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Term Assurance - UK - July 2012

“Besides difficult economic conditions, one of the main barriers to term assurance sales is a lack of consumer awareness and engagement with the protection sector. The lack of education leads many adults to misjudge the cost of cover and distrust life insurance providers, despite low average premiums and improving standards. Industry wide campaigns, such as the current proposals for a protection awareness day, could be beneficial in changing consumer attitudes and boosting ownership of term assurance products.”

– Stevan Obradovic, Financial Services Analyst

Some questions answered in this report include:

  • How will forthcoming legislative changes have an impact on the term assurance market?
  • What are main reasons that prompt adults to take-out life insurance?
  • Do consumers understand life insurance products?
  • How many adults are thinking about entering the market in the next 12 months?

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Table of contents

  1. Introduction

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

              • The market
                • Value of new term assurance premiums is expected to increase
                  • Figure 1: Forecast for total value of new individual regular-premium term assurance sales, 2007-17
                • IFAs account for a large part of new term assurance premiums
                  • Market factors
                    • Mortgage market difficulties are having an impact on new term assurance sales
                      • ABI considers protection website and awareness day
                        • Gender-neutral pricing and I-E tax changes will have an impact on premiums
                          • Companies, brands and innovation
                            • Top five providers account for 79% of new term assurance sales
                              • Figure 2: Top five term assurance providers, by new individual sales, 2011
                            • Brand promotion
                              • Who’s innovating?
                                • The consumer
                                  • Life insurance ownership
                                    • Figure 3: Life insurance ownership, May 2012
                                  • Purchasing triggers
                                    • Figure 4: Purchase triggers, May 2012
                                  • Purchasing behaviour
                                    • Figure 5: Purchasing behaviour, May 2012
                                  • Life insurance monthly premiums
                                    • Attitudes towards life insurance
                                      • Figure 6: Attitudes towards life insurance, May 2012
                                    • Consumer intentions
                                      • What we think
                                      • Issues in the Market

                                          • How will forthcoming legislative changes have an impact on the term assurance market?
                                            • What are main reasons that prompt adults to take-out life insurance?
                                              • Do consumers understand life insurance products?
                                                • How many adults are thinking about entering the market in the next 12 months?
                                                • Future Opportunities

                                                  • Creating a link between rental obligations and term assurance
                                                    • Pushing the emotional attachment
                                                      • 2015: Access Anything, Anywhere
                                                      • Internal Market Environment

                                                        • Key points
                                                          • Subdued mortgage activity is holding back term assurance sales
                                                            • Figure 7: Number of monthly mortgage approvals for home purchase, January 2004-May 2012
                                                          • Protection gap remains at £2.4 trillion in 2011
                                                            • Gender-neutral pricing will distort life insurance premiums…
                                                              • …as will the I-E tax regime changes
                                                                • Solvency II Directive to improve standards, but could push up costs
                                                                  • Many IFA firms will leave the market due to the RDR…
                                                                    • …but focus on life and protection products will intensify
                                                                      • Consumer apathy and a lack of engagement present a long-term challenge to the market
                                                                        • Social changes are causing consumers to delay buying cover
                                                                        • Broader Market Environment

                                                                          • Key points
                                                                            • Stuttering economy is a challenge for the term assurance market
                                                                              • Figure 8: GDP quarterly percentage change, Q1 2008-Q1 2012
                                                                            • Complaints about term assurance make up a small percentage of overall disputes
                                                                              • Figure 9: Financial services complaints, by sector, 2009/10-2011/12 (Q1-Q3)
                                                                            • ABI is considering a protection website for consumers…
                                                                              • …and a number of providers give backing to a protection awareness day
                                                                                • Increasing life expectancy has helped to lower premiums
                                                                                  • Figure 10: Cohort expected age of death+ at age 60, by gender, 1981-2058
                                                                              • SWOT Analysis

                                                                                  • Figure 11: Term assurance – SWOT analysis, 2012
                                                                              • Who’s Innovating?

                                                                                • Key points
                                                                                  • Protection academy launched by Aviva and Pink
                                                                                    • LV= is the latest insurer to launch an online trust builder tool
                                                                                      • Legal & General launches its Healthy Living Programme
                                                                                        • Ageas Protect to help IFAs understand legislative changes
                                                                                          • Openwork launches protection app for advisers
                                                                                          • Market Size and Forecast

                                                                                            • Key points
                                                                                              • Market pressures have led to a decline in new business in 2011
                                                                                                • Figure 12: Volume and value of new individual regular-premium term assurance policy sales, 2005-12(est)
                                                                                              • Non-mortgage-related sales continue to increase…
                                                                                                • Figure 13: Volume of new individual regular-premium term assurance policy sales, by policy type, 2005-11
                                                                                              • …but premiums declined slightly in 2011
                                                                                                • Figure 14: Value of new individual regular-premium term assurance policy sales, by policy type, 2005-11
                                                                                              • Average term assurance premiums remain the same in 2011
                                                                                                • Figure 15: Average annual premiums on new individual regular-premium term assurance policies written, by policy type, 2005-11
                                                                                              • Market forecast
                                                                                                • Value of new term assurance business expected to increase…
                                                                                                  • Figure 16: Forecast for total value of new individual regular-premium term assurance sales, 2007-17
                                                                                                  • Figure 17: Forecast for total value of new individual regular-premium term assurance sales, at current and constant prices, 2007-17
                                                                                                • …as will the volume of new term assurance contracts
                                                                                                  • Figure 18: Forecast for total volume of new individual regular-premiums term assurance sales, 2007-17
                                                                                                  • Figure 19: Forecast for total volume of new individual regular-premiums term assurance sales, 2007-17
                                                                                                • Forecast methodology
                                                                                                • Market Share

                                                                                                  • Key points
                                                                                                    • Legal & General is still the number one term assurance provider
                                                                                                      • Figure 20: Top five term assurance providers, by new individual sales, 2010 and 2011
                                                                                                    • The top five companies have increased their hold on the market
                                                                                                    • Companies and Products

                                                                                                      • Aviva
                                                                                                          • Figure 21: Key financial data for Aviva, 2010 and 2011
                                                                                                        • Friends Life
                                                                                                            • Figure 22: Key financial data for Friends Life Group Plc., 2010 and 2011
                                                                                                          • Legal & General
                                                                                                              • Figure 23: Key financial data for Legal & General, 2010 and 2011
                                                                                                            • Lloyds Banking Group
                                                                                                                • Figure 24: Key financial data for Lloyds Banking Group (insurance segment), 2010 and 2011
                                                                                                              • RBS/NatWest
                                                                                                                  • Figure 25: Key financial data for RBS, 2010 and 2011
                                                                                                                • Royal London Group
                                                                                                                    • Figure 26: Key financial data for Royal London Group, 2010 and 2011
                                                                                                                • Brand Communication and Promotion

                                                                                                                  • Key points
                                                                                                                    • Life protection adspend increased in 2011, driven by over-50s plans
                                                                                                                      • Figure 27: Breakdown of top-level life protection* advertising expenditure, by sub-category, 2008-11
                                                                                                                    • Aviva remains the number one advertiser of life protection/term assurance
                                                                                                                      • Figure 28: Top ten advertisers of life protection/term assurance, 2008-11
                                                                                                                    • Direct mail accounts for 37% of life protection/term assurance adspend
                                                                                                                      • Figure 29: Advertising expenditure on life protection/term assurance, by media type, 2011
                                                                                                                  • Channels to Market

                                                                                                                    • Key points
                                                                                                                      • New business premiums are driven by intermediated distribution
                                                                                                                        • Figure 30: Total new premiums (£m) for individual regular-premium term assurance policies written, by distribution channel, 2005-11
                                                                                                                      • Distribution trends differ between mortgage and non-mortgage-related sales
                                                                                                                        • Figure 31: Total new premiums for individual regular-premium term assurance policies written, by distribution channel and policy type, 2008-11
                                                                                                                      • Internet users exhibit slightly different purchasing trends
                                                                                                                        • Figure 32: Purchasing behaviour, by term assurance ownership, May 2012
                                                                                                                    • Life Insurance Ownership

                                                                                                                      • Key points
                                                                                                                        • A fifth of adults have a term assurance policy…
                                                                                                                          • Figure 33: Life insurance ownership, May 2012
                                                                                                                        • …but over 50% of UK adults have no life cover
                                                                                                                          • Term assurance is more popular among 35-54-year-olds
                                                                                                                            • Figure 34: Life insurance ownership, by gender and age, May 2012
                                                                                                                          • Consumer affluence has an impact on product ownership
                                                                                                                            • Figure 35: Life insurance ownership, by gross annual household income, May 2012
                                                                                                                          • Home buyers are more likely to have term assurance
                                                                                                                            • Figure 36: Life insurance ownership, by housing situation, May 2012
                                                                                                                          • Presence of children encourages adults to buy life insurance
                                                                                                                            • Figure 37: Life insurance ownership, by presence of own children, May 2012
                                                                                                                          • A third of consumers have one type of insurance product, but there is some multiple ownership
                                                                                                                            • Figure 38: Repertoire of life insurance ownership, May 2012
                                                                                                                        • Purchase Triggers

                                                                                                                          • Key points
                                                                                                                            • Getting a mortgage is the biggest motivator for buying life insurance
                                                                                                                              • Figure 39: Purchase triggers, May 2012
                                                                                                                            • Protecting family is also very important to consumers
                                                                                                                              • Almost a third of adults have no specific reason for buying life insurance
                                                                                                                                • Some consumers have simply ruled themselves out of the market
                                                                                                                                  • Figure 40: Purchase triggers, by life insurance ownership, May 2012
                                                                                                                                • Scope for cheaper and simplified products
                                                                                                                                  • Figure 41: Purchase triggers, by financial situation, May 2012
                                                                                                                                • Providers need to educate consumers about the intricacies of life insurance
                                                                                                                                  • Figure 42: Purchase triggers, by age, May 2012
                                                                                                                              • Purchasing Behaviour

                                                                                                                                • Key points
                                                                                                                                  • Advised and direct sales are popular among internet users
                                                                                                                                    • Figure 43: Purchasing behaviour, May 2012
                                                                                                                                  • Affluent consumers are most likely to arrange cover via an IFA
                                                                                                                                    • Figure 44: Purchasing behaviour, by gross annual household income, May 2012
                                                                                                                                  • Difference in how consumers purchase mortgage and non-mortgage-related term assurance
                                                                                                                                    • Figure 45: Purchasing behaviour, by life insurance ownership, May 2012
                                                                                                                                  • Access to advice is important for new life insurance sales
                                                                                                                                    • Figure 46: Purchasing behaviour, by purchase triggers, May 2012
                                                                                                                                • Life Insurance Monthly Premiums

                                                                                                                                  • Key points
                                                                                                                                    • A quarter of adults with life insurance pay £10-19 monthly
                                                                                                                                      • Figure 47: Monthly premiums, May 2012
                                                                                                                                    • Over a fifth are unsure about how much they pay for life insurance
                                                                                                                                      • Monthly premiums can depend on how consumers arrange cover
                                                                                                                                        • Figure 48: Monthly premiums, by purchasing behaviour, May 2012
                                                                                                                                      • A fifth of adults without life insurance would be willing to pay up to £5 per month
                                                                                                                                        • Figure 49: Monthly premiums willing to pay, May 2012
                                                                                                                                      • Potential to increase ownership among lower earners
                                                                                                                                        • Figure 50: Monthly premiums willing to pay, by gross annual household income, May 2012
                                                                                                                                    • Attitudes towards Life Insurance

                                                                                                                                      • Key points
                                                                                                                                        • Two thirds of internet users appreciate the need for term assurance
                                                                                                                                          • Figure 51: Attitudes towards life insurance, May 2012
                                                                                                                                        • Professional advice and an established brand are important to many consumers
                                                                                                                                          • Many adults would like to have cover but affordability is an issue
                                                                                                                                            • Figure 52: Attitudes towards life insurance, by financial situation, May 2012
                                                                                                                                          • Trust and perception of value are a sticking point for some adults
                                                                                                                                            • Even existing policyholders have concerns about trust and value
                                                                                                                                              • Figure 53: Attitudes towards life insurance, by life insurance ownership, May 2012
                                                                                                                                          • Switching and Purchasing Intentions

                                                                                                                                            • Key points
                                                                                                                                              • Around 8% of internet users are considering switching or taking out a new term assurance policy
                                                                                                                                                • Figure 54: Buying or switching a policy, May 2012
                                                                                                                                              • More switching activity than new customers in the term assurance market
                                                                                                                                                • Figure 55: Buying or switching a policy, by life insurance ownership, May 2012
                                                                                                                                            • Appendix – Market Size and Forecast

                                                                                                                                                • Figure 56: Best and worst case forecast for total value of new term assurance sales, 2012-17
                                                                                                                                                • Figure 57: Best and worst case forecast for total volume of term assurance policies written, 2012-17
                                                                                                                                            • Appendix – Life Insurance Ownership

                                                                                                                                                • Figure 58: Life insurance ownership, by demographics, May 2012
                                                                                                                                                • Figure 59: Life insurance ownership, by demographics, May 2012
                                                                                                                                                • Figure 60: Repertoire of life insurance ownership, by demographics, May 2012
                                                                                                                                            • Appendix – Purchase Triggers

                                                                                                                                                • Figure 61: Purchase triggers, by demographics, May 2012
                                                                                                                                                • Figure 62: Purchase triggers, by demographics, May 2012
                                                                                                                                            • Appendix – Purchase Behaviour

                                                                                                                                                • Figure 63: Purchasing behaviour, by demographics, May 2012
                                                                                                                                            • Appendix – Life Insurance Monthly Premiums

                                                                                                                                                • Figure 64: Monthly premiums, by demographics, May 2012
                                                                                                                                                • Figure 65: Monthly premiums willing to pay, by demographics, May 2012
                                                                                                                                            • Appendix – Attitudes towards Life Insurance

                                                                                                                                                • Figure 66: Agreement with the statements ‘It's really important for anyone with dependents to have some kind of life insurance cover in case the worst happens’ and ‘I'd only buy life insurance after taking expert advice’, by demographics, May 2012
                                                                                                                                                • Figure 67: Agreement with the statements ‘When you are buying life insurance, it is best to stick to the established brands’ and ‘Life insurance doesn't offer good value for money’, by demographics, May 2012
                                                                                                                                                • Figure 68: Agreement with the statements ‘I'd like to have life insurance but just can't afford it’ and ‘I don't trust life insurance companies’, by demographics, May 2012
                                                                                                                                                • Figure 69: Agreement with the statement ‘Life insurance is not relevant to me’, by demographics, May 2012
                                                                                                                                            • Appendix – Switching or Purchasing Intentions

                                                                                                                                                • Figure 70: Buying or switching a policy, by demographics, May 2012
                                                                                                                                                • Figure 71: Buying or switching a policy, by demographics, May 2012

                                                                                                                                            Companies Covered

                                                                                                                                            • Association of British Insurers
                                                                                                                                            • Aviva Plc
                                                                                                                                            • AXA UK plc
                                                                                                                                            • Barclays Bank plc
                                                                                                                                            • Bright Grey
                                                                                                                                            • BUPA
                                                                                                                                            • Egg plc
                                                                                                                                            • Facebook, Inc.
                                                                                                                                            • Financial Ombudsman Service
                                                                                                                                            • Financial Services Authority (The)
                                                                                                                                            • Friends Provident plc
                                                                                                                                            • Grupo Santander Central Hispano S.A.
                                                                                                                                            • HBOS plc (Halifax Bank of Scotland)
                                                                                                                                            • Legal & General Assurance Society Limited
                                                                                                                                            • Legal & General Group PLC
                                                                                                                                            • Lloyds Banking Group
                                                                                                                                            • M&C Saatchi Worldwide Ltd
                                                                                                                                            • Mansfield Building Society
                                                                                                                                            • MediaCom
                                                                                                                                            • NatWest
                                                                                                                                            • Ofcom
                                                                                                                                            • Pegasus
                                                                                                                                            • Royal Bank of Scotland Group plc
                                                                                                                                            • Royal London Group
                                                                                                                                            • Scottish Life
                                                                                                                                            • Scottish Provident
                                                                                                                                            • Scottish Widows Bank plc
                                                                                                                                            • Skype Technologies S.A.
                                                                                                                                            • Winterthur Life UK Limited
                                                                                                                                            • Yorkshire Building Society
                                                                                                                                            • YouTube, Inc.
                                                                                                                                            • ZenithOptimedia UK

                                                                                                                                            Term Assurance - UK - July 2012

                                                                                                                                            US $2,672.70 (Excl.Tax)