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Income Protection - UK - May 2013

“Consumers lack a thorough understanding of what income protection products offer, which is hampering growth in the market. Insurers need to simplify their product and work together in order to identify ways of educating people about income protection. They also need to rebuild trust that has been damaged as a result of the PPI scandal and a lack of transparency.”

– Stephanie Absolom – Financial Services Analyst

Some questions answered in this report include:

  • How can awareness of income protection be increased?
  • Will the state benefit review change the way people think about protection?
  • How can income protection be made more attractive to consumers?
  • Can income protection escape the association with PPI?
  • Will short-term income protection be the saviour of the industry?

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Table of contents

  1. Introduction

      • Abbreviations
        • Definitions/types of income protection
          • Income protection
            • Short-term income protection
              • ASU cover
                • PPI
                  • MPPI
                  • Executive Summary

                      • The market
                        • Value of new income protection premiums expected to grow
                          • Figure 1: Forecast of new individual income protection premiums, at current prices, 2007-17
                        • Income protection relies on intermediaries
                          • Market factors
                            • Income protection gap remains at £190 billion
                              • Widespread changes to the benefits system
                                • Sickness Absence Review
                                  • ABI claims reporting standard
                                    • Promising signs for the mortgage market
                                      • Effects of the PPI scandal still being felt
                                        • Regulation overview
                                          • Gender-neutral pricing
                                            • Consumer Insurance Act
                                              • Companies, products and innovations
                                                • Friends Life has the largest market share
                                                  • Figure 2: Market share of the top five providers of new individual income protection, based on volume sales, 2011
                                                • Openwork launches Life Calc app
                                                  • Canada Life extends offering
                                                    • Drewberry launches quotation system
                                                      • The consumer
                                                        • Just over a fifth of people have some form of income protection
                                                          • Figure 3: Protection product ownership, March 2013
                                                        • Cost is the main barrier to income protection ownership
                                                          • Figure 4: Reasons for not owning income protection, March 2013
                                                        • Clarity and financial incentives are needed to boost sales
                                                          • Figure 5: Motivators for purchasing income protection, March 2013
                                                        • People’s view of their health may not reflect the truth
                                                          • Figure 6: Consumer view of current health, March 2013
                                                        • Two thirds of people have concerns about their health impacting their ability to work
                                                          • Figure 7: Concerns around inability to work due to health reasons, March 2013
                                                        • People expect their savings and the state to help them when unable to work
                                                          • Figure 8: Means of meeting financial commitments when unable to work, March 2013
                                                        • What we think
                                                        • Issues in the Market

                                                            • How can awareness of income protection be increased?
                                                              • Will the state benefit review change the way people think about protection?
                                                                • How can income protection be made more attractive to consumers?
                                                                  • Can income protection escape the association with PPI?
                                                                    • Will short-term income protection be the saviour of the industry?
                                                                    • Trend Application

                                                                      • Healthy living rather than financial insurance could become a preferred option
                                                                        • Income protection providers need to accept the negatives
                                                                          • Young people face more uncertainties than just their health
                                                                          • Market Drivers

                                                                            • Key points
                                                                              • Income protection gap remains at £190 billion
                                                                                • Welfare state changes will create opportunities for income protection
                                                                                  • Sickness Absence Review aims to get people back to work
                                                                                    • Income protection is excluded from initial Simple Products development
                                                                                      • ABI industry standard on claims reporting
                                                                                        • Published claims rates look encouraging
                                                                                          • Employment rate shows signs of recovery
                                                                                            • Figure 9: Employment, January 2000-March 2013
                                                                                          • Income squeeze impacts affordability of protection products
                                                                                            • Figure 10: Percentage change in RPI and average weekly earnings (regular pay only), January 2008-March 2013
                                                                                          • An improvement in the mortgage market is good news for IP
                                                                                            • Figure 11: Volume of house purchase loans, by type of borrower, 2006-12
                                                                                          • Short-term income protection can help to boost the market
                                                                                            • Gender equalisation provided a sales boost in 2012
                                                                                              • Consumer Insurance Act places the onus on insurers
                                                                                              • Competitor Products

                                                                                                • Key points
                                                                                                  • Other protection products take precedence for consumers
                                                                                                    • Figure 12: Number of individual protection policies in force, by type, 2011
                                                                                                    • Figure 13: Overview of the key differences between income protection and ASU cover, May 2013
                                                                                                  • PPI scandal and its impact on the industry
                                                                                                  • SWOT Analysis

                                                                                                      • Figure 14: Income protection SWOT analysis, April 2013
                                                                                                  • Who’s Innovating?

                                                                                                    • Key points
                                                                                                      • Openwork launches second adviser protection app
                                                                                                        • Canada Life extends its case management offering
                                                                                                          • Quotation system launched by Drewberry
                                                                                                          • Market Size and Forecast

                                                                                                            • Key points
                                                                                                              • 1.3 million income protection policies in force
                                                                                                                • New policy numbers and premium values increase in 2012
                                                                                                                  • Figure 15: New individual income protection sales and average premium, 2008-12
                                                                                                                • Large increase in group income protection sales
                                                                                                                  • Figure 16: Volume and value of new group income protection sales, 2008-12
                                                                                                                • Moderate growth expected in the income protection premium market
                                                                                                                  • Figure 17: Forecast of new individual income protection premiums, at current prices, 2007-17
                                                                                                                  • Figure 18: Forecast of new individual income protection premiums, at current prices, 2007-17
                                                                                                                • Forecast methodology
                                                                                                                • Market Share

                                                                                                                  • Key points
                                                                                                                    • Friends Life is the top provider of new income protection
                                                                                                                      • Figure 19: Market share of the top five providers of new individual income protection, based on volume sales, 2011
                                                                                                                  • Companies and Products

                                                                                                                    • Aviva
                                                                                                                      • Legal & General
                                                                                                                          • Figure 20: Key financial data for Legal & General (housing and protection business segment), 2011 and 2012
                                                                                                                        • Friends Life
                                                                                                                            • Figure 21: Key financial data for Friends Life, 2011-12
                                                                                                                          • LV=
                                                                                                                            • Royal London Group
                                                                                                                            • Brand Communication and Promotion

                                                                                                                              • Key points
                                                                                                                                • A 12% year-on year increase in overall protection product adspend…
                                                                                                                                  • Figure 22: Total advertising expenditure on protection products, by product category, 2009-13
                                                                                                                                • …but a 29% decrease in income protection adspend in 2012
                                                                                                                                  • Figure 23: Total advertising expenditure on income protection, 2009-13
                                                                                                                                • Unum dominates income protection adspend
                                                                                                                                  • Figure 24: Advertisers of income protection, by adspend, 2011-13
                                                                                                                                • A note on adspend
                                                                                                                                • Channels to Market

                                                                                                                                  • Key points
                                                                                                                                    • Types of intermediary operating in the income protection market
                                                                                                                                      • Tied advisers see share of income protection distribution increase
                                                                                                                                        • Figure 25: Distribution of new regular income protection premiums, by channel, 2009-12
                                                                                                                                      • Impact of the RDR on income protection distribution
                                                                                                                                      • Protection Product Ownership

                                                                                                                                        • Key points
                                                                                                                                          • Income protection ownership is not widespread
                                                                                                                                            • Figure 26: Protection product ownership, March 2013
                                                                                                                                          • Multiple protection product ownership is not common
                                                                                                                                            • Figure 27: Repertoire for protection product ownership, March 2013
                                                                                                                                          • Mortgage holders and parents are much more likely to have cover
                                                                                                                                            • Figure 28: Protection product ownership, by age, tenure and presence of children, March 2013
                                                                                                                                          • Ownership higher amongst wealthier people
                                                                                                                                            • Figure 29: Protection product ownership, by gross annual household income, March 2013
                                                                                                                                        • Barriers to Income Protection Ownership

                                                                                                                                          • Key points
                                                                                                                                            • Affordability is the main barrier to income protection ownership
                                                                                                                                              • Figure 30: Reasons for not owning income protection, March 2013
                                                                                                                                            • Younger people keen on keeping themselves healthy
                                                                                                                                              • Figure 31: Most popular reasons for not owning income protection, by age, March 2013
                                                                                                                                          • Increasing the Appeal of Income Protection

                                                                                                                                            • Key points
                                                                                                                                              • Consumers crave clarity from income protection providers
                                                                                                                                                • Figure 32: Motivators for purchasing income protection, March 2013
                                                                                                                                              • Goodwill gestures could boost trust
                                                                                                                                                • Figure 33: Motivators for purchasing income protection, by reasons for not owning income protection, March 2013
                                                                                                                                            • Consumer Perspective on Health and Risk

                                                                                                                                              • Key points
                                                                                                                                                • Nearly half of people rate their health as good…
                                                                                                                                                  • Figure 34: Consumer view of current health, March 2013
                                                                                                                                                • …but two thirds have concerns over their ability to draw an income
                                                                                                                                                  • Figure 35: Concerns around inability to work due to health reasons, March 2013
                                                                                                                                                • Confidence in health decreases from age 45
                                                                                                                                                  • Figure 36: Consumer view of current health, by age, March 2013
                                                                                                                                                • Poor health leads to concerns about ability to work
                                                                                                                                                  • Figure 37: Concerns around inability to work due to health reasons, by consumer view of current health, March 2013
                                                                                                                                                • Those in rude health would respond to health-based discounts
                                                                                                                                                  • Figure 38: Motivators for purchasing income protection, by consumer view of current health, March 2013
                                                                                                                                                • Health concerns prompt protection product ownership
                                                                                                                                                  • Figure 39: Protection product ownership, by concerns around inability to work due to health reasons, March 2013
                                                                                                                                                • Those not concerned about health more likely to rule out income protection purchase
                                                                                                                                                  • Figure 40: Motivators for purchasing income protection, by concerns around inability to work due to health reasons, March 2013
                                                                                                                                              • Financial Provisions for Inability to Work

                                                                                                                                                • Key points
                                                                                                                                                  • Majority of people would rely on savings when unable to work…
                                                                                                                                                    • Figure 41: Means of meeting financial commitments when unable to work, March 2013
                                                                                                                                                  • …but more than a fifth of people have no savings or investments
                                                                                                                                                    • Figure 42: Savings levels, March 2013
                                                                                                                                                  • Financial back-up plans vary with age
                                                                                                                                                    • Figure 43: Most popular means of meeting financial commitments when unable to work, by age, March 2013
                                                                                                                                                  • Those in poor health least likely to have savings
                                                                                                                                                    • Figure 44: Savings levels, by consumer view of current health, March 2013
                                                                                                                                                  • Consumers unaware that their savings might not be up to the job
                                                                                                                                                    • Figure 45: Savings levels, by means of meeting financial commitments when unable to work, March 2013
                                                                                                                                                • Appendix – Market Size and Forecast

                                                                                                                                                    • Figure 46: Best- and worst-case forecasts for new individual income protection premiums, at current prices, 2009-17
                                                                                                                                                • Appendix – Protection Product Ownership

                                                                                                                                                    • Figure 47: Most popular protection product ownership, by demographics, March 2013
                                                                                                                                                    • Figure 48: Next most popular protection product ownership, by demographics, March 2013
                                                                                                                                                    • Figure 49: Repertoire for protection product ownership, by demographics, March 2013
                                                                                                                                                • Appendix – Barriers to Income Protection Ownership

                                                                                                                                                    • Figure 50: Most popular reasons for not owning income protection, by demographics, March 2013
                                                                                                                                                    • Figure 51: Next most popular reasons for not owning income protection, by demographics, March 2013
                                                                                                                                                • Appendix – Increasing the Appeal of Income Protection

                                                                                                                                                    • Figure 52: Most popular motivators for purchasing income protection, by demographics, March 2013
                                                                                                                                                    • Figure 53: Next most popular motivators for purchasing income protection, by demographics, March 2013
                                                                                                                                                • Appendix – Consumer Perspective on Health and Risk

                                                                                                                                                    • Figure 54: Consumer view of current health, by demographics, March 2013
                                                                                                                                                    • Figure 55: Concerns about inability to work due to health reasons, by demographics, March 2013
                                                                                                                                                • Appendix – Financial Provisions for Inability to Work

                                                                                                                                                    • Figure 56: Most popular means of meeting financial commitments when unable to work, by demographics, March 2013
                                                                                                                                                    • Figure 57: Next most popular means of meeting financial commitments when unable to work, by demographics, March 2013
                                                                                                                                                    • Figure 58: Level of investible assets, by demographics, March 2013
                                                                                                                                                    • Figure 59: Level of investible assets continued, by demographics, March 2013

                                                                                                                                                Companies Covered

                                                                                                                                                • Aviva Plc
                                                                                                                                                • AXA UK plc
                                                                                                                                                • Barclays Bank plc
                                                                                                                                                • Bright Grey
                                                                                                                                                • BUPA
                                                                                                                                                • Friends Provident plc
                                                                                                                                                • Grupo Santander UK
                                                                                                                                                • Legal & General Group PLC
                                                                                                                                                • LV=
                                                                                                                                                • Nationwide Building Society
                                                                                                                                                • Royal Automobile Club
                                                                                                                                                • Royal London Group
                                                                                                                                                • Scottish Life
                                                                                                                                                • Scottish Provident
                                                                                                                                                • Sesame Bankhall Group Limited
                                                                                                                                                • Tesco Personal Finance Limited

                                                                                                                                                Income Protection - UK - May 2013

                                                                                                                                                US $2,583.33 (Excl.Tax)