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UK Critical Illness and Income Protection 2007 - Examines the markets for Critical Illness and Income Protection in the UK, looking at the relative sizes of the markets and assessing the future of these protection products

Product Code: dmfs2013

Publication Date: 19-Jun-2007

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Overview

Introduction

Examines the markets for Critical Illness and Income Protection in the UK, looking at the relative sizes of the markets and assessing the future of these protection products

Scope

· This report provides a comprehensive analysis of the individual Income Protection and individual Critical Illness Insurance markets

· Assesses the factors that have driven these markets to their current levels and forecasts premium income growth in the individual protection market

· Looks at the Income protection and Critical Illness markets in terms of new business, number of policies sold and distribution

Report Highlights

In 2006, new business premiums in IP stood at GBP50m, compared to total CII sales of GBP287m. However, sales of stand-alone CII products were only valued at GBP36m in 2006, thus lower than IP sales. It is as a rider product that sales of CII are vastly outstripping IP.

The ABI is implementing changes which include a new standard description of CI to help ensure that consumers see a consistent explanation of the product; ensuring that, even if consumers do not read the full definitions, they will get a much clearer view about what is covered and what is not.

The Income Protection Taskforce has developed a series of recommendations including suggestions on improved underwriting, marketing and better enforcement of regulations

Reasons to Purchase

· Provides historic and forecast data for the UK individual protection market.

· Utilizes in-depth primary research to provide the answers to how the markets have arrived at the point they have and what the future holds.

· Identifies areas and product features where and where development is needed if these products are to continue to survive.

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Overview	1
Catalyst	1
Summary	1
Methodology	1
Executive Summary	2
Market Focus	2
This report examines the UK individual Income Protection and Critical Illness Insurance market	2
New business premiums in IP products are higher than in stand-alone CII products	2
Sector Issues	2
The ABI introduced a new and improved Statement of Best Practice for Critical Illness Cover.	2
The Income Protection Taskforce has developed a series of recommendations	2
Competitor Issues	3
In CII, the top 5 players share more than 50% of the UK market among them	3
In IP, the top 5 players share almost two-thirds of the UK market among them	3
Distribution Dynamics	3
Despite not being such a profitable sale for them, IFAs dominate distribution of both income protection and critical illness products	3
Table of Contents	4
Table of figures	5
Table of tables	6
Market Focus	7
This report examines the UK individual Income Protection and Critical Illness Insurance market	7
The report will be useful for those responsible for developing the strategic direction of competitors in the income protection market	7
What are Critical Illness products?	7
With rider Critical Illness	8
Stand-alone Critical Illness	8
What are Income Protection products?	8
Income Protection continues to play a niche role in the UK protection market	9
The Income Protection Gap widens but hope still remains that various initiatives might encourage distributors to turn to IP	9
New business premiums in IP products are higher than in stand-alone CII products	10
Both CII and IP continue to see declining sales in terms of policy numbers	11
The number of policies sold in both accelerated and standalone CII have fallen	11
Individual IP sales saw further declines in 2005 but not as strong as a year earlier	12
Business in force is an important measurement of lapse rates in the market	14
Despite relatively poor performance in terms of new business, the value of business in force in the income protection market has grown	14
Critical illness business in force has declined, despite steady new business figures	15
The total UK protection market is forecast to grow by a compound annual rate of 2.6% between 2007 and 2011	17
Sector Issues	19
The ABI introduced a new and improved Statement of Best Practice for Critical Illness Cover	19
Industry experts are positive about the new CI definitions	20
Many IFAs feel they were left in the dark on CI changes	20
The issue of non-disclosure could be tackled by the Law Commission's review of insurance contract law	21
The Income Protection Task Force seeks to raise awareness about Income Protection Insurance	21
The Income Protection Taskforce has developed a series of recommendations	21
Application and underwriting should be re-engineered	21
The product design should be rethought and revised	21
Regulation such as ICOB and TCF should be enforced thoroughly	22
The move towards 'essential expenses' is seen as a sensible solution	22
Tele-interviews could be carried out by outsourced specialists	23
Consumer awareness could be improved with the help of media	23
Advisor awareness could be improved with the help of trade associations	23
The industry should seek a holistic approach that includes State and private benefits	24
Standardization of non-competitively sensitive aspects	24
Income protection has huge potential but is still a relatively complicated product	24
TCF and ICOB could potentially improve the sale of income protection	25
Competitor Issues	27
In CII, the top 5 players share more than 50% of the UK market among them	27
In IP, the top 5 players share almost two-thirds of the UK market among them	28
Providers try to adapt and enhance their products to meet regulator and customer needs	30
Friends Provident made some key enhancements with regards to its Income Protection products	30
Legal & General developed a new approach for the group protection market	30
Legal & General announced rise in critical claims payments and new CI product	31
Norwich Union reported critical illness product changes and rise in claims paid	32
Prudential introduced its innovative critical illness cover to the broader IFA community	33
Pioneer redefined own-occupation and started a series of seminars to highlight the importance of IP	33
Bright Grey introduced four new illnesses to its critical illness cover	34
A number of providers have changed their critical illness maximum cover	34
Distribution Dynamics	35
IFAs continue to dominate the income protection market	35
After an initial surge, new business of critical illness through tied channels has declined since 2004	37
Multi-tied financial advisors are forecast to seize a reasonable proportion of the income protection market over the next 5 years.	38
IFAs will retain their dominance of the stand alone critical illness market	40
Appendix	43
Definitions	43
Products	43
Income Protection	43
Critical Illness	43
ABI definitions of distribution channels	43
Independent Financial Advisors (IFAs)	43
Direct sales forces	43
Tied agents	43
Multi-tied agents	43
Bancassurance	43
Direct marketing	44
Telesales	44
Other	44
Further reading	44
Ask the analyst	44
Datamonitor consulting	44
Disclaimer	44
List of Tables
Table 1: New business premiums in individual protection, 2002-2006, £m APE	11
Table 2: Total number of premium sales for individual IP and individual CI policies, 2002-2005	13
Table 3: Income protection new business vs business in force 2001-2005	15
Table 4: Critical Illness new business vs business in force, 2001-2005 £m	16
Table 5: Forecast individual protection products 2007-2011, £m	18
Table 6: Top 5 players in the CII market in terms of numbers of policies sold in 2005 and previous ranking	28
Table 7: Top 5 players in the IP market in terms of numbers of policies sold in 2005 and previous ranking	29
Table 8: Income protection distribution 2002-2006, £m APE	36
Table 9: Stand alone Critical illness distribution 2002-2006, £m APE	38
Table 10: Forecast income protection distribution 2007-2011, £m APE	40
Table 11: Forecast stand alone critical illness distribution 2007-2011, £m APE	42
List of Figures
Figure 1: Income Protection continues to play a niche role in the UK protection market	10
Figure 2: Accelerated and standalone CII policies have both been experiencing poor sales performances	12
Figure 3: Individual IP sales saw further declines in 2005 but not as strong as a year earlier	13
Figure 4: Income protection new business vs business in force	14
Figure 5: Critical Illness new business vs business in force	15
Figure 6: New business in stand-alone critical illness products is forecast to increase by a compound annual rate of 5.7%.	17
Figure 7: In CII, the top 5 players share more than 50% of the UK market among them	27
Figure 8: In IP, the top 5 players share almost two-thirds of the UK market among them	29
Figure 9: Bancassurers have lost a significant proportion of market share in the income protection market	35
Figure 10: Single ties sales of Critical illness have declined since 2004	37
Figure 11: Multi-tie financial advisors are forecast to make inroads into the income protection market between 2007 and 2011	39
Figure 12: Independent advisors will retain their majority share of the critical illness market	41

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