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Income Protection and Critical Illness Cover - UK - May 2011

This report looks at the long-term protection market, focusing on CIC and IP. It assesses the factors that influence the market, such as mortgage lending, as well as recent political, regulatory and legislative changes. Competing products (namely PPI) are looked at before assessing the size of the market and its growth in recent years. A summary of the key players in the market is presented along with their respective market shares. The report concludes with a consumer-oriented analysis of the market covering product ownership, attitudes and price expectations.

This report looks at both the income protection and the critical illness cover markets. These are long-term protection products that either pay out a lump sum should the policyholder contract a specific serious illness (in the case of CIC), or a regular monthly income should the policyholder be unable to work due to illness or injury (in the case of IP).

The short-term protection market – namely payment protection insurance (PPI) – does feature in this report, but only from the perspective of it being a competing product. Term assurance may also feature in this report, but again, only from a secondary perspective.

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Table of contents

  1. Introduction

      • Report scope
        • Abbreviations
        • Executive Summary

            • The market
              • Figure 1: Forecast of new individual IP premiums, 2005-15
              • Figure 2: Forecast of new individual CIC premiums, 2005-15
            • Existing business remains under pressure
              • The IP market remained broadly flat in 2010...
                • ... while the CI market performed even better than this
                  • Market factors
                    • A sector that suffers from high consumer apathy
                      • Claims statistics have improved considerably for CIC
                        • An abundance of regulatory and political changes
                          • The decline in the mortgage market
                            • Companies, brands and innovation
                              • HSBC and Friends Provident lead the IP market
                                • Figure 3: Top five providers of new individual IP policies, by volume, 2009
                              • Legal & General is the market leader for CIC
                                • Figure 4: Top five providers of new individual CI policies, by volume, 2009
                              • Providers are focusing on price rather than innovation
                                • The consumer
                                  • Figure 5: Ownership of protection products, April 2011
                                • A fifth of the population own IP and/or CIC
                                  • Affordability and price perceptions are the main barriers
                                    • Half of non-policyholders simply aren’t interested
                                      • What we think
                                      • Issues in the Market

                                          • How do consumers feel about protection products?
                                            • What can providers do to make these products more appealing?
                                              • How has the economic slowdown affected the market?
                                                • Should providers use a different targeting approach?
                                                • Future Opportunities

                                                  • Making more of the healthy lifestyle angle
                                                    • Making the most of your credentials
                                                    • Internal Market Environment

                                                      • Key points
                                                        • The income protection gap has stabilised
                                                          • Figure 6: Income protection gap (measured by annual benefit), 2005-09
                                                        • Consumer apathy and confusion abound
                                                          • The push for simplified products
                                                            • Claims statistics for CIC have improved significantly...
                                                              • Figure 7: Total CI claims paid and proportion of successful claims, by top five providers, 2008 and 2009
                                                            • ... especially relating to non-disclosure
                                                              • Figure 8: Proportion of CI claims declined due to non-disclosure, by top five providers, 2008-10
                                                            • New ABI guidelines on non-disclosure
                                                              • Still some way to go on IP claims statistics
                                                                • Tighter FSA rules on oral disclosure
                                                                  • CIC vs IP – the potential for mis-selling
                                                                    • The impact of the ECJ gender ruling
                                                                      • The impact of the RDR
                                                                        • The impact of welfare reform
                                                                          • The impact of the Solvency II Directive
                                                                          • Broader Market Environment

                                                                            • Key points
                                                                              • The decline in house sales has had a direct impact
                                                                                • Figure 9: Number of new mortgages granted, by type, Jan 2007-Jan 2011
                                                                              • The decline in owner-occupiers also presents a challenge
                                                                                • Figure 10: Housing stock in England, by tenure, 1981-2009/10
                                                                              • The squeeze on incomes is bad news for providers...
                                                                                • Figure 11: GDP, PDI, consumer expenditure and savings, at current prices, 2005-15
                                                                              • ... although the majority of people are managing okay
                                                                                • Figure 12: Consumers’ financial situation, April 2009-April 2011
                                                                              • Rising unemployment may also hit discretionary spending
                                                                                • Figure 13: UK unemployment rate, Q1 2005-Q4 2010
                                                                              • Growth in the AB population is better news for providers
                                                                                • Figure 14: Forecast adult population trends, by socio-economic group, 2005-15
                                                                              • The impact of rising cancer incidence rates
                                                                                • Figure 15: Age-standardised (European) incidence rates, all cancers excluding non-melanoma skin cancer, by gender, UK, 1993-2007
                                                                            • Competitive Context

                                                                              • Key points
                                                                                • Creditor insurance could be considered a substitute...
                                                                                  • Figure 16: Estimated GWP in the creditor insurance market, 2005-09
                                                                                • ... although the market has been decimated
                                                                                • SWOT Analysis

                                                                                    • Figure 17: Long-term protection products market – SWOT analysis, 2011
                                                                                • Who’s Innovating?

                                                                                  • Key points
                                                                                    • The ABI+ race is officially underway in the CI market
                                                                                      • Budget policies to suit the current climate
                                                                                        • Holloway Friendly introduces tele-medical underwriting
                                                                                          • Aviva increases resources available to advisers
                                                                                            • Bupa offers customers a free health assessment
                                                                                            • Market Size and Forecast

                                                                                              • Key points
                                                                                                • New business increased substantially in 2010
                                                                                                  • Figure 18: New individual CI sales, by volume and value, 2005-10
                                                                                                • Existing IP business is under pressure
                                                                                                  • Figure 19: Total number of regular premium individual IP policies in-force, regular premium income and maximum benefits insured per annum, 2004-09
                                                                                                • ... but the decline in new business has stabilised
                                                                                                  • Figure 20: New regular premium individual IP sales (by volume and value), and average annual premiums, 2005-10
                                                                                                • Customer retention is equally tough in the CI sector...
                                                                                                  • Figure 21: Total number of regular premium individual standalone CI policies in-force, regular premium income and maximum benefits insured per annum, 2004-09
                                                                                                • The vast majority of policies sold are rider benefit...
                                                                                                  • Figure 22: New individual CI sales, by type, 2005-10
                                                                                                • ... with most policies sold alongside term assurance
                                                                                                  • Figure 23: New individual CI rider benefit sales, by type of connected insurance policy, 2005-10
                                                                                                • Forecast
                                                                                                  • The IP market is likely to remain flat for the next few years...
                                                                                                    • Figure 24: Forecast of new individual IP premiums, 2005-15
                                                                                                  • ...with a similar picture expected for CIC
                                                                                                    • Figure 25: Forecast of new individual CIC premiums, 2005-15
                                                                                                  • Forecast methodology
                                                                                                  • Market Share

                                                                                                    • Key points
                                                                                                      • HSBC is the leading IP provider...
                                                                                                        • Figure 26: Top five providers of new individual IP policies, by volume, 2009
                                                                                                      • ... while Legal & General tops the CIC league table
                                                                                                        • Figure 27: Top five providers of new individual CI policies, by volume, 2009
                                                                                                    • Companies and Products

                                                                                                      • 2010 – a year of consolidation
                                                                                                        • Company profiles
                                                                                                          • Aviva
                                                                                                              • Figure 28: Financial performance of Aviva, 2009-10
                                                                                                            • Legal & General
                                                                                                                • Figure 29: Financial performance of Legal & General, H1 2009-H1 2010
                                                                                                              • Resolution (Friends Life)
                                                                                                                • Royal London Group (Scottish Provident and Bright Grey)
                                                                                                                    • Figure 30: Financial performance of Royal London Group, 2009-10
                                                                                                                  • Scottish Widows (Lloyds Banking Group)
                                                                                                                      • Figure 31: Financial performance of Lloyds Banking Group (Insurance Segment), H1 2009-H1 2010
                                                                                                                    • LV=
                                                                                                                        • Figure 32: Financial performance of LV=, H1 2009-H1 2010
                                                                                                                    • Brand Communication and Promotion

                                                                                                                      • Key points
                                                                                                                        • Combined IP and CIC adspend has increased since 2008
                                                                                                                          • Figure 33: Topline adspend for IP and CIC, by sector, 2008-10
                                                                                                                        • A sector with a relatively small number of advertisers
                                                                                                                          • Figure 34: Leading advertisers of IP and CIC (combined adspend), 2010
                                                                                                                      • Channels to Market

                                                                                                                        • Key points
                                                                                                                          • IFAs account for the majority of IP sales at present...
                                                                                                                            • Figure 35: Distribution of new individual IP regular premiums, by channel, 2005-10
                                                                                                                          • ... but the RDR could change things
                                                                                                                            • IFAs are also dominant in the CI sector
                                                                                                                              • Figure 36: Distribution of new individual CI rider benefit premiums, by channel, 2005-10
                                                                                                                            • Bancassurers play a larger role
                                                                                                                            • Product Ownership and Sources of Emergency Finance

                                                                                                                              • Key points
                                                                                                                                • Over half of UK adults own protection products
                                                                                                                                  • Figure 37: Ownership of protection products, April 2011
                                                                                                                                • A sector which is all about lifestage
                                                                                                                                  • Figure 38: Ownership of protection products, by demographics, April 2011
                                                                                                                                • Demonstrating the link with life insurance
                                                                                                                                  • Figure 39: Protection product cross-holdings, April 2011
                                                                                                                                • Most would rely on their savings if they were in trouble
                                                                                                                                  • Figure 40: Likely sources of emergency finance, April 2011
                                                                                                                                • Young adults favour the Bank of Mum and Dad...
                                                                                                                                  • Figure 41: Most likely sources of emergency finance, by demographics, April 2011
                                                                                                                                • ... while low earners are more reliant on benefits
                                                                                                                                  • Making the case for government support
                                                                                                                                    • Figure 42: Likely sources of emergency finance, by ownership of protection products, April 2011
                                                                                                                                • Reasons for Not Having Cover

                                                                                                                                  • Key points
                                                                                                                                    • Many believe that policies are overpriced and unaffordable...
                                                                                                                                      • Figure 43: Reasons for not owning long-term protection products, April 2011
                                                                                                                                    • ...although for others, these products simply aren’t relevant
                                                                                                                                      • Affluent people appear to be the most sceptical
                                                                                                                                        • Figure 44: Reasons for not owning long-term protection products, by demographics, April 2011
                                                                                                                                      • Products lack relevance to the over-55s
                                                                                                                                        • People with PPI may be a better target
                                                                                                                                          • Figure 45: Reasons for not owning long-term protection products, by ownership of protection products, April 2011
                                                                                                                                        • Savers question the value of protection products
                                                                                                                                          • Figure 46: Reasons for not owning long-term protection products, by likely sources of emergency finance, April 2011
                                                                                                                                      • Maximum Price Expectations

                                                                                                                                        • Key points
                                                                                                                                          • People without cover have unrealistic price expectations
                                                                                                                                            • Figure 47: Maximum prepared to pay for a long-term protection product, April 2011
                                                                                                                                          • It may be worth talking to young people early
                                                                                                                                            • Figure 48: Maximum prepared to pay for a long-term protection product, by demographics, April 2011
                                                                                                                                          • Heavy internet users may also be a good target
                                                                                                                                            • Positive signs from existing PPI owners
                                                                                                                                              • Figure 49: Maximum prepared to pay for a long-term protection product, by ownership of protection products, April 2011
                                                                                                                                            • Focusing on the family protection angle
                                                                                                                                              • Figure 50: Maximum prepared to pay for a long-term protection product, by likely sources of emergency finance, April 2011
                                                                                                                                            • Confusion lies at the heart of the problem
                                                                                                                                              • Figure 51: Reasons for not owning long-term protection products, by maximum prepared to pay for a long-term protection product, April 2011
                                                                                                                                          • Targeting Opportunities

                                                                                                                                            • Key points
                                                                                                                                              • Life-only Lovers are weak on other protection products
                                                                                                                                                • Figure 52: Ownership of protection products, by target groups, April 2011
                                                                                                                                              • Protection Advocates can rest assured
                                                                                                                                                • Figure 53: Likely sources of emergency finance, by target groups, April 2011
                                                                                                                                              • Breaking down the barriers of the Life-only Lovers
                                                                                                                                                • Figure 54: Reasons for not owning long-term protection products, by target groups, April 2011
                                                                                                                                              • The Apathetic Majority have low price expectations
                                                                                                                                                • Figure 55: Maximum prepared to pay for a long-term protection product, by target groups, April 2011
                                                                                                                                              • Protection Advocates have distinct lifestage characteristics
                                                                                                                                                • Figure 56: Target groups, by demographics, April 2011
                                                                                                                                            • Appendix – Broader Market Environment

                                                                                                                                                • Figure 57: Prevalence of cigarette smoking (proportion of population), 1974-2009
                                                                                                                                                • Figure 58: Average weekly alcohol consumption (units) in England, by age and gender: 1998-2009
                                                                                                                                            • Appendix – Forecast

                                                                                                                                                • Figure 59: Forecast of new individual IP premiums, 2010-15
                                                                                                                                                • Figure 60: Forecast of new individual CIC premiums, 2010-15
                                                                                                                                                • Figure 61: Forecast of new individual IP sales, by value, 2005-15
                                                                                                                                                • Figure 62: Forecast of new individual IP sales, by volume, 2005-15
                                                                                                                                                • Figure 63: Forecast of new individual CIC sales, by value, 2005-15
                                                                                                                                                • Figure 64: Forecast of new individual CIC sales, by volume, 2005-15
                                                                                                                                            • Appendix – Channels to Market

                                                                                                                                                • Figure 65: Distribution of new individual standalone CI premiums, by channel, 2005-10
                                                                                                                                            • Appendix – Product Ownership and Sources of Emergency Finance

                                                                                                                                                • Figure 66: Ownership of protection products, April 2011
                                                                                                                                                • Figure 67: Ownership of protection products, by demographics, April 2011
                                                                                                                                                • Figure 68: Ownership of protection products, by demographics, April 2011 (continued)
                                                                                                                                                • Figure 69: Likely sources of emergency finance, by demographics, April 2011
                                                                                                                                                • Figure 70: Likely sources of emergency finance, by demographics, April 2011 (continued)
                                                                                                                                                • Figure 71: Use of multiple sources of emergency finance, April 2011
                                                                                                                                            • Appendix – Reasons for Not Having Cover

                                                                                                                                                • Figure 72: Reasons for not owning long-term protection products, by demographics, April 2011
                                                                                                                                                • Figure 73: Reasons for not owning long-term protection products, by demographics, April 2011 (continued)
                                                                                                                                            • Appendix – Maximum Price Expectations

                                                                                                                                                • Figure 74: Maximum prepared to pay for a long-term protection product, by demographics, April 2011
                                                                                                                                            • Appendix – Targeting Opportunities

                                                                                                                                                • Figure 75: Target groups, by demographics, April 2011

                                                                                                                                            Companies Covered

                                                                                                                                            • AIG Europe, SA
                                                                                                                                            • Aldi Stores Ltd (UK & Ireland)
                                                                                                                                            • Asda Group Ltd
                                                                                                                                            • Association of British Insurers
                                                                                                                                            • Aviva Plc
                                                                                                                                            • AXA Sun Life
                                                                                                                                            • AXA UK plc
                                                                                                                                            • Bank of England
                                                                                                                                            • Barclays Bank plc
                                                                                                                                            • Bright Grey
                                                                                                                                            • British Bankers' Association (BBA)
                                                                                                                                            • British Sky Broadcasting Group plc (BSkyB)
                                                                                                                                            • BUPA
                                                                                                                                            • Canada Life Limited
                                                                                                                                            • Cancer Research UK
                                                                                                                                            • Co-operative Group
                                                                                                                                            • Competition Commission
                                                                                                                                            • Council of Mortgage Lenders
                                                                                                                                            • Defaqto
                                                                                                                                            • Exeter Friendly Society
                                                                                                                                            • Financial Services Authority (The)
                                                                                                                                            • Fortis Insurance Limited
                                                                                                                                            • Freeview
                                                                                                                                            • Friends Provident plc
                                                                                                                                            • Government Actuary's Department (GAD)
                                                                                                                                            • Grupo Santander Central Hispano S.A.
                                                                                                                                            • HBOS plc (Halifax Bank of Scotland)
                                                                                                                                            • HSBC Investments (UK) Limited
                                                                                                                                            • J. Sainsbury
                                                                                                                                            • John Gilbert Financial Research
                                                                                                                                            • Legal & General Assurance Society Limited
                                                                                                                                            • Legal & General Group PLC
                                                                                                                                            • Lidl (UK)
                                                                                                                                            • Liverpool Victoria Friendly Society Limited
                                                                                                                                            • Lloyds Banking Group
                                                                                                                                            • LV=
                                                                                                                                            • Marks & Spencer
                                                                                                                                            • mmO2 plc
                                                                                                                                            • Nationwide Building Society
                                                                                                                                            • Netto Foodstores Ltd
                                                                                                                                            • Office for National Statistics
                                                                                                                                            • Office of Fair Trading
                                                                                                                                            • Orange plc (UK)
                                                                                                                                            • Pearl Group Limited
                                                                                                                                            • Pegasus
                                                                                                                                            • Royal Bank of Scotland Group plc
                                                                                                                                            • Royal Liver Assurance Limited
                                                                                                                                            • Royal London Group
                                                                                                                                            • RSA
                                                                                                                                            • Scottish Provident
                                                                                                                                            • Scottish Widows Bank plc
                                                                                                                                            • Skandia UK
                                                                                                                                            • Skipton Building Society
                                                                                                                                            • Standard Life Assurance Company
                                                                                                                                            • Swiss Re
                                                                                                                                            • T-Mobile (UK) Ltd
                                                                                                                                            • Tesco Plc
                                                                                                                                            • Unum Provident
                                                                                                                                            • Virgin Media Ltd
                                                                                                                                            • Virgin Mobile
                                                                                                                                            • Vodafone Group Plc (UK)
                                                                                                                                            • Waitrose Ltd
                                                                                                                                            • Wm Morrison Supermarkets

                                                                                                                                            Income Protection and Critical Illness Cover - UK - May 2011

                                                                                                                                            £1,750.00 (Excl.Tax)