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Critical Illness Cover - UK - June 2013

“Insurers need to address issues of trust in the critical illness market, but perhaps more importantly they need to convince people of the value of the product. At the moment far too many see critical illness as a nice-to-have product. This is despite dwindling state support and statistics that suggest people are underestimating the chances of suffering from a critical illness.”

– Stephanie Absolom – Financial Services Analyst

Some questions answered in this report include:

  • What can the protection industry learn from other financial markets?
  • How can insurers gain consumer trust?
  • Do people understand the value of CI cover?
  • To what extent do people expect to rely on state support?
  • How will expanding the RDR to include protection products impact the CI market?

 

Critical illness cover, like other protection products, has suffered during the financial downturn. Pressure on consumer budgets as well as a slowdown in the housing market in recent years has made it challenging for advisers to sell.

The future, however, looks brighter for insurers. A small decrease in premiums in 2012 was countered with an increase in the number of contracts sold. This suggests that the industry is responding to consumer concerns and selling a greater number of policies at a lower cost. Continued economic improvement as well as government support for first-time buyers and the property market in general should give a much-needed boost to the critical illness cover market and allow for both policy and premium growth over the next five years.

This report offers an overview of the critical illness market and examines the key market drivers. Significant market players and their market share are discussed and strengths and weaknesses in the market are considered. The size and growth potential of the critical illness cover market is also examined. Ownership of critical illness cover, as well as reasons for and obstacles to product purchase, are discussed. General attitudes towards the product and means of increasing ownership are also covered.

 DEFINITION

Critical illness cover – a long-term policy designed to pay a lump sum to the policyholder on the diagnosis of certain life-threatening but not necessarily fatal conditions such as heart attack, stroke, certain cancers, multiple sclerosis, loss of limbs, etc. It can be bought on its own (ie as a standalone policy) or as an addition (ie as a ‘rider benefit’) to other types of insurance, notably term assurance, whole life and endowment.

 

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Table of contents

  1. Introduction

      • Abbreviations
        • Definitions
        • Executive Summary

            • The market
              • Value of critical illness premiums expected to grow
                • Figure 1: Forecast of total new individual critical illness premiums, at current prices, 2007-17
              • The invaluable role of the intermediary in CI distribution
                • Market factors
                  • Standardisation in claims reporting could help to increase consumer confidence
                    • Income remains squeezed which is bad news for critical illness cover providers
                      • Figure 2: Percentage change in RPI and average weekly earnings (regular pay only), January 2008-March 2013
                    • Cancer is the main reason for a critical illness claim
                      • Encouraging signs in the mortgage market should boost CI sales
                        • Average CI sum insured rises with average FTB advance
                          • Welfare reforms will pique interest in protection products
                            • Impact of the RDR not yet clear
                              • Impact of gender equalisation could result in premium increases
                                • Consumer Insurance Act aims to build consumer confidence
                                  • Companies, products and innovations
                                    • Top five providers accounted for 78% of the market in 2012
                                      • Figure 3: Market share of the top five providers of new individual critical illness cover, based on volume sales, 2012
                                    • Bright Grey announced £200 million critical illness cover giveaway
                                      • Skandia re-enters critical illness market with an RDR world-ready product
                                        • L&G extends children’s CI cover
                                          • LV= extends its critical illness cover
                                            • The consumer
                                              • Some 11% of people have critical illness cover in place
                                                • Figure 4: Protection product ownership, March 2013
                                              • Financial peace of mind at a difficult time drives product ownership
                                                • Figure 5: Reasons for purchasing, March 2013
                                              • Consumers want to do their own research, but still value independent advice
                                                • Figure 6: Purchasing considerations, March 2013
                                              • Costly premiums are the main barrier to critical illness ownership
                                                • Figure 7: Reasons for not owning critical illness cover, March 2013
                                              • Financial incentives would motivate consumers to purchase CI cover
                                                • Figure 8: Factors which would encourage purchase, March 2013
                                              • Critical illness cover suffers from negative consumer attitudes
                                                • Figure 9: Views about critical illness cover, March 2013
                                              • What we think
                                              • Issues in the Market

                                                  • What can the protection industry learn from other financial markets?
                                                    • How can insurers gain consumer trust?
                                                      • Do people understand the value of CI cover?
                                                        • To what extent do people expect to rely on state support?
                                                          • How will expanding the RDR to include protection products impact the CI market?
                                                          • Trend Application

                                                            • Insurers could help consumers to improve their health
                                                              • Consumers aren’t opposed to an open dialogue about sensitive subjects
                                                                • The human touch is needed in the protection industry
                                                                • Market Drivers

                                                                  • Key points
                                                                    • Claims data tell a positive story but can they be trusted?
                                                                      • Squeeze on income sees non-essential products fall down priority list
                                                                        • Figure 10: Percentage change in RPI and average weekly earnings (regular pay only), January 2008-March 2013
                                                                      • Cancer is the main reason for a critical illness claim
                                                                        • An improvement in the mortgage market is good news for CI cover
                                                                          • Figure 11: Number of loans for house purchase, by type of borrower, 2008-12
                                                                        • Average sums insured tied to first-time buyer advances
                                                                          • Figure 12: Average sum insured for new critical illness cover policies versus average first-time buyer advance, 2005-12
                                                                        • Welfare reforms set to shake up the protection industry
                                                                          • Still early days to understand the impact of the RDR
                                                                            • Impact of gender equalisation could result in premium increases
                                                                              • Consumer Insurance Act aims to build consumer confidence
                                                                              • Competitor Products

                                                                                • Key points
                                                                                  • Other protection products dominate the industry
                                                                                    • Figure 13: Number of individual protection policies in force, by type, 2011
                                                                                  • Mortgage and protection term sales include significant CI component
                                                                                    • Figure 14: Critical illness rider benefits as a proportion of new individual term assurance business, 2008-12
                                                                                • SWOT Analysis

                                                                                    • Figure 15: SWOT analysis for the critical illness market, 2013
                                                                                • Who’s Innovating?

                                                                                  • Key points
                                                                                    • Bright Grey announced £200 million critical illness cover giveaway
                                                                                      • Skandia re-enters critical illness market with an RDR world-ready product
                                                                                        • L&G extends children’s CI cover
                                                                                          • LV= extends its critical illness cover
                                                                                          • Market Size and Forecast

                                                                                            • Key points
                                                                                              • Growth in critical illness cover sales slows
                                                                                                • Figure 16: New individual critical illness sales and average annual premium, 2008-12
                                                                                              • Most critical illness cover policies are sold as rider benefits
                                                                                                • Figure 17: New individual critical illness sales – rider benefit versus standalone policies, 2008-12
                                                                                              • Overall drop in volume and value of in-force standalone CI business
                                                                                                • Figure 18: In-force standalone critical illness policies, by volume and value, 2007-11
                                                                                              • Group critical illness cover is a comparatively small market
                                                                                                • Figure 19: Volume and value of new group critical illness sales, 2008-12
                                                                                              • Improving economy will support premium growth
                                                                                                • Figure 20: Forecast of total new individual critical illness premiums, at current prices, 2007-17
                                                                                                • Figure 21: Forecast of total new individual critical illness premiums, at current prices, 2007-17
                                                                                              • More affordable policies will boost sales
                                                                                                • Figure 22: Forecast of total new individual critical illness policies, at current prices, 2007-17
                                                                                                • Figure 23: Forecast of total new individual critical illness policies, at current prices, 2007-17
                                                                                              • Forecast methodology
                                                                                              • Market Share

                                                                                                • Key points
                                                                                                  • Top five providers accounted for 78% of the market in 2012
                                                                                                    • Figure 24: Market share of the top five providers of new individual critical illness cover, based on volume sales, 2010-12
                                                                                                  • Legal & General is the largest critical illness cover provider
                                                                                                  • Companies and Products

                                                                                                    • Aviva
                                                                                                      • Legal & General
                                                                                                          • Figure 25: Key financial data for Legal & General (housing and protection business segment), 2011 and 2012
                                                                                                        • Royal London Group
                                                                                                          • Scottish Widows
                                                                                                            • Friends Life
                                                                                                                • Figure 26: Key financial data for Friends Life, 2011 and 2012
                                                                                                              • LV=
                                                                                                              • Brand Communication and Promotion

                                                                                                                • Key points
                                                                                                                  • Critical illness advertising receives a big cash injection…
                                                                                                                    • Figure 27: Total advertising expenditure on protection products, by product category, 2011-13
                                                                                                                  • …but is mainly directed towards cancer cover products
                                                                                                                    • Not much is spent on critical illness cover advertising
                                                                                                                      • Figure 28: Top four advertisers of critical illness products, 2011-13
                                                                                                                  • Channels to Market

                                                                                                                    • Key points
                                                                                                                      • Intermediaries operating in the critical illness cover market
                                                                                                                        • IFAs see their share of critical illness rider benefit distribution increase in 2012
                                                                                                                          • Figure 29: Distribution of new individual critical illness rider benefit premiums, by channel, 2009-12
                                                                                                                        • Standalone critical illness cover distribution is also dominated by IFAs
                                                                                                                          • Figure 30: Distribution of new individual standalone CI premiums, by channel, 2009-12
                                                                                                                      • Protection Product Ownership

                                                                                                                        • Key points
                                                                                                                          • Just over one in ten have critical illness cover…
                                                                                                                            • Figure 31: Protection product ownership, March 2013
                                                                                                                          • …but only a third of people aren’t concerned about their health
                                                                                                                            • Figure 32: Concerns around inability to work due to health reasons, March 2013
                                                                                                                          • Critical illness cover ownership higher with big earners
                                                                                                                            • Figure 33: Protection product ownership, by gross annual household income, March 2013
                                                                                                                          • Mortgage holders are more likely to have critical illness cover
                                                                                                                            • Figure 34: Protection product ownership, by housing situation, March 2013
                                                                                                                        • Critical Illness Cover Purchase Triggers

                                                                                                                          • Key points
                                                                                                                            • Financial peace of mind is the main driver for critical illness purchase
                                                                                                                              • Figure 35: Reasons for purchasing, March 2013
                                                                                                                          • Critical Illness Cover Purchasing Behaviour

                                                                                                                            • Key points
                                                                                                                              • Consumers want comparison sites, research and advice when buying CI
                                                                                                                                • Figure 36: Purchasing considerations, March 2013
                                                                                                                            • Barriers to Critical Illness Cover Ownership

                                                                                                                              • Key points
                                                                                                                                • Expensive and untrustworthy – the consumer view of critical illness cover
                                                                                                                                  • Figure 37: Reasons for not owning critical illness cover, March 2013
                                                                                                                                • 45-54-year-olds are most distrustful of insurers
                                                                                                                                  • Figure 38: Most popular reasons for not owning critical illness cover, by age, March 2013
                                                                                                                                • Distrustful consumers look for the cheapest deal
                                                                                                                                  • Figure 39: Purchasing conditions, by most popular reasons for not owning critical illness cover, March 2013
                                                                                                                              • Increasing the Appeal of Critical Illness Cover

                                                                                                                                • Key points
                                                                                                                                  • Cash incentives, not claims rates will get people interested in critical illness
                                                                                                                                    • Figure 40: Factors which would encourage purchase, March 2013
                                                                                                                                  • Reassurance about the level of protection could be bolstered by independent research
                                                                                                                                    • Figure 41: Purchasing conditions, by most popular factors which would encourage purchase, March 2013
                                                                                                                                  • Distrustful consumers want to understand more about claims rates
                                                                                                                                    • Figure 42: Factors which would encourage purchase, by most popular reasons for not owning critical illness cover, March 2013
                                                                                                                                • Attitudes Towards Critical Illness Cover

                                                                                                                                  • Key points
                                                                                                                                    • Negative consumer perceptions of critical illness are damaging
                                                                                                                                      • Figure 43: Views about critical illness cover, March 2013
                                                                                                                                    • Understanding negative views is the way to overcome them
                                                                                                                                      • Figure 44: Views about critical illness cover, by most popular reasons for not owning critical illness cover, March 2013
                                                                                                                                    • CI cover expense can be mitigated by offering financial incentives
                                                                                                                                      • Figure 45: Views about critical illness cover, by most popular factors which would encourage purchase, March 2013
                                                                                                                                  • Appendix – Market Size

                                                                                                                                      • Figure 46: Forecast of total new individual critical illness premiums, at current prices, 2012-17
                                                                                                                                      • Figure 47: Forecast of total new individual critical illness policies, at current prices, 2012-17
                                                                                                                                  • Appendix – Protection Product Ownership

                                                                                                                                      • Figure 48: Most popular protection product ownership, by demographics, March 2013
                                                                                                                                      • Figure 49: Next most popular protection product ownership, by demographics, March 2013
                                                                                                                                      • Figure 50: Level of savings and investments, by demographics, March 2013
                                                                                                                                      • Figure 51: Next most popular savings levels, by demographics, March 2013
                                                                                                                                  • Appendix – Critical Illness Cover Purchasing Behaviour

                                                                                                                                      • Figure 52: Purchasing considerations, by demographics, March 2013
                                                                                                                                  • Appendix – Barriers to Critical Illness Cover Ownership

                                                                                                                                      • Figure 53: Most popular reasons for not owning critical illness cover, by demographics, March 2013
                                                                                                                                      • Figure 54: Next most popular reasons for not owning critical illness cover, by demographics, March 2013
                                                                                                                                  • Appendix – Increasing the Appeal of Critical Illness Cover

                                                                                                                                      • Figure 55: Most popular factors which would encourage purchase, by demographics, March 2013
                                                                                                                                      • Figure 56: Next most popular factors which would encourage purchase, by demographics, March 2013
                                                                                                                                  • Appendix – Attitudes Towards Critical Illness Cover

                                                                                                                                      • Figure 57: Views about critical illness cover, by demographics, March 2013

                                                                                                                                  Companies Covered

                                                                                                                                  • Aviva Plc
                                                                                                                                  • AXA UK plc
                                                                                                                                  • Barclays Bank plc
                                                                                                                                  • Bright Grey
                                                                                                                                  • BUPA
                                                                                                                                  • Friends Provident plc
                                                                                                                                  • Grupo Santander UK
                                                                                                                                  • Legal & General Group PLC
                                                                                                                                  • Lloyds Banking Group
                                                                                                                                  • Lloyds TSB Insurance
                                                                                                                                  • LV=
                                                                                                                                  • Nationwide Building Society
                                                                                                                                  • Scottish Life
                                                                                                                                  • Scottish Provident
                                                                                                                                  • Scottish Widows Bank plc
                                                                                                                                  • Sesame Bankhall Group Limited
                                                                                                                                  • Tesco Personal Finance Limited

                                                                                                                                  Critical Illness Cover - UK - June 2013

                                                                                                                                  £1,995.00 (Excl.Tax)