insurance, by type of insurance held, November 2008
                                                                                                                                                                                                • ABs are keenest on protection insurance…
                                                                                                                                                                                                  • Figure 48: Agreement with statements about CI and related insurance, by gender and socio-economic group, November 2008
                                                                                                                                                                                                • …as are those aged 35-54
                                                                                                                                                                                                  • Figure 49: Agreement with statements about CI and related insurance, by age, November 2008
                                                                                                                                                                                                • Further analysis
                                                                                                                                                                                                • Appendix 1: Segmental Analysis of Product Ownership

                                                                                                                                                                                                    • Figure 50: Product ownership, by demographic sub-group – part 1, November 2008
                                                                                                                                                                                                    • Figure 51: Product ownership, by demographic sub-group – part 2, November 2008
                                                                                                                                                                                                • Appendix 2: Product Profile

                                                                                                                                                                                                    • Figure 52: Profile of CI policyholders versus total sample, by demographic sub-group – part 1, November 2008
                                                                                                                                                                                                    • Figure 53: Profile of CI policyholders versus total sample, by demographic sub-group – part 2, November 2008

                                                                                                                                                                                                Companies Covered

                                                                                                                                                                                                • Abbey
                                                                                                                                                                                                • Aegon UK
                                                                                                                                                                                                • AIG Europe, SA
                                                                                                                                                                                                • Asda Group Ltd
                                                                                                                                                                                                • Association of British Insurers
                                                                                                                                                                                                • Automobile Association (AA)
                                                                                                                                                                                                • Aviva Plc
                                                                                                                                                                                                • AXA Sun Life
                                                                                                                                                                                                • Bright Grey
                                                                                                                                                                                                • Britannic Group Plc
                                                                                                                                                                                                • British Chamber of Commerce
                                                                                                                                                                                                • BUPA
                                                                                                                                                                                                • CACI Limited
                                                                                                                                                                                                • Canada Life Limited
                                                                                                                                                                                                • Cancer Research UK
                                                                                                                                                                                                • Cardif Pinnacle
                                                                                                                                                                                                • Century Life Assurance Company
                                                                                                                                                                                                • Clerical Medical Investment Group Ltd
                                                                                                                                                                                                • Co-operative Group
                                                                                                                                                                                                • Co-operative Insurance Society Ltd
                                                                                                                                                                                                • Council of Mortgage Lenders
                                                                                                                                                                                                • Department of Health
                                                                                                                                                                                                • Direct Line Group Limited
                                                                                                                                                                                                • Financial Ombudsman Service
                                                                                                                                                                                                • Financial Services Authority (The)
                                                                                                                                                                                                • First Direct
                                                                                                                                                                                                • Fortis Insurance Limited
                                                                                                                                                                                                • Friends Provident plc
                                                                                                                                                                                                • GE Financial Insurance (UK)
                                                                                                                                                                                                • Gfk NOP
                                                                                                                                                                                                • Government Actuary's Department (GAD)
                                                                                                                                                                                                • HBOS plc (Halifax Bank of Scotland)
                                                                                                                                                                                                • HHG
                                                                                                                                                                                                • HSBC Private Bank (UK) Limited
                                                                                                                                                                                                • J. Sainsbury
                                                                                                                                                                                                • Just Retirement Ltd
                                                                                                                                                                                                • Legal & General Assurance Society Limited
                                                                                                                                                                                                • Lloyds Banking Group
                                                                                                                                                                                                • LV=
                                                                                                                                                                                                • Market & Opinion Research International (MORI)
                                                                                                                                                                                                • Marks & Spencer
                                                                                                                                                                                                • MORE TH>N
                                                                                                                                                                                                • Munich Re Group
                                                                                                                                                                                                • Nationwide Building Society
                                                                                                                                                                                                • Norwich Union
                                                                                                                                                                                                • Old Mutual plc
                                                                                                                                                                                                • Pearl Assurance plc
                                                                                                                                                                                                • Pearl Group Limited
                                                                                                                                                                                                • Phoenix Equity Partners
                                                                                                                                                                                                • Post Office Limited
                                                                                                                                                                                                • Prudential plc
                                                                                                                                                                                                • Resolution plc
                                                                                                                                                                                                • Royal Bank of Scotland Group plc
                                                                                                                                                                                                • Royal London Group
                                                                                                                                                                                                • RSA
                                                                                                                                                                                                • Scottish Equitable
                                                                                                                                                                                                • Scottish Life
                                                                                                                                                                                                • Scottish Provident
                                                                                                                                                                                                • Scottish Widows Bank plc
                                                                                                                                                                                                • Skandia UK
                                                                                                                                                                                                • Somerfield
                                                                                                                                                                                                • St Andrew's Group
                                                                                                                                                                                                • Standard Life Assurance Company
                                                                                                                                                                                                • Swiss Re
                                                                                                                                                                                                • Tesco Personal Finance Limited
                                                                                                                                                                                                • Tesco Plc
                                                                                                                                                                                                • The Hartford Financial Services Group, Inc.
                                                                                                                                                                                                • Unum Provident
                                                                                                                                                                                                • Waitrose
                                                                                                                                                                                                • Wesleyan Assurance Society
                                                                                                                                                                                                • Windsor Life Assurance Co Ltd
                                                                                                                                                                                                • Winterthur Life UK Limited
                                                                                                                                                                                                • Wm Morrison Supermarkets
                                                                                                                                                                                                • Zurich Financial Services

                                                                                                                                                                                                Critical Illness Cover - UK - February 2009

                                                                                                                                                                                                US $2,478.79 (Excl.Tax)