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Term Assurance - UK - July 2011

The term assurance market has performed relatively well during times of economic uncertainty and as a result the term assurance protection gap has remained stable at £2.4 trillion. Furthermore, the number of new policies sold increased by 5.8% in 2010. This growth has been achieved despite difficult market conditions, including a drop in mortgage lending and falling consumer expenditure.

However, it is not all positive news for providers. While the number of policies increased in 2010, the value of total term assurance premiums dropped by 4.3% during the same period, squeezing providers’ profit margins. Product profitability could come under further scrutiny following the implementation of the European Court of Justice gender ruling and the Solvency II Directive. If providers are to expand ownership of term assurance products, they will need to ensure consumers are not priced out of the market. Currently more than 50% of adults have no life insurance cover – a problem that could be exacerbated by large price hikes.

In addition, the industry is suffering from a lack of consumer engagement which can cause consumers to distrust providers and misjudge the cost of cover. Despite improving standards and a decline in complaints, many consumers remain sceptical about the financial services industry. The onus will therefore be on providers to increase and improve communication with existing customers and the wider public in order to tackle misconceptions and grow the term assurance market.

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Table of contents

  1. Introduction

      • Definitions and report scope
        • Term assurance
          • Abbreviations
          • Executive Summary

              • The market
                • Market size and forecast
                  • Figure 1: Forecast for total value of new individual regular-premium term assurance policy sales, 2006-16
                • Channels to market
                  • Figure 2: Total new premiums (£m) for individual regular-premium term assurance policies written, by distribution channel, 2005-10
                • Market factors
                  • Difficult economic conditions remain a challenge
                    • European Court of Justice gender ruling and Solvency II
                      • Mortgage lending holding back term assurance sales
                        • Figure 3: Number of monthly mortgage approvals for home purchase, January 2004-January 2011
                      • Adviser fallout could hurt the market
                        • Companies, brands and innovation
                          • The top five providers sold 68% of new policies in 2010
                            • Figure 4: Term assurance providers, by new individual sales, 2010
                          • Brand promotion
                            • Who’s innovating?
                              • The consumer
                                • Product ownership levels
                                  • Figure 5: Life insurance ownership, May 2011
                                • Purchase triggers
                                  • Attitudes towards life insurance
                                    • Figure 6: Attitudes towards life insurance, May 2011
                                  • What we think
                                  • Issues in the Market

                                      • How will changes in the adviser landscape impact term assurance sales?
                                        • To what extent is consumer understanding, or lack of it, hurting the term assurance market?
                                          • How can protection providers improve their image and tackle consumer scepticism?
                                            • Do consumers overlook long-term benefits to achieve short-term savings?
                                              • Can insurance providers create or market additional term assurance triggers, beyond covering debt?
                                              • Future Opportunities

                                                • Educating consumers about taking life cover now
                                                  • Using statistics to improve trust
                                                  • Internal Market Environment

                                                    • Key points
                                                      • The protection gap remains at £2.4 trillion
                                                        • Consumer engagement and education is lacking
                                                          • Lack of consumer awareness leads many to misjudge costs…
                                                            • …and distrust insurance providers
                                                              • Figure 7: Financial services firms complained about, by sector, 2007/08-2010/11
                                                            • ABI issues new guidelines to speed up payouts…
                                                              • …while the government is set to introduce new rules
                                                                • ECJ gender ruling to impact policy prices…
                                                                  • ...and Solvency II could do the same
                                                                    • RDR could lead to a shortage of advice
                                                                    • Broader Market Environment

                                                                      • Key points
                                                                        • A decline in mortgage lending holding back the market
                                                                          • Figure 8: Number of monthly mortgage approvals for home purchase, January 2004-March 2011
                                                                        • Difficult economic climate squeezing household incomes
                                                                          • Figure 9: GDP quarterly percentage change, Q1 2004-Q1 2011
                                                                        • Consumers cut back on discretionary items
                                                                          • Figure 10: The annual rate of growth in the life insurance and all consumer spending price deflators, Q1 2004-Q4 2010
                                                                        • Increased life expectancy pushes premiums down
                                                                          • Figure 11: Cohort expected age of death+ at age 60, by gender, 1981-2058
                                                                      • SWOT Analysis

                                                                          • Figure 12: Term assurance – SWOT analysis, 2011
                                                                      • Who’s Innovating?

                                                                        • Key points
                                                                          • Aviva pilots new teleclaims process
                                                                            • PruProtect develops education cover
                                                                              • Life Cover for All launches in the UK
                                                                                • Ageas Protect and Friends Life simplify writing policies in trust
                                                                                  • Ageas Protect offers a Low Start option
                                                                                  • Market Size and Forecast

                                                                                    • Key points
                                                                                      • The term assurance market remains relatively steady
                                                                                        • Figure 13: Volume and value of new individual regular-premium term assurance policy sales, 2005-11
                                                                                      • Non-mortgage-related sales holding up the market…
                                                                                        • Figure 14: Volume of new individual regular-premium term assurance policy sales, by policy type, 2005-10
                                                                                      • …with a similar trend in term assurance premiums
                                                                                        • Figure 15: Value of new individual regular-premium term assurance policy sales, by policy type, 2005-10
                                                                                      • Average cost of cover declines sharply
                                                                                        • Figure 16: Average annual premiums on new individual regular-premium term assurance policies written, by policy type, 2005-10
                                                                                      • Prices driven down by changes in life expectancy and sums assured
                                                                                        • Existing book of business fell in 2009
                                                                                          • Forecast
                                                                                            • Figure 17: Forecast for total value of new individual regular-premium term assurance policy sales, 2006-16
                                                                                            • Figure 18: Forecast for total value of new individual regular-premium term assurance policy sales, 2006-16
                                                                                            • Figure 19: Forecast for total volume of new individual regular-premium term assurance policy sales, 2006-16
                                                                                            • Figure 20: Forecast for total volume of new individual regular-premium term assurance policy sales, 2006-16
                                                                                          • Forecast methodology
                                                                                            • Factors used in the forecast for term assurance
                                                                                            • Market Share

                                                                                              • Key points
                                                                                                • Legal & General remains the market leader for term assurance
                                                                                                  • Figure 21: Top five term assurance providers, by new individual sales, 2010
                                                                                                • Top five companies command 68% of new term assurance sales
                                                                                                • Companies and Products

                                                                                                  • Aviva
                                                                                                      • Figure 22: Key financial data for Aviva, 2009 and 2010
                                                                                                    • Friends Life (Friends Provident and AXA UK)
                                                                                                        • Figure 23: Key financial data for Friends Provident Holdings (UK) Plc, 2009 and 2010
                                                                                                      • Legal & General
                                                                                                          • Figure 24: Key financial data for Legal & General, 2009 and 2010
                                                                                                        • RBS/NatWest
                                                                                                            • Figure 25: Key financial data for RBS Group, 2009 and 2010
                                                                                                            • Figure 26: Key financial data for UK Retail Banking Division – RBS Group, 2009 and 2010
                                                                                                          • Royal London Group (Scottish Provident and Phoenix Life)
                                                                                                              • Figure 27: Key financial data for Royal London Group, 2009 and 2010
                                                                                                            • Scottish Widows
                                                                                                                • Figure 28: Key financial data for Lloyds Banking Group (Insurance Segment), 2009 and 2010
                                                                                                            • Brand Promotion and Communication

                                                                                                              • Key points
                                                                                                                • Life protection advertising spend driven by over-50s plans
                                                                                                                  • Figure 29: Breakdown of top-level life protection* advertising expenditure, by sub-category, 2008-10
                                                                                                                • Aviva has the biggest adspend in the life protection/term assurance market
                                                                                                                  • Figure 30: Top ten advertisers of life protection/term assurance, 2008-10
                                                                                                                • Direct mail is the most popular method of advertising
                                                                                                                  • Figure 31: Advertising expenditure on term assurance, by media type, 2010
                                                                                                              • Channels to Market

                                                                                                                • Key points
                                                                                                                  • IFAs command 59% of total new term assurance premiums
                                                                                                                    • Figure 32: Total new premiums (£m) for individual regular-premium term assurance policies written, by distribution channel, 2005-10
                                                                                                                  • IFAs are even more dominant in the non-mortgage-related sector
                                                                                                                  • Product Ownership Levels

                                                                                                                    • Key points
                                                                                                                      • More than half of UK adults do not own a life insurance policy
                                                                                                                        • Figure 33: Life insurance ownership, May 2011
                                                                                                                      • Lack of consumer awareness about product ownership
                                                                                                                        • Figure 34: Life insurance ownership, by gender and age, May 2011
                                                                                                                      • Families most likely to have some form of life cover
                                                                                                                        • Figure 35: Life insurance ownership, by lifestage and presence of children, May 2011
                                                                                                                      • Ownership levels higher among the more affluent
                                                                                                                        • Figure 36: Life insurance ownership, by socio-economic group, household income and tenure, May 2011
                                                                                                                      • Buying a home is a big term assurance driver
                                                                                                                      • Purchase Triggers

                                                                                                                        • Key points
                                                                                                                          • Getting a mortgage is the biggest life insurance policy driver
                                                                                                                            • Figure 37: Purchase triggers, May 2011
                                                                                                                          • Protecting dependents is also important to consumers
                                                                                                                            • Many consumers have no prompt to obtain life insurance
                                                                                                                              • However, lack of consumer interest depends on consumer lifestyles
                                                                                                                                • Figure 38: Key purchase triggers, by age, lifestage and presence of children, May 2011
                                                                                                                              • Scots are more likely to consider life insurance
                                                                                                                                • Difference in attitudes between consumers with and without cover
                                                                                                                                  • Figure 39: Purchase triggers, by life insurance ownership, May 2011
                                                                                                                                • Shutting the stable door?
                                                                                                                                • Attitudes towards Life Insurance

                                                                                                                                  • Key points
                                                                                                                                    • A third of consumers aware of the need to have life insurance...
                                                                                                                                      • Figure 40: Attitudes towards life insurance, May 2011
                                                                                                                                    • ...with almost the same number of consumers ruling themselves out
                                                                                                                                      • Trust is an issue for many consumers
                                                                                                                                        • Consumers concerned about value…
                                                                                                                                          • Figure 41: Attitudes towards life insurance, by life insurance ownership, May 2011
                                                                                                                                        • …and cost of life insurance products
                                                                                                                                          • Currently 5% of the adult population are considering life insurance
                                                                                                                                          • Targeting Opportunities

                                                                                                                                            • Key points
                                                                                                                                              • Key target groups
                                                                                                                                                • Figure 42: Key life insurance target groups, May 2011
                                                                                                                                                • Figure 43: Attitudes towards life insurance, by target groups, May 2011
                                                                                                                                              • Life Insurance Advocates
                                                                                                                                                • The Unengaged/Apathetic consumers
                                                                                                                                                  • Brand Driven
                                                                                                                                                    • Life Insurance Sceptics
                                                                                                                                                      • Advocates and Brand Driven consumers most likely to have life cover
                                                                                                                                                        • Figure 44: Life insurance ownership, by target groups, May 2011
                                                                                                                                                      • Getting a mortgage/buying a house top purchase trigger for all groups
                                                                                                                                                        • Figure 45: Purchase triggers, by target groups, May 2011
                                                                                                                                                    • Appendix – Market Size and Forecast

                                                                                                                                                        • Figure 46: Best- and worst-case forecast for total value of new individual regular-premium term assurance policy sales, 2011-16
                                                                                                                                                        • Figure 47: Best- and worst-case forecast for total volume of new individual regular-premium term assurance policy sales, 2011-16
                                                                                                                                                    • Appendix – Channels to Market

                                                                                                                                                        • Figure 48: Total new premiums for individual regular-premium term assurance policies written, by distribution channel and policy type, 2005-10
                                                                                                                                                    • Appendix – Product Ownership Levels

                                                                                                                                                        • Figure 49: Life insurance ownership, by demographics, May 2011
                                                                                                                                                        • Figure 50: Life insurance ownership, by demographics, May 2011 (continued)
                                                                                                                                                    • Appendix – Purchase Triggers

                                                                                                                                                        • Figure 51: Purchase triggers, by demographics, May 2011
                                                                                                                                                        • Figure 52: Purchase triggers, by demographics, May 2011 (continued)
                                                                                                                                                    • Appendix – Attitudes towards Life Insurance

                                                                                                                                                        • Figure 53: Attitudes towards life insurance, by demographics, May 2011
                                                                                                                                                        • Figure 54: Attitudes towards life insurance, by demographics, May 2011
                                                                                                                                                    • Appendix – Targeting Opportunities

                                                                                                                                                        • Figure 55: Target groups, by demographics, May 2011

                                                                                                                                                    Companies Covered

                                                                                                                                                    • Ageas
                                                                                                                                                    • Alliance & Leicester
                                                                                                                                                    • Association of British Insurers
                                                                                                                                                    • Aviva Plc
                                                                                                                                                    • Bright Grey
                                                                                                                                                    • BUPA
                                                                                                                                                    • Financial Ombudsman Service
                                                                                                                                                    • Friends Provident plc
                                                                                                                                                    • Government Actuary's Department (GAD)
                                                                                                                                                    • Legal & General Assurance Society Limited
                                                                                                                                                    • Legal & General Group PLC
                                                                                                                                                    • Lloyds Banking Group
                                                                                                                                                    • Nationwide Building Society
                                                                                                                                                    • NatWest
                                                                                                                                                    • Royal Bank of Scotland Group plc
                                                                                                                                                    • Royal London Group
                                                                                                                                                    • Scottish Provident
                                                                                                                                                    • Swiss Re

                                                                                                                                                    Term Assurance - UK - July 2011

                                                                                                                                                    £1,750.00 (Excl.Tax)