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Term Assurance - UK - June 2015

“Consumers want life insurance but only at the right price and as long as it’s easy to access. New technologies and channels can be utilised to re-engage the public, by offering access to affordable products, greater interaction between companies and their customers and, crucially, expert advice.”
– Sarah Hitchcock, Senior Analyst – Financial Services

This report looks at the following areas:

  • Less than a third of UK adults have some form of life protection
  • Half of all adults think it’s too dear for those with a medical condition
  • Many consumers are confused by the range of policy types and variations

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Table of contents

  1. Introduction

    • Executive Summary

        • The market
          • A market in decline…
            • …but with the capability to turn things around
              • Figure 1: Forecast of new individual term assurance premiums – Fan chart, 2010-20
            • Companies and brands
              • Aviva closes gap on market leader, Legal & General
                • Figure 2: Top five providers’ share of new individual term assurance sales (volume), 2014
              • The consumer
                • 32% of UK adults have an individual life insurance policy
                  • Figure 3: Ownership of individual life insurance, March 2015
                • Level term is more common than decreasing term
                  • Figure 4: Type of life insurance policy owned, March 2015
                • 58% of term policyholders also have critical illness cover
                  • Figure 5: Proportion of term policyholders who additionally took out critical illness cover, March 2015
                • 72% of policyholders are paying under £30 a month for their term-only policy
                  • Figure 6: Monthly premium paid by term assurance policyholders, March 2015
                • 59% of adults say life insurance is “worth having at the right price”…
                  • Figure 7: Agreement with statements about life insurance (relating to cost and affordability), March 2015
                • …while 57% are confused by the amount of policy variation
                  • Figure 8: Agreement with statements about life insurance (relating to product complexity, relevance and advice), March 2015
                • The top descriptive word chosen for life insurance is “expensive”
                  • Figure 9: Words chosen to describe life insurance, March 2015
                • 54% expect a major change in their personal circumstances over the coming year
                  • Figure 10: Changes to personal circumstances and lifestage events expected within the coming year, March 2015
              • Issues and Insights

                  • Less than a third of UK adults have some form of life protection
                    • The facts
                      • The implications
                        • Half of all adults think it’s too dear for those with a medical condition
                          • The facts
                            • The implications
                              • Many consumers are confused by the range of policy types and variations
                                • The facts
                                  • The implications
                                  • The Market – What You Need to Know

                                    • Falling sales…
                                      • …but the performance of the two main sectors varies considerably
                                        • Introduction of MMR – still too early to assess impact
                                          • RDR is largely responsible for the sharp decline in bancassurance sales
                                            • Product penetration has not increased over the past few years and may even have fallen
                                              • Life assurers must adapt their propositions in light of changing demographics…
                                                • …and shifting tenure patterns
                                                • Market Size and Forecast

                                                  • Sales continue to fall lower
                                                    • Figure 11: New individual term assurance sales and average annual premium, 2010-14
                                                  • Could a slow recovery be on the cards?
                                                    • Figure 12: Forecast of new individual term assurance volume sales – Fan chart, 2010-20
                                                    • Figure 13: Forecast of new individual term assurance premiums – Fan chart, 2010-20
                                                • Market Segmentation

                                                  • Mortgage term sales grew 7% in 2014, driven by higher first-time buyer loans…
                                                    • …while protection term sales fell by 21%
                                                      • Figure 14: Volume of new individual regular-premium term assurance policy sales, by policy type, 2010-14
                                                    • Term assurance costs less than an annual gym pass
                                                      • Figure 15: Average new premium – Mortgage term versus protection term, 2010-14
                                                    • The majority of mortgage business is sold on a decreasing term basis
                                                      • Figure 16: Summary of new term assurance business, by type of policy, 2014
                                                  • Channels to Market

                                                    • Ongoing decline of bancassurance channel
                                                      • Restricted advisers retain largest slice of mortgage term business
                                                        • Figure 17: Distribution of new mortgage term assurance business, by channel, 2013 and 2014
                                                      • Non-advised sales of protection term assurance grew in 2014, but not enough to offset a sharp fall in restricted advice sales
                                                        • Figure 18: Distribution of new protection term assurance business, by channel, 2013 and 2014
                                                    • Market Penetration

                                                      • Large swathes of the population are unprotected
                                                        • Figure 19: Segmentation of UK adult population, by life insurance provision, March 2015
                                                      • Psychological barriers are the hardest to tackle
                                                        • Group life cover may not be an adequate substitute
                                                          • In-force individual life policies declined in 2013
                                                            • Figure 20: Number of individual term and whole-of-life assurance policies in force, by type, 2006-13
                                                          • Mortgage term customers are much more likely to take out a critical illness rider than protection term customers
                                                            • Figure 21: Critical illness rider benefits as a proportion of new individual term assurance business and new standalone critical illness business, 2010-14
                                                        • Market Drivers

                                                          • Declining death rate has a positive impact on claim costs
                                                            • Figure 22: Number of deaths in England and Wales and mortality rate, by age and gender, 2013
                                                          • Life insurers must adapt to an ageing target audience…
                                                            • …and to changing tenure trends
                                                              • Figure 23: UK housing stock, by tenure, 1992-2012
                                                            • More people are buying and selling their homes, but transaction levels are still well below their pre-crisis peak
                                                              • Figure 24: Number of UK residential property transactions with a value of £40,000 upwards – seasonally adjusted, 2006-14
                                                            • First-time buyer loans up 16% in 2014
                                                              • Figure 25: Volume of house purchase loans, by type of borrower, 2006-14
                                                            • Average sum insured increases to around £133,000
                                                              • Figure 26: Average sum insured for new term assurance policies versus average first-time buyer advance, 2003-14
                                                          • Regulation Update

                                                            • The Mortgage Market Review (MMR)
                                                              • Solvency II Directive
                                                              • Key Players – What You Need to Know

                                                                • Mergers and acquisitions reshape the top five
                                                                  • Product development focuses on simplification
                                                                    • Increase in advertising activity
                                                                    • Market Share

                                                                      • The industry has seen some notable M&A activity recently
                                                                        • Legal & General remains the largest life insurer, but Aviva is closing the gap
                                                                          • Figure 27: Top five providers of individual term assurance, by sales volumes, 2013 and 2014
                                                                      • Companies and Products

                                                                        • Legal & General
                                                                          • Market position
                                                                            • Recent financial performance
                                                                              • Recent activity
                                                                                • Corporate strategy
                                                                                  • Aviva
                                                                                    • Market position
                                                                                      • Recent financial performance
                                                                                        • Recent activity
                                                                                          • Corporate strategy
                                                                                            • Friends Life
                                                                                              • Market position
                                                                                                • Recent financial performance
                                                                                                  • Recent activity
                                                                                                    • Corporate strategy
                                                                                                      • LBG (Scottish Widows)
                                                                                                        • Market position
                                                                                                          • Recent financial performance
                                                                                                            • Recent activity
                                                                                                              • Corporate strategy
                                                                                                                • AIG Life (formerly Ageas Protect)
                                                                                                                  • Market position
                                                                                                                    • Recent financial performance
                                                                                                                      • Recent activity
                                                                                                                        • Corporate strategy
                                                                                                                        • Brand Communication and Promotion

                                                                                                                          • Term assurers double the amount they spend on advertising
                                                                                                                            • Figure 28: Advertising expenditure on life assurance products, by product category, 2010/11-2014/15
                                                                                                                          • Direct life insurer, Neilson is the highest-spending advertiser…
                                                                                                                              • Figure 29: Top 10 advertisers of (term) life insurance, 2012/13-2014/15
                                                                                                                            • …investing heavily in TV advertising for maximum exposure
                                                                                                                              • Figure 30: Proportional distribution of (term) life advertising expenditure, by media type, 2012/13-2014/15
                                                                                                                          • The Consumer – What You Need to Know

                                                                                                                            • Low ownership levels
                                                                                                                              • Cost and affordability
                                                                                                                                • Consumer confusion over different product types
                                                                                                                                  • 58% of term policyholders have additional critical illness cover
                                                                                                                                    • Still some prevailing trust issues
                                                                                                                                      • Lifestage events prompt the purchase of life cover or a policy review
                                                                                                                                      • Ownership of Life Insurance

                                                                                                                                        • 32% have an individual life insurance policy
                                                                                                                                          • Figure 31: Ownership of individual life insurance, March 2015
                                                                                                                                        • Take-up of life cover increases with wealth
                                                                                                                                          • Life insurers need to improve targeting of the self-employed
                                                                                                                                            • Only 20% of private renters have life insurance
                                                                                                                                              • The most common type is a level term assurance policy
                                                                                                                                                • Figure 32: Type of life insurance policy owned, March 2015
                                                                                                                                              • Older people are more likely to have whole-of-life cover
                                                                                                                                                • 37% of life insurance customers have a joint-life policy
                                                                                                                                                  • Figure 33: Proportion of policyholders with a single or joint-life policy, by policy type, March 2015
                                                                                                                                              • Critical Illness Add-on

                                                                                                                                                • 58% of term life policyholders took out additional critical illness cover
                                                                                                                                                  • Figure 34: Proportion of policyholders who additionally took out critical illness cover, by policy type, March 2015
                                                                                                                                                • Joint-life policyholders are more likely to have it
                                                                                                                                                  • Figure 35: Proportion of policyholders who additionally took out critical illness cover, by single or joint life, March 2015
                                                                                                                                              • Cost of Cover

                                                                                                                                                • 72% of customers are paying under £30 a month for term life-only insurance
                                                                                                                                                  • Figure 36: Monthly premium paid, by policy type, March 2015
                                                                                                                                                • 13% of joint-life policyholders are paying over £50 a month in premiums versus 5% of single-life policyholders
                                                                                                                                                  • Figure 37: Monthly premium paid by policy type, by single or joint-life policy, March 2015
                                                                                                                                              • Attitudes towards Life Insurance

                                                                                                                                                • 59% of adults think life insurance is worth having at the right price…
                                                                                                                                                  • …with parents and mortgage holders even more likely to agree…
                                                                                                                                                    • …but 51% say it’s too expensive for people with pre-existing medical condition
                                                                                                                                                      • Figure 38: Agreement with statements about life insurance, March 2015
                                                                                                                                                    • 70% of term assurance customers say it’s easy to find affordable cover online…
                                                                                                                                                      • …but only 48% think insurance companies can be trusted to treat their customers fairly
                                                                                                                                                        • Figure 39: Agreement with statements about life insurance, by policyholders and non-policyholders, March 2015
                                                                                                                                                      • 90% of policyholders would pick positive words to describe life insurance
                                                                                                                                                        • Figure 40: Words chosen to describe life insurance, March 2015
                                                                                                                                                    • Upcoming Lifestage Events

                                                                                                                                                      • 22% of respondents are planning a home move within the next 12 months…
                                                                                                                                                        • …necessitating a review of their protection needs
                                                                                                                                                          • 37% are planning a work-related change
                                                                                                                                                            • Figure 41: Changes to personal circumstances and lifestage events expected within the coming year, by total sample, life policyholders and non-policyholders, March 2015
                                                                                                                                                        • Appendix – Definitions and Abbreviations

                                                                                                                                                          • Product definitions
                                                                                                                                                            • Intermediary market definitions
                                                                                                                                                              • Abbreviations
                                                                                                                                                              • Appendix – Market Size and Forecast

                                                                                                                                                                • Total market forecast – best- and worst-case scenarios
                                                                                                                                                                  • Figure 42: Forecast of new individual term assurance volume sales – Best- and worst-case scenarios, 2015-20
                                                                                                                                                                  • Figure 43: Forecast of new individual term assurance premiums – Best- and worst-case scenarios, 2015-20
                                                                                                                                                                • Market value forecast summary
                                                                                                                                                                  • Figure 44: Forecast of new individual term assurance premiums, at current and constant prices, 2010-20
                                                                                                                                                                • Forecast methodology
                                                                                                                                                                  • Fan chart explanation
                                                                                                                                                                  • Appendix – Claims Statistics

                                                                                                                                                                    • Protection claims paid and declined
                                                                                                                                                                      • Figure 45: Summary of protection claims paid and declined, by product type, 2013
                                                                                                                                                                    • Reasons for declining a claim
                                                                                                                                                                      • Figure 46: Proportional distribution of declined claims, by reason and product type, 2013
                                                                                                                                                                  • Appendix – Additional Information on Recent Initiatives and Regulations

                                                                                                                                                                    • Government initiatives to help homebuyers
                                                                                                                                                                      • Stamp duty reform
                                                                                                                                                                        • Help to Buy
                                                                                                                                                                          • The Simple Financial Products initiative
                                                                                                                                                                            • Other recent regulatory milestones

                                                                                                                                                                            Companies Covered

                                                                                                                                                                            To learn more about the companies covered in this report please contact us.

                                                                                                                                                                            Term Assurance - UK - June 2015

                                                                                                                                                                            £1,995.00 (Excl.Tax)