Income Protection - UK - February 2017

Income Protection - UK - February 2017

Mar 2017 Mintel Wealth ManagementN/A Price :
$ 2510

The need for workers to formally protect income is apparent, and yet the income protection gap is yawning. Many workers simply avoid trying to understand their financial resilience and their financial planning suffers as a result. Providers may be able to increase sales through group policies and by exploring the potential for direct online distribution. Education is still sorely needed, but traditional advice may not be the only way to deliver this.

Table of Content

Overview

Executive Summary
The market
Individual premiums expected to show a steady increase
Figure 1: Forecast of new individual (long-term) income protection premiums – Fan chart, 2011-21
Advisers remain the leading distribution channel
Figure 2: Distribution of new individual (long-term) income protection contracts, by channel, 2014-16
Claims values are falling, supporting provider profitability
Companies and brands
LV= faces challenge from combined forces of Aviva and Friends Life
Figure 3: Estimated market shares of the top five providers of new individual income protection, based on volume sales, 2015
Providers invest in income protection products to enhance value
The consumer
One in ten adults has an income protection product
Figure 4: Protection product ownership, December 2016
A third of non-product holders say they can’t afford it and a third say they don’t need it
Figure 5: Reasons for not having protection products, December 2016
Two fifths say an absence from work of six months or less would leave them struggling
Figure 6: Expected impact of lost income on financial stability, December 2016
Two fifths intend to rely on savings if unable to work
Figure 7: Contingency plans if unable to work, December 2016
Covering home-related outgoings is the biggest priority
Figure 8: Interest in features of income protection cover, December 2016
‘Fix and flex’ approach favoured by potential customers
Figure 9: Interest in features of income protection products, December 2016
What we think

Issues and Insights
Group schemes can continue to expand the market for income protection
The facts
The implications
People are used to relying on contingency plans that lack certainty
The facts
The implications

The Market – What You Need to Know
New individual policies and premiums are on the up
Advisers remain the leading distribution channel
The economic environment is providing good foundations
New welfare rules may reduce the overall benefit of holding income protection

Market Size and Forecast
New policies and premiums expected to grow again in 2016
Figure 10: New individual (long-term) income protection sales and average premium, 2011-16
Group schemes in decline
Figure 11: Volume and value of new group (long-term) income protection sales, 2011-16
Individual premiums expected to show a steady increase
Figure 12: Forecast of new individual (long-term) income protection premiums – Fan chart, 2011-21
Figure 13: Forecast of new individual (long-term) income protection premiums, 2011-21
Forecast methodology
The impact of the EU referendum vote
Trajectory of market in previous slowdown
Figure 14: Forecast of new individual (long-term) income protection premiums allowing for Brexit, 2011-21
Income protection likely to suffer in face of income squeeze

Channels to Market
IFAs continue to dominate distribution…
but there are developments within the direct channel
Figure 15: Distribution of new individual (long-term) income protection premiums, by channel, 2014-16
Figure 16: Distribution of new individual (long-term) income protection contracts, by channel, 2014-16
Figure 17: Distribution of new individual (long-term) income protection premiums and contracts, by channel, 2014-16

Market Drivers
A third of adults have less than £5,000 in savings
Figure 18: Level of savings and investments, excluding main home and pension savings, December 2016
House purchase loans edge up, with first-time buyers driving growth
Figure 19: Volume of house purchase loans, by type of borrower, 2007-16
Falling unemployment rate has helped support income protection sales
Figure 20: Unemployment rate, January 2010-August 2016
Average weekly earnings grew during 2016
Figure 21: Real average weekly earnings, regular pay (excluding bonuses and arrears of pay), seasonally adjusted, January 2010-October 2016
Claims values are falling, supporting provider profitability
Figure 22: Summary of income protection claims paid and declined, 2015
Group schemes look to SMEs to boost growth
Figure 23: Group income protection schemes, estimated number and premiums receivable in year, 2010-15

Regulatory and Legislative Changes
Welfare reform has limited the overall benefits of income protection
Seven Families initiative has had a positive impact on product perception
Figure 24: List of providers that funded the seven families campaign, 2014-15

Companies and Brands – What You Need to Know
LV= faces challenge from combined forces of Aviva and Friends Life
The income protection gap has enticed investment from providers
Providers look to use events to improve understanding and awareness

Market Share
LV= is investing to keep hold of the top spot
Figure 25: Estimated market shares of the top five providers of new individual income protection, based on volume sales, 2015

Competitive Strategies
Providers invest in income protection products to enhance value
The Exeter replaces IP product range
Aviva launches Income Protection+ following Friends Life integration
Insurers upgrade digital platforms to support advisers and customers
The Exeter launches new protection platform
L&G extends adviser system with customer-operated features
Providers due to adopt paperless GP reporting technology

Advertising and Marketing Activity
Overall advertising on protection protections has grown…
but income protection adspend remains very limited
Figure 26: Total above-the line, online display and direct mail advertising expenditure on protection products, 2013/14-2015/16
Providers turn to events to help spread the word
Nielsen Ad Intel coverage

The Consumer – What You Need to Know
10% of adults have a form of income protection
Affordability perceptions are holding the market back
41% would struggle after an absence from work of six months or less
Home-related outgoings represent an opportunity for product propositions
Fixed premiums and flexible cover are preferred by potential customers

Protection Product Ownership
Consumers have wide range of options but most choose to forego cover
One in ten adults has a form of income protection product
Figure 27: Protection product ownership, December 2016
Those with the most money in reserve are still more likely to hold income protection
Figure 28: Protection product ownership, by type of product and amount of existing savings/investments (excluding pensions and main home), December 2016

Reasons for Not Having Protection Products
Affordability and need are main barriers
Figure 29: Reasons for not having protection products, December 2016
Negative press could be limiting income protection among key markets
Helping people to identify their own protection gap
Figure 30: Reasons for not having protection products, by amount of existing savings/investments (excluding pensions and main home), December 2016

Expected Impact of Lost Income on Financial Stability
Two fifths say an absence from work of six months or less would leave them struggling
Robo-advice could help people to identify their requirements
Figure 31: Expected impact of lost income on financial stability, December 2016
People factor in their savings buffer as a form of protection
Figure 32: Expected impact of lost income on financial stability, by amount of existing savings/investments (excluding pensions and main home), December 2016
Those that don’t think they need protection may still be exposed
Figure 33: Expected impact of lost income on financial stability, by reasons for not having protection products, December 2016

Contingency Plans if Unable to Work
Two-fifths intend to rely on savings if unable to work
Figure 34: Contingency plans if unable to work, December 2016
Almost half intend to rely on one contingency plan
Figure 35: Repertoire of contingency plans if unable to work, by demographics, December 2016
Millennials are more inclined to rely on credit
Figure 36: Contingency plans if unable to work, by age, December 2016
Those that can’t afford protection will look to family and friends for support
Figure 37: Contingency plans if unable to work, by reasons for not having protection products, December 2016

Interest in Aspects of Income Protection Cover
Covering home-related outgoings is the biggest priority
Figure 38: Interest in features of income protection cover, December 2016
Home-related protection policies show potential among consumers
Figure 39: Interest in features of income protection cover, repertoire analysis, December 2016
Millennials show greater interest in covering childcare and mobile phone bills
Figure 40: Interest in features of income protection cover, December 2016

Interest in Features of Income Protection Products
‘Fix and flex’ approach favoured by potential customers
Figure 41: Interest in features of income protection products, December 2016
Millennials looking for healthy living incentives
Figure 42: Interest in features of income protection products, by age, December 2016

Appendix – Data Sources, Abbreviations and Supporting Information
Product definitions
Income protection
Accident, sickness and unemployment (ASU) insurance
Personal accident and sickness insurance
Unemployment cover
Personal accident insurance
Mortgage payment protection insurance (MPPI)
Critical illness cover
Life insurance
Abbreviations
Consumer research methodology

Appendix – Market Size and Forecast
Figure 43: Forecast of new individual (long-term) income protection premiums, at current and constant prices, 2011-21
Forecast methodology

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