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Income Protection - UK - February 2017

“The need for workers to formally protect income is apparent, and yet the income protection gap is yawning. Many workers simply avoid trying to understand their financial resilience and their financial planning suffers as a result. Providers may be able to increase sales through group policies and by exploring the potential for direct online distribution. Education is still sorely needed, but traditional advice may not be the only way to deliver this.”

Patrick Ross, Senior Financial Services Analyst

This report look at the following areas:

  • Group schemes can continue to expand the market for income protection
  • People are used to relying on contingency plans that lack certainty
    The facts

What you get

What's included

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Table of contents

  1. Overview

    • Executive Summary

        • The market
          • Individual premiums expected to show a steady increase
            • Figure 1: Forecast of new individual (long-term) income protection premiums – Fan chart, 2011-21
          • Advisers remain the leading distribution channel
            • Figure 2: Distribution of new individual (long-term) income protection contracts, by channel, 2014-16
          • Claims values are falling, supporting provider profitability
            • Companies and brands
              • LV= faces challenge from combined forces of Aviva and Friends Life
                • Figure 3: Estimated market shares of the top five providers of new individual income protection, based on volume sales, 2015
              • Providers invest in income protection products to enhance value
                • The consumer
                  • One in ten adults has an income protection product
                    • Figure 4: Protection product ownership, December 2016
                  • A third of non-product holders say they can’t afford it and a third say they don’t need it
                    • Figure 5: Reasons for not having protection products, December 2016
                  • Two fifths say an absence from work of six months or less would leave them struggling
                    • Figure 6: Expected impact of lost income on financial stability, December 2016
                  • Two fifths intend to rely on savings if unable to work
                    • Figure 7: Contingency plans if unable to work, December 2016
                  • Covering home-related outgoings is the biggest priority
                    • Figure 8: Interest in features of income protection cover, December 2016
                  • ‘Fix and flex’ approach favoured by potential customers
                    • Figure 9: Interest in features of income protection products, December 2016
                  • What we think
                  • Issues and Insights

                    • Group schemes can continue to expand the market for income protection
                      • The facts
                        • The implications
                          • People are used to relying on contingency plans that lack certainty
                            • The facts
                              • The implications
                              • The Market – What You Need to Know

                                • New individual policies and premiums are on the up
                                  • Advisers remain the leading distribution channel
                                    • The economic environment is providing good foundations
                                      • New welfare rules may reduce the overall benefit of holding income protection
                                      • Market Size and Forecast

                                        • New policies and premiums expected to grow again in 2016
                                          • Figure 10: New individual (long-term) income protection sales and average premium, 2011-16
                                        • Group schemes in decline
                                          • Figure 11: Volume and value of new group (long-term) income protection sales, 2011-16
                                        • Individual premiums expected to show a steady increase
                                          • Figure 12: Forecast of new individual (long-term) income protection premiums – Fan chart, 2011-21
                                          • Figure 13: Forecast of new individual (long-term) income protection premiums, 2011-21
                                        • Forecast methodology
                                          • The impact of the EU referendum vote
                                            • Trajectory of market in previous slowdown
                                              • Figure 14: Forecast of new individual (long-term) income protection premiums allowing for Brexit, 2011-21
                                            • Income protection likely to suffer in face of income squeeze
                                            • Channels to Market

                                              • IFAs continue to dominate distribution…
                                                • …but there are developments within the direct channel
                                                  • Figure 15: Distribution of new individual (long-term) income protection premiums, by channel, 2014-16
                                                  • Figure 16: Distribution of new individual (long-term) income protection contracts, by channel, 2014-16
                                                  • Figure 17: Distribution of new individual (long-term) income protection premiums and contracts, by channel, 2014-16
                                              • Market Drivers

                                                • A third of adults have less than £5,000 in savings
                                                  • Figure 18: Level of savings and investments, excluding main home and pension savings, December 2016
                                                • House purchase loans edge up, with first-time buyers driving growth
                                                  • Figure 19: Volume of house purchase loans, by type of borrower, 2007-16
                                                • Falling unemployment rate has helped support income protection sales
                                                  • Figure 20: Unemployment rate, January 2010-August 2016
                                                • Average weekly earnings grew during 2016
                                                  • Figure 21: Real average weekly earnings, regular pay (excluding bonuses and arrears of pay), seasonally adjusted, January 2010-October 2016
                                                • Claims values are falling, supporting provider profitability
                                                  • Figure 22: Summary of income protection claims paid and declined, 2015
                                                • Group schemes look to SMEs to boost growth
                                                  • Figure 23: Group income protection schemes, estimated number and premiums receivable in year, 2010-15
                                              • Regulatory and Legislative Changes

                                                • Welfare reform has limited the overall benefits of income protection
                                                  • Seven Families initiative has had a positive impact on product perception
                                                    • Figure 24: List of providers that funded the seven families campaign, 2014-15
                                                • Companies and Brands – What You Need to Know

                                                  • LV= faces challenge from combined forces of Aviva and Friends Life
                                                    • The income protection gap has enticed investment from providers
                                                      • Providers look to use events to improve understanding and awareness
                                                      • Market Share

                                                        • LV= is investing to keep hold of the top spot
                                                          • Figure 25: Estimated market shares of the top five providers of new individual income protection, based on volume sales, 2015
                                                      • Competitive Strategies

                                                        • Providers invest in income protection products to enhance value
                                                          • The Exeter replaces IP product range
                                                            • Aviva launches Income Protection+ following Friends Life integration
                                                              • Insurers upgrade digital platforms to support advisers and customers
                                                                • The Exeter launches new protection platform
                                                                  • L&G extends adviser system with customer-operated features
                                                                    • Providers due to adopt paperless GP reporting technology
                                                                    • Advertising and Marketing Activity

                                                                      • Overall advertising on protection protections has grown…
                                                                        • …but income protection adspend remains very limited
                                                                          • Figure 26: Total above-the line, online display and direct mail advertising expenditure on protection products, 2013/14-2015/16
                                                                        • Providers turn to events to help spread the word
                                                                          • Nielsen Ad Intel coverage
                                                                          • The Consumer – What You Need to Know

                                                                            • 10% of adults have a form of income protection
                                                                              • Affordability perceptions are holding the market back
                                                                                • 41% would struggle after an absence from work of six months or less
                                                                                  • Home-related outgoings represent an opportunity for product propositions
                                                                                    • Fixed premiums and flexible cover are preferred by potential customers
                                                                                    • Protection Product Ownership

                                                                                      • Consumers have wide range of options but most choose to forego cover
                                                                                        • One in ten adults has a form of income protection product
                                                                                          • Figure 27: Protection product ownership, December 2016
                                                                                        • Those with the most money in reserve are still more likely to hold income protection
                                                                                          • Figure 28: Protection product ownership, by type of product and amount of existing savings/investments (excluding pensions and main home), December 2016
                                                                                      • Reasons for Not Having Protection Products

                                                                                        • Affordability and need are main barriers
                                                                                          • Figure 29: Reasons for not having protection products, December 2016
                                                                                        • Negative press could be limiting income protection among key markets
                                                                                          • Helping people to identify their own protection gap
                                                                                            • Figure 30: Reasons for not having protection products, by amount of existing savings/investments (excluding pensions and main home), December 2016
                                                                                        • Expected Impact of Lost Income on Financial Stability

                                                                                          • Two fifths say an absence from work of six months or less would leave them struggling
                                                                                            • Robo-advice could help people to identify their requirements
                                                                                              • Figure 31: Expected impact of lost income on financial stability, December 2016
                                                                                            • People factor in their savings buffer as a form of protection
                                                                                              • Figure 32: Expected impact of lost income on financial stability, by amount of existing savings/investments (excluding pensions and main home), December 2016
                                                                                            • Those that don’t think they need protection may still be exposed
                                                                                              • Figure 33: Expected impact of lost income on financial stability, by reasons for not having protection products, December 2016
                                                                                          • Contingency Plans if Unable to Work

                                                                                            • Two-fifths intend to rely on savings if unable to work
                                                                                              • Figure 34: Contingency plans if unable to work, December 2016
                                                                                            • Almost half intend to rely on one contingency plan
                                                                                              • Figure 35: Repertoire of contingency plans if unable to work, by demographics, December 2016
                                                                                            • Millennials are more inclined to rely on credit
                                                                                              • Figure 36: Contingency plans if unable to work, by age, December 2016
                                                                                            • Those that can’t afford protection will look to family and friends for support
                                                                                              • Figure 37: Contingency plans if unable to work, by reasons for not having protection products, December 2016
                                                                                          • Interest in Aspects of Income Protection Cover

                                                                                            • Covering home-related outgoings is the biggest priority
                                                                                              • Figure 38: Interest in features of income protection cover, December 2016
                                                                                            • Home-related protection policies show potential among consumers
                                                                                              • Figure 39: Interest in features of income protection cover, repertoire analysis, December 2016
                                                                                            • Millennials show greater interest in covering childcare and mobile phone bills
                                                                                              • Figure 40: Interest in features of income protection cover, December 2016
                                                                                          • Interest in Features of Income Protection Products

                                                                                            • ‘Fix and flex’ approach favoured by potential customers
                                                                                              • Figure 41: Interest in features of income protection products, December 2016
                                                                                            • Millennials looking for healthy living incentives
                                                                                              • Figure 42: Interest in features of income protection products, by age, December 2016
                                                                                          • Appendix – Data Sources, Abbreviations and Supporting Information

                                                                                              • Product definitions
                                                                                                • Income protection
                                                                                                  • Accident, sickness and unemployment (ASU) insurance
                                                                                                    • Personal accident and sickness insurance
                                                                                                      • Unemployment cover
                                                                                                        • Personal accident insurance
                                                                                                          • Mortgage payment protection insurance (MPPI)
                                                                                                            • Critical illness cover
                                                                                                              • Life insurance
                                                                                                                • Abbreviations
                                                                                                                  • Consumer research methodology
                                                                                                                  • Appendix – Market Size and Forecast

                                                                                                                      • Figure 43: Forecast of new individual (long-term) income protection premiums, at current and constant prices, 2011-21
                                                                                                                    • Forecast methodology

                                                                                                                    Companies Covered

                                                                                                                    To learn more about the companies covered in this report please contact us.

                                                                                                                    Income Protection - UK - February 2017

                                                                                                                    US $2,648.76 (Excl.Tax)