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Life and Protection - UK - October 2009

The guaranteed acceptance over-50s market has seen spectacular volume growth over the last few years. Its simple marketing message, affordable premiums and a surge in interest from bancassurers have made this the star player of the life insurance market.

  • IFAs still account for around half of all premiums, showing that despite a drive to simplify products, consumers are still wary of buying without advice.
  • The high street banks could be key to future growth. Most people prefer to buy cover face-to-face, making the branch network a vital distribution tool. For modest levels of cover, premiums are fairly low, potentially making it a relatively easy product to sell in-branch.
  • On the subject of premiums, there remains a degree of misunderstanding. Particularly among younger, less affluent people, there is a widespread belief that life cover is simply too expensive. People won't even bother getting a quote if they automatically assume that insurance is out of their price range.
  • Life cover isn't currently covered by the retail distribution review, but the review is still creating major changes across the industry. Life companies are placing an increased emphasis on selling direct to the consumer, anticipating a fall in business volumes coming through the IFA sector.
  • Consumer research suggests that there's scope to bring 20 million consumers into the market - most of whom have never owned cover before, but who are open to an offer.

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Table of contents

  1. Issues in the Market

      • Key issues
        • Definition
            • Figure 1: The categorisation of life protection policies, 2009
          • Abbreviations
          • Future Opportunities

            • K.I.S.S.
              • Too Many Complications
                • So simplify things
                  • Get consumer-led
                    • Mintel Inspire: Focus on the Niche
                      • Target the female pound…
                        • …and young couples
                          • Embrace the internet model
                          • Market in Brief

                            • Protection gaps remains large
                              • Premiums continue to fall
                                • L&G and Aviva fight for market leadership
                                  • Figure 2: Life company rankings, by new regular-premium life business, 2008
                                • Distribution
                                    • Figure 3: The changing distribution pattern of new, regular life premiums+, 2006-09
                                  • IFA and provider targets
                                    • Figure 4: The number of adults in the core target group for a life offer, by type, July 2009
                                • Internal Market Environment

                                  • Key points
                                    • Consumers remain under-protected…
                                      • …because many don’t want to face up to the inevitable…
                                        • …and misjudge the costs
                                            • Figure 5: The Annual rate of growth in the life insurance and all consumer spending price deflators, 2001 Q1-2009 Q1
                                          • Many do not trust the financial services industry...
                                            • Figure 6: Agreement with trust statements about financial advisers, December 2008
                                          • The government steps in to help…
                                            • And the industry starts a fightback
                                              • An improvement in customer service standards
                                                • Figure 7: Financial services firms complained about, by sector, 2006/07-2008/09
                                              • Of ICOBs, COBS, TCF and RDR
                                                • Movement to give consumers more premium information…
                                                  • …and pay for advice as a standalone service
                                                    • What impact will RDR have on the consumer?
                                                      • Will consumers abandon investment-led products?
                                                        • Figure 8: Consumer happiness with financial advisers’ fees, December 2008
                                                      • The danger to RDR spread to the pure protection market
                                                        • The impact of inheritance tax changes
                                                          • Extension to the moratorium on genetic testing
                                                          • Broader Market Environment

                                                            • Key points
                                                              • Consumers cut back in past recessions but protected life policies
                                                                • But is this recession different?
                                                                  • Figure 9: The percentage of total consumer expenditure takan by on life insurance+, 1970-2009
                                                                • With-profits sales likely to be hit
                                                                  • Figure 10: Internet investments, by insurance company long-term funds, Q1 2004-Q1 2009
                                                                • Improving longevity cuts the cost of life cover
                                                                  • Figure 11: Cohort expected age of death+ at age 50, 60 and 70, 1981-2051
                                                                • More older adults will change the product mix
                                                                  • Figure 12: UK population, by age bracket, 2006-31
                                                              • Strengths and Weaknesses in the Market

                                                                  • Figure 13: Life protection products – strengths and weaknesses in the market, 2009
                                                                • Strengths
                                                                  • Weaknesses
                                                                  • Who’s Innovating?

                                                                    • Key points
                                                                      • Flexibility and speed feature in new launches
                                                                        • L&G focuses on reducing the need for GP reports…
                                                                          • …as Zurich streamlines sales
                                                                            • Direct-to-consumer instant acceptance policies
                                                                              • Postcode pricing moves from annuities to life protection
                                                                                • Making life easier for new parents
                                                                                  • Bringing the funeral and over-50s markets together
                                                                                  • Trade Perspective

                                                                                      • Trust and education key future challenges…
                                                                                        • …as is the potential impact of RDR
                                                                                          • Some signs of improvement in the next 12 months…
                                                                                            • …as access to advice increases
                                                                                              • Price driven mentality must change
                                                                                                • A greater focus on needs not price
                                                                                                  • Simpler products coming onto the market
                                                                                                    • Multichannel distribution to continue
                                                                                                      • Over-50 and funeral plan markets converging…
                                                                                                        • …and could benefit from the RDR
                                                                                                          • Competition in Over 50 Market growing in scale and intensity
                                                                                                          • Market Size and Forecast

                                                                                                            • Key points
                                                                                                              • Expenditure on life insurance falters in the recession
                                                                                                                • Figure 14: Consumer expenditure on life insurance+, seasonally adjusted, Q1 2005-Q1 2009
                                                                                                              • Policy sales up but premiums harder to generate
                                                                                                                • Figure 15: Premiums (£m) and policy sales (000) of new single life, regular premium life policies, 2002-09
                                                                                                              • Term assurance the most popular
                                                                                                                • Figure 16: Premiums of new single life, regular premium life policies, by type of policy, 2005-09
                                                                                                              • Guaranteed acceptance policies the main growth segment
                                                                                                                • Figure 17: New policy sales of single life, regular premium life policies, by type of policy, 2005-09
                                                                                                              • Endowment sales hit by the housing market
                                                                                                                • Policies outstanding fall below 30 million for first time in a decade…
                                                                                                                  • Figure 18: The number of single premium and regular premium life policies in force at year end, 1998-2009
                                                                                                                • …but the average level of cover tops £50,000
                                                                                                                  • Figure 19: The average level of cover (£000) on regular premium life policies outstanding at year end, 1998-2008
                                                                                                                • Forecast
                                                                                                                  • The slow road to recovery
                                                                                                                    • Figure 20: Life insurance premium income, 2005-14
                                                                                                                  • Factors used in the forecast
                                                                                                                  • Segment Performance

                                                                                                                    • Key points
                                                                                                                      • Housing market decline hits term and endowment sales
                                                                                                                        • Figure 21: The value of new premiums for term assurance and endownment policies, by type, 2006-09
                                                                                                                        • Figure 22: Term assurance market segmentation, 2005-09
                                                                                                                      • Other term insurance generates higher average premiums
                                                                                                                        • Figure 23: The average premiums on new term assurance policies written, by policy type, 2006-09
                                                                                                                      • Over-50 plans drive the whole-of-life sector
                                                                                                                        • Figure 24: Whole-of-life market segmentation, 2006-09
                                                                                                                      • Average new premium on non-linked policies now under £180
                                                                                                                        • Figure 25: The average premiums on new whole-of-life policies written, by policy type, 2006-09
                                                                                                                    • Market Share

                                                                                                                      • Key points
                                                                                                                        • Aviva challenge L&G for market leadership
                                                                                                                          • Figure 26: Life company rankings, by new regular-premium life business, 2007 and 2008
                                                                                                                        • HSBC and Prudential the star performers
                                                                                                                          • While it’s a four-horse race in the investment sector
                                                                                                                            • Figure 27: Life company rankings, by new regular-premium unit-linked and with-profits life business, 2008
                                                                                                                          • L&G and Aviva command the pure protection market
                                                                                                                            • Figure 28: Life company rankings, by new regular-premium non-linked+ life business, 2008
                                                                                                                            • Figure 29: Top five providers of whole-of-life policies, by volume, 2008
                                                                                                                        • Companies and Products

                                                                                                                          • Key points
                                                                                                                            • New guaranteed acceptance life insurance plans continue to come to market…
                                                                                                                              • …as life offices look to generate more business on a non-advised basis
                                                                                                                                • Quality over quantity
                                                                                                                                  • Improved operational efficiency leading to job losses
                                                                                                                                    • Company snapshots
                                                                                                                                      • Legal & General
                                                                                                                                        • Aviva
                                                                                                                                          • Royal London Group
                                                                                                                                            • Aegon Scottish Equitable
                                                                                                                                              • HSBC
                                                                                                                                                • Skandia Life
                                                                                                                                                  • Friends Provident
                                                                                                                                                    • Zurich Financial Services Group
                                                                                                                                                      • AXA Life
                                                                                                                                                      • Brand Communication and Promotion

                                                                                                                                                        • Key points
                                                                                                                                                          • Brand and image building of paramount importance…
                                                                                                                                                            • Main media advertising is skewed towards guaranteed acceptance plans
                                                                                                                                                              • Figure 30: Main media expenditure on life insurance, by type, 2005-08
                                                                                                                                                            • Direct mail the most used medium
                                                                                                                                                              • Figure 31: Breakdown of main media expenditure on life insurance+, by media, 2005-08
                                                                                                                                                            • AXA outspends its rival by a wide margin
                                                                                                                                                              • Figure 32: Expenditure on advertising and promoting life insurance+, by company, 2005-08
                                                                                                                                                            • Aviva goes down the sponsorship route
                                                                                                                                                              • Figure 33: The share of voice+ for life insurance, 2008
                                                                                                                                                          • Channels to Market

                                                                                                                                                            • Key points
                                                                                                                                                              • Three main types of intermediary
                                                                                                                                                                • IFAs hold share in a declining market…
                                                                                                                                                                  • Figure 34: The changing distribution pattern of new, regular life premiums+, 2006-08
                                                                                                                                                                • But the growth segment of the market tends to go direct
                                                                                                                                                                  • Figure 35: Percentage breakdown of new individual regular premiums, by type of policy and distribution channel, 2008
                                                                                                                                                                • Bancassurance strongly linked to the mortgage market
                                                                                                                                                                  • Figure 36: Percentage breakdown of new individual regular premiums, by bancassurance and other channels, 2008
                                                                                                                                                                • IFA increase their share of mortgage-related term sales…
                                                                                                                                                                  • Figure 37: The breakdown of new regular-premium mortgage term assurance premiums, by channel, 2006-09
                                                                                                                                                                • …and lead the non-mortgage market
                                                                                                                                                                  • Figure 38: The breakdown of new regular-premium other term assurance premiums, by channel, 2006-09
                                                                                                                                                                • Direct sales growing strongly in the whole-of-life sector
                                                                                                                                                                  • Figure 39: The breakdown of new regular-premium whole-of-life insurance premiums, by channel, 2006-09
                                                                                                                                                                • The move to bancassurance
                                                                                                                                                                  • Competition in Over 50 Market growing in scale and intensity
                                                                                                                                                                  • The Consumer – Ownership of Life Products

                                                                                                                                                                    • Key points
                                                                                                                                                                      • Half the population has life cover…
                                                                                                                                                                        • Figure 40: Ownership of life insurance and other protection products, July 2009
                                                                                                                                                                      • Implications
                                                                                                                                                                        • …and the proportion of adults covered is rising
                                                                                                                                                                          • Figure 41: Ownership of life insurance and other protection products, Jun 2008- July 2009
                                                                                                                                                                        • Over-50 life plans seen as add-on policies?
                                                                                                                                                                            • Figure 42: The average number of life and related policies held, by type of policy owned, July 2009
                                                                                                                                                                          • Implications
                                                                                                                                                                            • Can over-50 plans help tap non-holders?
                                                                                                                                                                                • Figure 43: Ownership of life-related protection products, by life insurance ownership, June 2008
                                                                                                                                                                              • Implications
                                                                                                                                                                                • Affluence determines ownership levels…
                                                                                                                                                                                  • Figure 44: Ownership of any type of life assurance policy/plan, by socio-economic group, household income, and ACORN group, July 2009
                                                                                                                                                                                • …as do age and lifestage triggers
                                                                                                                                                                                  • Figure 45: Ownership of any type of life assurance policy/plan, by age, lifestage and special groups, July 2009
                                                                                                                                                                                • Investment-linked plans more popular with the affluent
                                                                                                                                                                                  • Figure 46: Ownership of specific life assurance policies/plans, by socio-economic group, household income and ACORN group, July 2009
                                                                                                                                                                                • Over-50s plans more popular with the less affluent
                                                                                                                                                                                  • Figure 47: Ownership of specific life assurance policies/plans, by age, special groups and household tenure, July 2009
                                                                                                                                                                              • The Consumer – Buying or Renewing a Life Plan

                                                                                                                                                                                • Key points
                                                                                                                                                                                  • Eight out of ten adults would consider a life offer, or 38.9 million targets
                                                                                                                                                                                    • Figure 48: Consumer attitudes to the methods they would consider for buying and renewing a life policy, July 2009
                                                                                                                                                                                  • Pressing the flesh remains popular
                                                                                                                                                                                      • Figure 49: Consumer attitudes to the methods they would consider for buying and renewing a life policy, by willing to buy, July 2009
                                                                                                                                                                                    • Implications
                                                                                                                                                                                      • Internet usage shows the strongest variations by wealth
                                                                                                                                                                                          • Figure 50: The willingness to use the internet to buy or renew a life policy, by socio-economic group, household income, ACORN group and household tenure, July 2009
                                                                                                                                                                                        • Implications
                                                                                                                                                                                          • Lifestage and children also influence the preference for the internet
                                                                                                                                                                                              • Figure 51: The willingness to use the internet and telephone to buy or renew a life policy, by age, lifestage and presence of children in the home, July 2009
                                                                                                                                                                                            • Channel preferences strongly associated with financial confidence
                                                                                                                                                                                              • Figure 52: Consumer attitudes to the methods they would consider for buying and renewing a life policy, by willing to buy, by attitudes to financial advice and financial confidence, July 2009
                                                                                                                                                                                            • The affluent need IFAs the most but don’t recognise this
                                                                                                                                                                                                • Figure 53: Internet Confidence+ in arranging a life policy on their own without advice, by socio-economic group, household income, ACORN group and household tenure, July 2009
                                                                                                                                                                                              • The young want advice but look to the internet first…
                                                                                                                                                                                                  • Figure 54: Internet Confidence+ in arranging a life policy on their own without advice, by age, lifestage and special group, July 2009
                                                                                                                                                                                                • Because they don’t know where else to turn
                                                                                                                                                                                                    • Figure 55: Agreement with the statement “I don't know where I’d be able to get trustworthy advice”, July 2009
                                                                                                                                                                                                  • Two distinct types of internet users
                                                                                                                                                                                                      • Figure 56: Breakdown of adults who would consider using to internet to buy/renew a life policy, 2009
                                                                                                                                                                                                    • Implications
                                                                                                                                                                                                    • The Consumer – Trust and Affordability

                                                                                                                                                                                                      • Key points
                                                                                                                                                                                                        • The good news: The life industry is trusted
                                                                                                                                                                                                          • But a lack of trust still restricts policy sales
                                                                                                                                                                                                            • Figure 57: The ownership of life policies, by trust in life companies, July 2009
                                                                                                                                                                                                          • More good news: Not many consumers think it is an expensive luxury
                                                                                                                                                                                                            • But the bad news is that six million adults are affected
                                                                                                                                                                                                                • Figure 58: The ownership of life policies, by the perception that life insurance is too expensive+, July 2009
                                                                                                                                                                                                                • Figure 59: The view that life insurance is too expensive+, by age and socio-economic group, special group and children, July 2009
                                                                                                                                                                                                              • Implications
                                                                                                                                                                                                              • The Consumer Targets

                                                                                                                                                                                                                • Key points
                                                                                                                                                                                                                  • Three strategies for increased sales
                                                                                                                                                                                                                      • Figure 60: The broad targets for the life industry, July 2008
                                                                                                                                                                                                                    • Dissecting the targets by attitudes towards life insurance
                                                                                                                                                                                                                        • Figure 61: Segmentation based upon attitudes towards life insurance, July 2009
                                                                                                                                                                                                                      • Almost 25 million in the prime target group…
                                                                                                                                                                                                                        • Figure 62: The number of adults in the prime target group for a life offer, by type, July 2009
                                                                                                                                                                                                                      • But does the industry want to target them all?
                                                                                                                                                                                                                        • 15 million core targets overall but less than 5 million new sales targets
                                                                                                                                                                                                                            • Figure 63: The number of adults in the core target group for a life offer, by type, July 2009
                                                                                                                                                                                                                          • Working mothers offer good sales prospects to IFAs
                                                                                                                                                                                                                            • Figure 64: IFA sales targets, by detailed lifestage, July 2009
                                                                                                                                                                                                                          • Implications
                                                                                                                                                                                                                              • Figure 65: The importance of women as targets for the life industry, July 2009
                                                                                                                                                                                                                            • Pre-/no family couples good prospects for providers…
                                                                                                                                                                                                                              • But older affluent couples are also valuable targets
                                                                                                                                                                                                                                  • Figure 66: Provider sales targets, by detailed lifestage, age and socio-economic group, July 2009
                                                                                                                                                                                                                              • Appendix – Market Size and Trends

                                                                                                                                                                                                                                  • Figure 67: Individual life insurance business in force at year end, 2003-08
                                                                                                                                                                                                                                  • Figure 68: Individual life insurance business in force at year end, by product, 2003-08
                                                                                                                                                                                                                              • Appendix – Channels to Market

                                                                                                                                                                                                                                  • Figure 69: New individual regular premium business, by type of policy and distribution channel, 2008
                                                                                                                                                                                                                              • Appendix – The Consumer Ownership

                                                                                                                                                                                                                                  • Figure 70: Consumer life insurance ownership, July 2009
                                                                                                                                                                                                                                  • Figure 71: IFA sales target, by demographics, July 2009
                                                                                                                                                                                                                                  • Figure 72: Insurance provider sales target, by demographics, july 2009

                                                                                                                                                                                                                              Companies Covered

                                                                                                                                                                                                                              • Aegon UK
                                                                                                                                                                                                                              • Alliance & Leicester
                                                                                                                                                                                                                              • Asda Group Ltd
                                                                                                                                                                                                                              • Association of British Insurers
                                                                                                                                                                                                                              • Association of Independent Financial Advisers
                                                                                                                                                                                                                              • Aviva Plc
                                                                                                                                                                                                                              • AXA Sun Life
                                                                                                                                                                                                                              • AXA UK plc
                                                                                                                                                                                                                              • Barclays Bank plc
                                                                                                                                                                                                                              • Clydesdale Bank
                                                                                                                                                                                                                              • Co-operative Group
                                                                                                                                                                                                                              • Direct Line Group Limited
                                                                                                                                                                                                                              • Financial Ombudsman Service
                                                                                                                                                                                                                              • Financial Services Authority (The)
                                                                                                                                                                                                                              • First Direct
                                                                                                                                                                                                                              • Foresters Friendly Society
                                                                                                                                                                                                                              • Government Actuary's Department (GAD)
                                                                                                                                                                                                                              • HBOS plc (Halifax Bank of Scotland)
                                                                                                                                                                                                                              • HSBC Private Bank (UK) Limited
                                                                                                                                                                                                                              • J. Sainsbury
                                                                                                                                                                                                                              • Legal & General Group PLC
                                                                                                                                                                                                                              • Lloyds Banking Group
                                                                                                                                                                                                                              • Marks & Spencer
                                                                                                                                                                                                                              • Nationwide Building Society
                                                                                                                                                                                                                              • Norwich Union
                                                                                                                                                                                                                              • Office for National Statistics
                                                                                                                                                                                                                              • Post Office Limited
                                                                                                                                                                                                                              • Prudential plc
                                                                                                                                                                                                                              • Royal Bank of Scotland Group plc
                                                                                                                                                                                                                              • Royal London Group
                                                                                                                                                                                                                              • Scottish Provident
                                                                                                                                                                                                                              • Scottish Widows Bank plc
                                                                                                                                                                                                                              • Tesco Plc
                                                                                                                                                                                                                              • Zurich Financial Services

                                                                                                                                                                                                                              Life and Protection - UK - October 2009

                                                                                                                                                                                                                              £1,995.00 (Excl.Tax)