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Income Protection Insurance - UK - January 2009

Despite the fact that income protection is widely regarded as the cornerstone of protection needs, the last few years have seen these policies vastly outsold by ‘rival’ products such as mortgage payment protection insurance and critical illness cover. A lack of awareness among consumers and financial advisers, perceived product complexities, an onerous and lengthy underwriting process, and a lack of consumer trust in the protection industry, have all been cited as key reasons behind income protection’s continuing weak sales performance.

The last 12 months, however, have witnessed clear signs that the market may be set for a revival. Indeed, the long-term decline in individual income protection sales was finally halted during 2008, while a number of providers have introduced innovative new products which have started to address some of the product’s perceived problems. While many challenges certainly lay ahead, there does seem to be a mood of cautious optimism within the industry. There are even suggestions that the time is now right for this ‘Cinderella’ product to finally go to the ‘Ball’.

This report provides an assessment of recent trends within this sector. It analyses market data, considers the prospects for future growth and reports industry views on a range of salient issues. In addition, it provides analysis of Mintel’s independently-commissioned consumer research which identifies the proportion of adults who own income protection, considers attitudes towards a number of protection-related issues and assesses the need for income protection across the consumer base.

IMPORTANT: A number of mainstream, general insurance companies, offer what they call ‘income protection’, but which is actually short-term, non-mortgage related, accident, sickness and unemployment insurance (ASU), also referred to as payment protection insurance. The scope of this report does not extend to these products. The principal difference between ASU and long-term income protection as covered in this report is that first, ASU covers unemployment, and secondly, ASU will only pay benefits for a period of 1-2 years. Furthermore, unlike ASU, the domain of income protection tends to be more associated with specialist protection providers as well as the large life and pension companies.

Some key report findings

  • Mintel’s research found that around one in 12 adults currently hold an income protection policy.

  • The likelihood of someone owning income protection was found to increase markedly if they already hold another type of protection product.

  • A significant minority of consumers have a positive predisposition to protection products – three in ten said that such policies give them peace of mind, while one in six agreed that the extra financial security is worth paying for.

  • However, a quarter of consumers did say that they prefer to save money rather than pay insurance premiums.

  • In addition, a large minority of the sample questioned the integrity of the protection industry, with more than a fifth agreeing that insurers often try to avoid paying out.

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Table of contents

  1. Issues in the Market

      • Main findings of the research
        • Abbreviations
        • Future Opportunities

          • Trading up, trading down, trading over – Winning in the slowdown
            • The rise of behavioural economics
              • The industry must act to raise awareness
                • Don’t JUST focus on the low level of state benefits
                  • Providers should look beyond traditional market segments
                    • Restoring consumer confidence remains a key priority
                    • Market in Brief

                      • Economic uncertainty provides opportunities for income protection
                        • New income protection sales staged a recovery during 2008
                          • Figure 1: New individual income protection sales (by volume and value), 2002-08
                        • Friends Provident remains the leading income protection provider
                          • Trade perspective: The industry faces a number of challenges
                            • The pace of innovation is increasing
                              • Mintel’s research findings: Product ownership
                                • Figure 2: Ownership of protection and health insurance products, November 2008
                              • Mintel’s research findings: Attitudes towards protection products
                                • Mintel’s research findings: The need for income protection
                                • Internal Market Environment

                                  • Key points
                                    • The income protection gap has risen to £190 billion
                                      • Figure 3: Income protection gap, measured by annual benefit, 2002-07
                                    • A lack of awareness continues to plague the industry
                                      • The Income Protection Task Force is trying to raise awareness
                                        • Other initiatives may help by boosting financial capability
                                          • Thoresen Review of Generic Financial Advice
                                            • RDR
                                              • There are also calls for a generic protection advertising campaign
                                                • Consumer mistrust is also believed to be constraining sales
                                                  • Non-disclosure rules and the TCF initiative could help restore faith
                                                    • Publishing claims data is another option for restoring trust
                                                    • Broader Market Environment

                                                      • Key points
                                                        • Economic uncertainty could boost income protection sales
                                                          • Mortgage lending has collapsed in the last 12 months
                                                            • Figure 4: Number of approvals secured on dwellings, seasonally adjusted, January 2006-November 2008
                                                          • But the mortgage market malaise may have a ‘silver lining’
                                                            • Population trends will impact on demand for income protection
                                                              • Figure 5: UK population, by age bracket, 1992-2013
                                                            • Further growth in the self-employed ranks could boost sales
                                                              • Figure 6: Total workforce and employment figures, 1992-2013
                                                            • Changing household composition will also affect future demand
                                                              • Welfare reforms should be positive for income protection
                                                              • Competitive Context

                                                                • Key points
                                                                  • Income protection fits within the suite of protection products
                                                                    • ‘Rival’ products have largely eclipsed income protection
                                                                      • Adviser preference for ‘rivals’ has disadvantaged income protection
                                                                        • The weak mortgage market has inevitably hit new MPPI sales
                                                                          • Figure 7: Gross new mortgage advances and new MPPI policies, H1 2003-H1 2008
                                                                        • Critical illness sales have also declined in recent years
                                                                          • Figure 8: New sales of individual critical illness cover, 2002-07
                                                                      • Strengths and Weaknesses in the Market

                                                                          • Figure 9: Strengths and weaknesses of the income protection market, January 2009
                                                                        • Strengths
                                                                          • Protection gap provides significant scope to increase the market
                                                                            • Income protection is the cornerstone of protection needs
                                                                              • Recent innovations in product development
                                                                                • The downturn in the housing market could generate interest among advisers
                                                                                  • Weaknesses
                                                                                    • Lack of awareness among consumers and financial intermediaries
                                                                                      • Perceived product complexities
                                                                                        • Adviser preference for ‘rival’ products
                                                                                          • Lack of consumer trust in the protection industry
                                                                                          • Who’s Innovating?

                                                                                            • Key points
                                                                                              • The pace of innovation within the protection market has increased
                                                                                                • Pioneer has been at the forefront of this drive for innovation
                                                                                                  • Income Protection Solutions is a new offering from Norwich Union
                                                                                                    • LV= has launched a Mortgage & Lifestyle Protection plan
                                                                                                      • Fortis has entered the market with an innovative product range
                                                                                                        • Friends Provident have added income protection to eSelect
                                                                                                          • Providers are also offering more assistance to advisers
                                                                                                            • Rehabilitation is also currently a key development area
                                                                                                              • Future innovation themes: simplification, underwriting and rehabilitation
                                                                                                              • Trade Perspective

                                                                                                                  • The income protection industry faces a number of challenges…
                                                                                                                    • … but the ‘Cinderella’ product may be set to go to the ‘Ball’
                                                                                                                      • Innovation will focus on simplification, underwriting and rehabilitation
                                                                                                                        • Providing quality, impartial advice is the key to distribution
                                                                                                                          • Providers need to focus on ways to improve the application experience
                                                                                                                          • Market Size and Forecast

                                                                                                                            • Key points
                                                                                                                              • New income protection sales staged a recovery during 2008
                                                                                                                                • Figure 10: New individual income protection sales (by volume and value) and average annual premiums, 2002-08
                                                                                                                              • Average annual benefits continue to rise
                                                                                                                                • Figure 11: Average annual benefits for individual income protection policies, 2002-07
                                                                                                                              • Recent sales growth should boost the number of policies in-force
                                                                                                                                • Figure 12: Total number of individual income protection policies in-force, regular-premium income, and maximum benefits insured per annum, 2002-07
                                                                                                                              • Around 1.8 million people are covered by a group policy
                                                                                                                                • Figure 13: Group income protection schemes, 2002-07
                                                                                                                              • Forecast – An end to the downward trend?
                                                                                                                                • Figure 14: Forecast of new individual income protection sales (by volume and value) and average annual premiums, 2002-13
                                                                                                                              • Factors used in the forecast
                                                                                                                              • Market Share

                                                                                                                                • Key points
                                                                                                                                  • Large insurers dominate the income protection market
                                                                                                                                    • Figure 15: Top five providers of new individual income protection policies, by volume of sales, 2007
                                                                                                                                  • Friends Provident remains the leading income protection provider
                                                                                                                                    • Figure 16: New individual income protection policy sales, by product provider, 2006-07
                                                                                                                                  • Smaller players have gained market share in recent years
                                                                                                                                    • Figure 17: New individual income protection policy sales, top five providers versus all other providers, 2004-07
                                                                                                                                • Companies and Products

                                                                                                                                  • Key points
                                                                                                                                    • Key market developments
                                                                                                                                      • Company snapshots
                                                                                                                                        • Friends Provident
                                                                                                                                          • Norwich Union
                                                                                                                                          • Brand Communication and Promotion

                                                                                                                                            • Key points
                                                                                                                                              • Income protection providers invest fairly modest sums on advertising
                                                                                                                                                • Figure 18: Advertising expenditure on income protection products, 2003/04-2007/08
                                                                                                                                              • A majority of last year’s advertising was via the press
                                                                                                                                                • Figure 19: Advertising expenditure on income protection products, by media type, 2006/07-2007/08
                                                                                                                                              • ASU providers top the advertising expenditure table
                                                                                                                                                • Figure 20: Advertising expenditure on income protection products, by organisation, 2006/07-2007/08
                                                                                                                                            • Channels to Market

                                                                                                                                              • Key points
                                                                                                                                                • Income protection products are ‘sold’ not ‘bought’
                                                                                                                                                  • Figure 21: Proportion of advised/non-advised sales of protection products, April 2007-March 2008
                                                                                                                                                • IFAs account for more than half of new income protection sales
                                                                                                                                                  • Figure 22: New individual sales of income protection policies, by distribution channel, 2006-07
                                                                                                                                                • Direct channels account for a tiny proportion of new sales
                                                                                                                                                  • Banks and building societies account for three out of ten sales
                                                                                                                                                  • The Consumer – Product Ownership

                                                                                                                                                    • Key points
                                                                                                                                                      • Survey background
                                                                                                                                                        • One in 12 consumers hold an income protection policy
                                                                                                                                                            • Figure 23: Ownership of protection and health products, November 2008
                                                                                                                                                          • Protection policyholders are more likely to buy other protection products
                                                                                                                                                            • Figure 24: Ownership of protection and health products, by protection product ownership groups, November 2008
                                                                                                                                                          • More than one in seven 35-44-year-olds hold income protection
                                                                                                                                                            • Figure 25: Ownership of selected protection products, by gender, age and socio-economic group, November 2008
                                                                                                                                                          • Family commitments encourage people to protect their income
                                                                                                                                                            • Figure 26: Ownership of selected protection products, by marital status, lifestage, ACORN group and TV region, November 2008
                                                                                                                                                          • Mortgage holders form a key segment for protection providers
                                                                                                                                                            • Figure 27: Ownership of selected protection products, by working status, income, household tenure, technology users and newspaper readership, November 2008
                                                                                                                                                          • ABC1s, men and 35-44s dominate the income protection profile
                                                                                                                                                            • Figure 28: Profile of all protection policyholders and income protection policyholders, November 2008
                                                                                                                                                        • The Consumer – Attitudes towards Protection Products

                                                                                                                                                          • Key points
                                                                                                                                                            • Almost three in ten people feel insurance provides peace of mind
                                                                                                                                                                • Figure 29: Agreement with statements about protection issues, November 2008
                                                                                                                                                              • But a lack of trust remains a barrier
                                                                                                                                                                • More than a quarter of ABC1 35-54s lack faith in insurers
                                                                                                                                                                  • Figure 30: Agreement with statements about protection issues, by gender, age and socio-economic group, November 2008
                                                                                                                                                                • ABC1 families are particularly positive about protection issues
                                                                                                                                                                  • Figure 31: Agreement with statements about protection issues, by marital status, lifestage, ACORN group and TV region, November 2008
                                                                                                                                                                • A third of high-income households value extra financial security
                                                                                                                                                                  • Figure 32: Agreement with statements about protection issues, by working status, income, household tenure, technology users and newspaper readership, November 2008
                                                                                                                                                                • Almost three in ten income protection holders do not trust insurers
                                                                                                                                                                  • Figure 33: Agreement with statements about protection issues, by protection product ownership, November 2008
                                                                                                                                                              • The Consumer – The Need for Income Protection

                                                                                                                                                                • Key points
                                                                                                                                                                  • A minority of workers feel illness would quickly trigger financial woes
                                                                                                                                                                      • Figure 34: Length of time people could support themselves without falling into financial difficulties, November 2008
                                                                                                                                                                    • Almost a fifth of C2DE 18-34s would be struggling inside a month
                                                                                                                                                                      • Figure 35: Length of time people could support themselves without falling into financial difficulties, by gender, age and socio-economic group, November 2008
                                                                                                                                                                    • Seven in ten renters would face financial ruin within six months
                                                                                                                                                                      • Figure 36: Length of time people could support themselves without falling into financial difficulties, by marital status, lifestage, working status, income, household tenure and TV region, November 2008
                                                                                                                                                                    • Over a third of workers would rely on savings if they fell ill
                                                                                                                                                                        • Figure 37: Means of support in the event of extended absence from work, November 2008
                                                                                                                                                                      • The 45-54s are most likely to rely on state benefits
                                                                                                                                                                        • Figure 38: Means of support in the event of extended absence from work, by age, November 2008
                                                                                                                                                                      • More than a fifth of ABs would sell assets if they fell ill
                                                                                                                                                                        • Figure 39: Means of support in the event of extended absence from work, by socio-economic group, November 2008
                                                                                                                                                                      • Only a fifth who could cope for over a year have insurance cover
                                                                                                                                                                        • Figure 40: Means of support in the event of extended absence from work, by length of time people could support themselves without falling into financial difficulties, November 2008
                                                                                                                                                                    • The Consumer – Targeting Opportunities

                                                                                                                                                                      • Key points
                                                                                                                                                                        • Dissecting the workforce according to income protection needs
                                                                                                                                                                            • Figure 41: Segmentation based upon consumers’ need for income protection, November 2008
                                                                                                                                                                          • ‘Covered’
                                                                                                                                                                            • ‘Savings reliant’
                                                                                                                                                                              • ‘Backed up’
                                                                                                                                                                                • ‘Strugglers’
                                                                                                                                                                                  • ‘Disinterested’
                                                                                                                                                                                    • There are large variations in the cluster group profiles
                                                                                                                                                                                      • Figure 42: Segmentation based upon consumers’ need for income protection, by gender, age, socio-economic group, lifestage, income, tenure and TV region, November 2008
                                                                                                                                                                                    • Attitudes towards protection products also vary by cluster group
                                                                                                                                                                                      • Figure 43: Agreement with statements about protection products, by typologies based upon consumers’ need for income protection, November 2008

                                                                                                                                                                                  Companies Covered

                                                                                                                                                                                  • Advertising Standards Authority
                                                                                                                                                                                  • AIG Europe, SA
                                                                                                                                                                                  • Association of British Insurers
                                                                                                                                                                                  • Aviva Plc
                                                                                                                                                                                  • Bank of England
                                                                                                                                                                                  • Barclays Bank plc
                                                                                                                                                                                  • Bright Grey
                                                                                                                                                                                  • BUPA
                                                                                                                                                                                  • Churchill Insurance
                                                                                                                                                                                  • Cirencester Friendly Society Limited
                                                                                                                                                                                  • Council of Mortgage Lenders
                                                                                                                                                                                  • Financial Services Authority (The)
                                                                                                                                                                                  • Friends Provident plc
                                                                                                                                                                                  • Highclere Financial Services
                                                                                                                                                                                  • HSBC Private Bank (UK) Limited
                                                                                                                                                                                  • Legal & General Assurance Society Limited
                                                                                                                                                                                  • LV=
                                                                                                                                                                                  • Norwich Union
                                                                                                                                                                                  • Outdoor Advertising Association of Great Britain
                                                                                                                                                                                  • Prudential plc
                                                                                                                                                                                  • Scottish Mutual
                                                                                                                                                                                  • Scottish Provident
                                                                                                                                                                                  • Shepherds Friendly Society Ltd

                                                                                                                                                                                  Income Protection Insurance - UK - January 2009

                                                                                                                                                                                  £1,995.00 (Excl.Tax)