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Critical Illness Cover - UK - June 2014

“Insurers rely on advisers and the business they bring in, but should be more open minded to the possibility of growth in non-advised sales. By making policies simpler and online services easier to use, providers could tap into a group of consumers with day-to-day need for protection but no need to visit an adviser.”

                                                              –    Rich Shepherd, Research Analyst – Financial Services

This report looks at the following issues:

  • Smaller, more niche products could see growth
  • Improving direct channels can open policies to a new demographic
  • Insurers should be frank about the effects of serious illness

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Table of contents

  1. Introduction

      • Definition
        • Abbreviations
        • Executive Summary

            • The market
              • Critical illness cover market expected to recover from recent drop
                • Figure 1: Forecast of value of critical illness cover policy sales (stand-alone and rider benefit), 2009-19
              • Falling prices are restricting value of new sales
                • Stand-alone critical illness cover is a tiny part of the protection industry
                  • Figure 2: Proportion of sales volumes in protection industry, by product type, 2013
                • Market factors
                  • Household finances are starting to improve but are still squeezed by inflation
                    • Growth in mortgage lending should mean growth in critical illness cover
                      • Figure 3: Total quarterly gross secured lending, March 2009-March2014
                    • Companies, products and innovations
                      • Legal & General is the market leader
                        • Figure 4: Market share of the top five providers of new individual critical illness cover, based on sales volume, 2013
                      • LV= has the most enhanced policy
                        • Additional conditions added by more providers
                          • Aviva educates advisers
                            • The consumer
                              • Critical illness cover is held by 11% of consumers
                                • Figure 5: Protection and insurance product ownership, April 2014
                              • Most people have concerns about the effect of ill health on their finances
                                • Figure 6: Attitudes towards sickness and income, April 2014
                              • The majority wouldn’t be able to cope for more than a year if unable to work due to ill health
                                • Figure 7: Level of financial security – coping with an extended period of ill health, April 2014
                              • Nearly half of non-policyholders think critical illness cover is too expensive
                                • Figure 8: Barriers to ownership of critical illness cover, April 2014
                              • Three quarters are unwilling to pay more than £15 per month for cover
                                • Figure 9: Willingness to pay for critical illness cover, April 2014
                              • Interest in buying a policy next year is high
                                • Figure 10: Attitudes towards critical illness cover, April 2014
                              • What we think
                              • Issues and Insights

                                  • Smaller, more niche products could see growth
                                    • The facts
                                      • The implications
                                        • Improving direct channels can open policies to a new demographic
                                          • The facts
                                            • The implications
                                              • Insurers should be frank about the effects of serious illness
                                                • The facts
                                                  • The implications
                                                  • Trend Application

                                                    • Show the value, not the cost
                                                      • Claims statistics can help overcome trust issues
                                                        • Consumers want online information
                                                        • Market Drivers

                                                          • Key points
                                                            • Household incomes remain squeezed by low wage rises
                                                              • Figure 11: Annual change in average weekly earnings, CPI and RPI, March 2009-April 2014
                                                            • Increased mortgage lending helps insurers, but the MMR is a threat
                                                              • Figure 12: Total quarterly gross secured lending, March 2009-March2014
                                                            • There are more first-time buyers
                                                              • Figure 13: Volume of mortgage loans issued for house purchasing, by customer type, 2009-13
                                                            • Cancer is the biggest killer in the UK, but progress is being made
                                                              • Successful claims are on the rise
                                                                • Regulatory changes have challenged the market
                                                                • Competitor Products

                                                                  • Key points
                                                                    • Strong competition from other protection products
                                                                      • Figure 14: Proportion of volume of sales in protection industry, by product type, 2013
                                                                    • Rider benefits are increasing in popularity
                                                                      • Figure 15: Proportion of term assurance policies with critical illness rider benefits, 2009-13
                                                                    • Critical illness cover is much more popular than income protection
                                                                      • Figure 16: Volume of policy sales of critical illness rider benefit, income protection and stand-alone critical illness cover, 2014
                                                                  • Market SWOT Analysis

                                                                      • Figure 17: Critical illness cover market SWOT analysis, May 2014
                                                                  • Who’s Innovating?

                                                                    • Key points
                                                                      • Aviva highlights the benefits of cover with videos for advisers
                                                                        • LV= launch enhanced payment feature
                                                                          • Aviva has a new specialist high-value team
                                                                            • Enhancements to critical illness cover across the market
                                                                              • Growth in additional conditions
                                                                                • Aviva provides more education for advisers
                                                                                • Market Size and Forecast

                                                                                  • Key points
                                                                                    • Critical illness sales fell sharply in 2013
                                                                                      • Figure 18: New individual critical illness sales and average annual premium, 2009-13
                                                                                    • Policies are almost always sold as rider benefits
                                                                                      • Figure 19: New individual critical illness sales – rider benefit versus stand-alone policies, 2009-13
                                                                                    • Market forecast
                                                                                      • Volume of sales expected to grow by almost a fifth in five years
                                                                                        • Figure 20: Forecast of volume of critical illness cover policy sales (stand-alone and rider benefit), 2009-19
                                                                                        • Figure 21: Forecast of volume of critical illness cover policy sales (stand-alone and rider benefit), 2009-19
                                                                                      • Falling prices to stifle growth in market value
                                                                                        • Figure 22: Forecast of value of critical illness cover policy sales (stand-alone and rider benefit), 2009-19
                                                                                        • Figure 23: Forecast of value of critical illness cover policy sales (stand-alone and rider benefit), 2009-19
                                                                                      • Forecast methodology
                                                                                        • Fan chart explanation
                                                                                        • Market Share

                                                                                          • Key points
                                                                                            • Major insurers dominate the market
                                                                                              • Figure 24: Market share of the top five providers of new individual critical illness cover, based on sales volume, 2011-13
                                                                                            • Legal & General is the market leader
                                                                                            • Companies and Products

                                                                                              • Aviva
                                                                                                • Description
                                                                                                  • Critical illness product range
                                                                                                    • Financial performance
                                                                                                      • Recent activity
                                                                                                        • Friends Life
                                                                                                          • Description
                                                                                                            • Critical illness product range
                                                                                                              • Financial performance
                                                                                                                • Recent activity
                                                                                                                  • Legal & General
                                                                                                                    • Description
                                                                                                                      • Critical illness product range
                                                                                                                        • Financial performance
                                                                                                                          • Recent activity
                                                                                                                            • Royal London Group
                                                                                                                              • Description
                                                                                                                                • Critical illness product range
                                                                                                                                  • Financial performance
                                                                                                                                    • Recent activity
                                                                                                                                      • Scottish Widows
                                                                                                                                        • Description
                                                                                                                                          • Critical illness product range
                                                                                                                                            • Financial performance
                                                                                                                                              • Recent activity
                                                                                                                                                • Other notable players in the market
                                                                                                                                                  • LV=
                                                                                                                                                    • PruProtect
                                                                                                                                                      • AIG Direct
                                                                                                                                                      • Brand Communication and Promotion

                                                                                                                                                        • Key points
                                                                                                                                                          • AIG is the top spending advertiser in the sector
                                                                                                                                                            • Figure 25: Top-spending advertisers of critical illness cover, 2012-13
                                                                                                                                                          • Legal & General spent most on advertising intermediaries
                                                                                                                                                            • Figure 26: Intermediary adspend on life protection products, 2012-13
                                                                                                                                                          • A note on adspend
                                                                                                                                                          • Channels to Market

                                                                                                                                                              • IFAs account for more than half of rider benefit premiums
                                                                                                                                                                • Figure 27: Distribution of new individual critical illness cover rider benefit premiums, by channel, 2013
                                                                                                                                                              • Non-advised stand-alone premiums have started to grow
                                                                                                                                                                • Figure 28: Distribution of new individual stand-alone critical illness cover premiums, by channel, 2011-13
                                                                                                                                                            • Protection Product Ownership

                                                                                                                                                              • Key points
                                                                                                                                                                • Just over one in ten have critical illness cover
                                                                                                                                                                  • Figure 29: Protection and insurance product ownership, April 2014
                                                                                                                                                                • The importance of mortgages in the sale of critical illness policies
                                                                                                                                                                  • Figure 30: Critical illness cover ownership, by residential status, April 2014
                                                                                                                                                                • Higher-earning households are more likely to have critical illness cover
                                                                                                                                                                  • Figure 31: Critical illness cover ownership, by gross annual household income, April 2013
                                                                                                                                                                • Critical illness cover appeals most to parents of dependent children
                                                                                                                                                                  • Figure 32: Critical illness cover ownership, by presence of own children in household, April 2014
                                                                                                                                                                • Life insurance is the most common other protection among critical illness policyholders
                                                                                                                                                                  • Figure 33: Protection and insurance product ownership, by protection and insurance product ownership, April 2014
                                                                                                                                                              • Attitudes Towards Health and Finances

                                                                                                                                                                • Key points
                                                                                                                                                                  • Most people are concerned about the effects of ill health
                                                                                                                                                                    • Figure 34: Attitudes towards sickness and income, April 2014
                                                                                                                                                                  • Employment benefits not enough for most people
                                                                                                                                                                    • Women show more concern about the future
                                                                                                                                                                      • Figure 35: Attitudes towards sickness and income, by gender, April 2014
                                                                                                                                                                    • Critical illness customers are mostly concerned with paying bills.
                                                                                                                                                                      • Figure 36: Selected attitudes towards sickness and income, by protection product ownership, April 2014
                                                                                                                                                                  • Level of Financial Security – Coping with an Extended Period of Ill Health

                                                                                                                                                                    • Key points
                                                                                                                                                                      • Most people would struggle quickly if unable to work
                                                                                                                                                                        • Figure 37: How long consumers could cover bills for if unable to work due to ill health, April 2014
                                                                                                                                                                      • Low earners are most at risk of missing bills if they are unable to work due to illness
                                                                                                                                                                        • Figure 38: How long consumers could cover expenses for if unable to work due to ill health, by gross annual household income, April 2014
                                                                                                                                                                      • Critical illness policyholders are more optimistic about their finances
                                                                                                                                                                        • Figure 39: Ownership of protection products, by how long consumers could cover expenses for if unable to work due to ill health, April 2014
                                                                                                                                                                    • Barriers to Ownership

                                                                                                                                                                      • Key points
                                                                                                                                                                        • Cost is the biggest barrier to buying critical illness cover
                                                                                                                                                                          • Figure 40: Barriers to ownership of critical illness cover, April 2014
                                                                                                                                                                        • Just one in four uninsured consumers have not looked at critical illness cover
                                                                                                                                                                          • Figure 41: Barriers to ownership of critical illness cover, by protection product ownership, April 2014
                                                                                                                                                                        • Those who don’t understand the product assume protection is too expensive
                                                                                                                                                                          • Figure 42: Barriers to ownership of critical illness cover, by all respondents vs those who do not understand the product, April 2014
                                                                                                                                                                        • Fewer than half of unengaged consumers could pay a month’s bills if sick
                                                                                                                                                                          • Figure 43: How long consumers could cover bills for if unable to work, by selected barriers to ownership of critical illness cover, April 2014
                                                                                                                                                                      • Willingness to Pay for Critical Illness Cover

                                                                                                                                                                        • Key points
                                                                                                                                                                          • Pricing at £16-£20 per month could nearly double the market
                                                                                                                                                                            • Figure 44: Willingness to pay for critical illness cover, April 2014
                                                                                                                                                                          • The higher the income, the greater the willingness to pay for cover
                                                                                                                                                                            • Figure 45: Maximum price consumers would pay for critical illness cover, by gross annual household income, April 2014
                                                                                                                                                                          • Seeing family fall ill prompts willingness to pay more for policies
                                                                                                                                                                            • Figure 46: Maximum price consumers would pay for critical illness cover, by selected attitudes towards critical illness cover, April 2014
                                                                                                                                                                          • Those willing to pay more would also show the most need for cover
                                                                                                                                                                            • Figure 47: How long consumers could cover expenses for if unable to work, by maximum price consumers would pay for critical illness cover
                                                                                                                                                                        • Attitudes Towards Critical Illness Cover

                                                                                                                                                                          • Key points
                                                                                                                                                                            • Around a fifth plan to buy critical illness cover in the next year
                                                                                                                                                                              • Figure 48: Attitudes towards critical illness cover, April 2014
                                                                                                                                                                            • Online research is heavily favoured
                                                                                                                                                                              • It is hard to engage with new customers without advisers
                                                                                                                                                                                • Figure 49: Percentage of people who have looked into critical illness cover previously, by protection product ownership, April 2014
                                                                                                                                                                              • Claims statistics can build trust, and trust builds business
                                                                                                                                                                                • Figure 50: Percentage of people who would be more likely to purchase critical illness cover if they knew the proportion of successful claims, by selected barriers to ownership, April 2014
                                                                                                                                                                            • Appendix – Market Size and Forecast

                                                                                                                                                                              • Volume
                                                                                                                                                                                • Figure 51: Best- and worst-case forecast of the volume of critical illness policies sold (stand-alone and rider benefit) 2014-19
                                                                                                                                                                              • Value
                                                                                                                                                                                • Figure 52: Best- and worst-case forecast of the value of critical illness policies sold (stand-alone and rider benefit) 2014-19
                                                                                                                                                                            • Appendix – Protection Product Ownership

                                                                                                                                                                                • Figure 53: Protection and insurance product ownership, by demographics, April 2014
                                                                                                                                                                                • Figure 54: Protection and insurance product ownership (continued), by demographics, April 2014
                                                                                                                                                                            • Appendix – Attitudes Towards Health and Finances

                                                                                                                                                                                • Figure 55: Attitudes towards sickness and income, by demographics, April 2014
                                                                                                                                                                                • Figure 56: Attitudes towards sickness and income continued, by demographics, April 2014
                                                                                                                                                                            • Appendix – Level of Financial Security – Coping with an Extended Period of Ill Health

                                                                                                                                                                                • Figure 57: Level of financial security – Coping with an extended period of ill health, by demographics, April 2014
                                                                                                                                                                                • Figure 58: Level of financial security – coping with an extended period of ill health (continued), by demographics, April 2014
                                                                                                                                                                            • Appendix – Barriers to Ownership

                                                                                                                                                                                • Figure 59: Barriers to critical illness cover ownership, by demographics, April 2014
                                                                                                                                                                                • Figure 60: Barriers to critical illness cover ownership (continued), by demographics, April 2014
                                                                                                                                                                            • Appendix – Willingness to Pay for Critical Illness Cover

                                                                                                                                                                                • Figure 61: Willingness to pay for critical illness cover (by amount), by demographics, April 2014
                                                                                                                                                                                • Figure 62: Willingness to pay for critical illness cover (by amount), (continued), by demographics, April 2014
                                                                                                                                                                            • Appendix – Attitudes Towards Critical Illness Cover

                                                                                                                                                                                • Figure 63: Attitudes towards critical illness cover – I am planning to buy critical illness cover within the next 12 months, by demographics, April 2014
                                                                                                                                                                                • Figure 64: Attitudes towards critical illness cover – I would be more likely to buy critical illness cover if I knew the proportion of successful claims, by demographics, April 2014
                                                                                                                                                                                • Figure 65: Attitudes towards critical illness cover – I would be more interested in buying critical illness cover if I received a discount or rewards for having a healthy lifestyle, by demographics, April 2014
                                                                                                                                                                                • Figure 66: Attitudes towards critical illness cover – I would seek advice from a finance professional before taking out critical illness cover, by demographics, April 2014
                                                                                                                                                                                • Figure 67: Attitudes towards critical illness cover – I have looked into critical illness cover before, by demographics, April 2014
                                                                                                                                                                                • Figure 68: Attitudes towards critical illness cover – I don’t think critical illness cover is good value for money as it only covers certain medical conditions, by demographics, April 2014
                                                                                                                                                                                • Figure 69: Attitudes towards critical illness cover – I would probably purchase critical illness cover if I took out a significant financial commitment such as a mortgage in the future, by demographics, April 2014
                                                                                                                                                                                • Figure 70: Attitudes towards critical illness cover – I would look online for information about critical illness cover if I was looking to buy it, by demographics, April 2014

                                                                                                                                                                            Companies Covered

                                                                                                                                                                            • AIG Group (American International Group Inc)
                                                                                                                                                                            • Association of British Insurers
                                                                                                                                                                            • Aviva Plc
                                                                                                                                                                            • Bright Grey
                                                                                                                                                                            • BUPA
                                                                                                                                                                            • Friends Provident plc
                                                                                                                                                                            • Legal & General Group PLC
                                                                                                                                                                            • Lloyds Banking Group
                                                                                                                                                                            • Lloyds TSB Insurance
                                                                                                                                                                            • Prudential plc
                                                                                                                                                                            • Royal London Group
                                                                                                                                                                            • Scottish Life
                                                                                                                                                                            • Scottish Provident
                                                                                                                                                                            • Scottish Widows Bank plc

                                                                                                                                                                            Critical Illness Cover - UK - June 2014

                                                                                                                                                                            US $2,583.33 (Excl.Tax)