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Life and Protection: Intermediary Focus - UK - October 2011

“In recent years, the life and protection markets have been given a boost due to the increasing number of IFAs conducting life insurance, critical illness and income protection business. However, there are contrasting opinions regarding future prospects. On the one hand the RDR is expected to reduce the overall number of intermediary firms, yet the proportion of IFAs advising on life and protection products should increase. As a result, it is difficult to foresee which of these factors will have a bigger influence on future business and intermediary prospects.”

– Stevan Obradovic, Financial Services Analyst

Some questions answered in the report include:

Can providers and intermediaries remarket life and protection products in order to change sonsumer attitudes?

How can intermediaries and providers deal with consumer scepticism?

What does uncertainty in the advisory landscape mean for life and protection sales?

Are direct sales a threat to intermediated distribution of life and protection products?

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Table of contents

  1. Introduction

      • Abbreviations
      • Executive Summary

          • The market
            • Number of authorised retail intermediaries
              • Figure 1: Number of FSA directly authorised retail intermediary firms, by primary category*, June 2008-June 2011
            • Term assurance distribution
              • Figure 2: Total new premiums (£m) for individual regular-premium term assurance policies written, by distribution channel, 2005-11 (H1)
            • Critical illness distribution
              • Figure 3: Total new premiums (£m) for individual CI rider benefit policies written, by channel, 2005-10
            • Income protection distribution
              • Figure 4: Total new premiums (£m) for individual IP premiums policies written, by distribution channel, 2009-2011 (H1)
            • Market factors
              • Stuttering economy remains a challenge to new business
                • A decline in mortgage lending has made it more difficult to sell protection products
                  • Uncertainty about the effect of the RDR on protection sales
                    • Complaints to the FOS about IFAs fall to 1.5% of total complaints about FS firms
                      • The adviser’s viewpoint
                        • Barriers to generating new life and protection business
                          • Figure 5: Barriers to selling life and protection products, July 2011
                        • Provider support
                          • Figure 6: Developments which IFAs feel would make it easier to sell life and protection products to clients, July 2011
                        • Confidence and future intentions
                          • Figure 7: IFA future plans over the next 12 months, Q2 2011
                        • Impact of the RDR on advisers’ business
                          • What we think
                          • Issues in the Market

                              • Can providers and intermediaries remarket life and protection products in order to change consumer attitudes?
                                • How can intermediaries and providers deal with consumer scepticism?
                                  • What does uncertainty in the advisory landscape mean for life and protection sales?
                                    • Are direct sales a threat to intermediated distribution of life and protection products?
                                    • Future Opportunities

                                      • An open approach to life and death
                                        • Online forums can help to increase transparency and boost trust
                                        • Internal Market Environment

                                          • Key points
                                            • Life assurance gap remains at £2.4 trillion in 2010…
                                              • … while the income protection gap remains at £190 billion
                                                • Consumer engagement and trust is lacking
                                                  • The onus is on providers and intermediaries to change perceptions
                                                    • IP market could benefit from publishing claims statistics
                                                      • Consumer Insurance Bill set to address payout disputes
                                                        • Welfare reforms could boost demand for protection products
                                                        • Broader Market Environment

                                                          • Key points
                                                            • Economic uncertainty has increased consumer caution
                                                              • Figure 8: GDP quarterly percentage change, Q1 2004-Q2 2011
                                                            • A faltering housing market is holding back sales
                                                              • Figure 9: Residential housing transactions (seasonally adjusted), Q2 2006-Q2 2011
                                                            • Increasing life expectancy helps to push down premiums
                                                              • Figure 10: Cohort life expectancy at age 60, by gender, 1981-2058
                                                            • Growing number of ABs is positive for providers
                                                              • Figure 11: Forecast adult population trends, by socio-economic group, 2006-16
                                                          • Regulatory Environment

                                                            • Key points
                                                              • RDR is causing many IFA firms to leave the market…
                                                                • ...but focus on life and protection products is set to intensify
                                                                  • Capital adequacy rules pushed back by two years to December 2015
                                                                    • Complaints about IFAs fall to 1.5%
                                                                      • Figure 12: Financial services firms complained about, by sector, 2006/07-2010/11
                                                                  • Swot

                                                                      • Figure 13: Life and protection – SWOT analysis, 2011
                                                                  • Who’s Innovating?

                                                                    • Key points
                                                                      • Slider tool launched by The Life Department
                                                                        • Ageas Protect and Asda unveil new partnership
                                                                          • L&G announces new protection app for the iPad and iPhone
                                                                            • Gender neutral IP plan already available to consumers
                                                                              • LV= aims to offer lowest IP premiums
                                                                                • Sesame Bankhall Group launches a new customer feedback system
                                                                                • Intermediary Marketplace

                                                                                  • Key points
                                                                                    • The number of directly authorised firms continues to decline
                                                                                      • Figure 14: Number of FSA directly authorised retail intermediary firms, by primary category*, June 2008-June 2011
                                                                                    • Uncertainty about the impact of RDR on protection advice
                                                                                      • Number of GI appointed representatives increases by 4%
                                                                                        • Figure 15: Number of directly authorised financial advice firms, June 2008-June 2011
                                                                                    • Protection Market Size

                                                                                      • Key points
                                                                                        • Term assurance
                                                                                          • Stability in the market expected during 2011
                                                                                            • Figure 16: Volume and value of new individual regular-premiums term assurance policy sales, 2005-11
                                                                                          • Focus has shifted towards non-mortgage-related policies
                                                                                            • Figure 17: Volume and value of new individual regular-premium term assurance policy sales, by policy type, 2005-10
                                                                                          • Critical illness
                                                                                            • New individual sales are expected to rise again in 2011
                                                                                              • Figure 18: New individual CI sales, by volume and value, 2007-11
                                                                                            • The majority of critical illness sales are sold with other insurance
                                                                                              • Figure 19: New individual CI sales, by type, by volume and value, 2007-11
                                                                                            • Most CI policies sold alongside term assurance
                                                                                              • Figure 20: New individual CI rider benefit sales, by volume and value and type of insurance, 2006-11
                                                                                            • Income protection
                                                                                              • Market growth is expected in 2011 but average premiums should fall
                                                                                                • Figure 21: New individual income protection sales, by value and volume, and average annual premiums, 2007-11
                                                                                            • Distribution Overview

                                                                                              • Key points
                                                                                                • Access to advice is very important for life and protection sales
                                                                                                  • Term assurance
                                                                                                    • IFAs dominate non-mortgage-related distribution
                                                                                                      • Figure 22: Total new premiums for individual regular-premium term assurance policies written, by distribution channel and policy type, 2005-11 (H1)
                                                                                                    • Critical illness
                                                                                                      • Intermediaries play a big role in new CI rider benefit sales
                                                                                                        • Figure 23: Distribution of new individual CI rider benefit premiums, by channel, 2005-10
                                                                                                      • Majority of standalone CI premiums generated by IFAs
                                                                                                        • Figure 24: Distribution of new individual standalone CI premiums, by channel, 2005-11 (H1)
                                                                                                      • Income protection
                                                                                                        • 2011 first-half figures show that 53.8% of new IP premiums are IFA-generated
                                                                                                          • Figure 25: Distribution of new individual IP premiums, by distribution channel, 2009-2011 (H1)
                                                                                                        • Direct sales play a small part in the life and protection markets
                                                                                                        • Key Intermediary Players

                                                                                                          • The Tenet Group
                                                                                                              • Figure 26: Key financial data for Tenet Group Ltd, 2009-10
                                                                                                            • Sesame Bankhall Group
                                                                                                                • Figure 27: Key financial data for Sesame Bankhall Group Limited, 2009-10
                                                                                                              • Openwork
                                                                                                                  • Figure 28: Key financial data for Openwork Limited, 2008-09
                                                                                                                • Intrinsic Financial Services
                                                                                                                    • Figure 29: Key financial data for Intrinsic Financial Services Limited, 2008-09
                                                                                                                  • Personal Touch Financial Services
                                                                                                                      • Figure 30: Key financial data for Personal Touch Financial Services Limited, 2008-09
                                                                                                                    • Honister Capital
                                                                                                                    • Brand Communication and Promotion

                                                                                                                      • Key points
                                                                                                                        • Adspend continues to decline in 2010/11
                                                                                                                          • Figure 31: Overview of total adspend on protection products, 2008/09-2010/11*
                                                                                                                        • Life protection advertising accounts for the majority of adspend
                                                                                                                          • Figure 32: Adspend on protection products, by category, 2008/09-2010/11
                                                                                                                        • Aviva has the biggest adspend in the life and protection markets
                                                                                                                          • Figure 33: Top 15 advertisers of protection products, 2010/11
                                                                                                                        • Direct mail and TV are the most popular methods of advertising
                                                                                                                          • Figure 34: Overview of media type used to advertise protection products, 2010/11
                                                                                                                        • Advertising in intermediary and trade press grows by 5.7%
                                                                                                                          • Figure 35: Adspend in intermediary and trade press*, 2009/10-2010/11
                                                                                                                      • The IFA: Barriers to Generating New Life and Protection Business

                                                                                                                        • Key points
                                                                                                                          • Recession is the number-one barrier to life and protection sales
                                                                                                                            • Figure 36: The main barriers when it comes to trying to sell protection and life insurance products to clients, 2010 and 2011
                                                                                                                          • Trust and education is lacking among consumers
                                                                                                                            • Competition from insurers restricting advisers
                                                                                                                            • The IFA: Provider Support

                                                                                                                              • Key points
                                                                                                                                • Improvements to application and underwriting processes top IFAs’ wish lists…
                                                                                                                                  • Figure 37: What insurers could do to make it easier for IFAs to sell protection products and life insurance to their clients, 2010 and 2011
                                                                                                                                • ...however, some complexity is beneficial to advisers
                                                                                                                                  • Increasing number of IFAs want to see consumer-focussed marketing
                                                                                                                                    • Insurers’ online resources help IFAs keep up to date with developments
                                                                                                                                      • Figure 38: How IFAs prefer to keep up to date with developments in the life and protection markets, 2010 and 2011
                                                                                                                                  • The IFA: Confidence and Future Intentions

                                                                                                                                    • Key points
                                                                                                                                      • IFAs are more positive about own business prospects than of the financial services market…
                                                                                                                                        • Figure 39: IFA confidence about own business prospects and overall financial services market compared to six months prior, Q2 2011
                                                                                                                                      • …however there is a mixed picture in comparison to last year
                                                                                                                                        • Figure 40: Confidence about own business prospects compared to six months prior, Q2-Q3 2010 and Q2 2011
                                                                                                                                      • Three in five IFAs plan to shift the balance of their business to recurring income
                                                                                                                                        • Figure 41: IFA future plans over the next 12 months, Q2 2011
                                                                                                                                      • Merger & acquisition activity expected to continue among IFAs
                                                                                                                                      • The IFA: Impact on Business

                                                                                                                                        • Key points
                                                                                                                                          • A larger number of IFAs feels that the RDR will have a negative impact on their business…
                                                                                                                                            • Figure 42: Opinions on the impact of the Retail Distribution Review on IFA business, Q3 2010 and Q2 2011
                                                                                                                                          • …however this could be good news for the life and protection markets
                                                                                                                                            • Half of IFAs feel that the reputation of the FS industry will have no impact on business
                                                                                                                                              • Figure 43: Opinions on the impact of the reputation of the financial services industry on IFA business, Q2 2011
                                                                                                                                            • Consumer confidence in the housing market is a concern for IFAs
                                                                                                                                              • Figure 44: Opinions on the impact of consumer confidence in the housing market on IFA business, Q2 2011

                                                                                                                                          Companies Covered

                                                                                                                                          • Association of British Insurers
                                                                                                                                          • Competition Commission
                                                                                                                                          • Council of Mortgage Lenders
                                                                                                                                          • Financial Adviser
                                                                                                                                          • Financial Ombudsman Service
                                                                                                                                          • Financial Services Authority (The)
                                                                                                                                          • Friends Provident plc
                                                                                                                                          • Government Actuary's Department (GAD)
                                                                                                                                          • HBOS plc (Halifax Bank of Scotland)
                                                                                                                                          • HM Revenue & Customs
                                                                                                                                          • Intrinsic Financial Services
                                                                                                                                          • John Gilbert Financial Research
                                                                                                                                          • Legal & General Group PLC
                                                                                                                                          • Lutine Assurance Services Ltd
                                                                                                                                          • Mint Financial Services Ltd
                                                                                                                                          • Money Portal Limited
                                                                                                                                          • Office of Fair Trading
                                                                                                                                          • Personal Touch Financial Services Limited
                                                                                                                                          • Scottish Provident
                                                                                                                                          • Scottish Widows Bank plc
                                                                                                                                          • Sesame Bankhall Group Limited
                                                                                                                                          • Tenet Group Ltd
                                                                                                                                          • Zurich Financial Services

                                                                                                                                          Life and Protection: Intermediary Focus - UK - October 2011

                                                                                                                                          £1,995.00 (Excl.Tax)