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UK Protection Insurance 2017: Critical Illness & Income Protection
Publication Date Sep 2017
Product Type Report
Pages 58
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UK Protection Insurance 2017: Critical Illness & Income Protection

Summary

"UK Protection Insurance 2017: Critical Illness & Income Protection", discusses income protection and critical illness insurance, looking at market size with regards to changes in contracts and premiums, in addition to claims. It highlights the barriers to consumer engagement, how products are distributed, and the main market players and their propositions. It provides five-year forecasts of market size in premiums to 2021, and discusses how the market is likely to change as healthcare technology is developed.

The income protection and critical illness insurance markets continued to grow in 2016. Their year-on-year percentage growth outstripped the total protection market, highlighting a growing market for illness- and injury-oriented products. However, together they still only account for less than 10% of the total protection market in terms of contracts and premiums. Protection products remain complex, and are still sold and not bought, making advisors key to distribution. Income protection in particular is highly reliant on advisors, and this is not likely to change soon. Meanwhile, individuals are beginning to purchase critical illness insurance independently online without advice, although advisors will remain key. To maintain market growth, providers and advisors must continue to build consumer engagement with these products.

Scope

- Income protection grew by 7.4% to 119,459 in contracts and 10.8% to £48.3m in premiums from 2015 to 2016.
- Standalone critical illness insurance grew by 50.5% to 28,751 in contracts and 47.3% to £14.1m in premiums from 2015 to 2016.
- Legal & General dominates the critical illness insurance market, holding a 25.4% market share in 2016. LV= and Friends Life dominate the income protection market, with 27.3% and 23.1% shares respectively in 2016.

Reasons to buy

- Understand the barriers of uptake for critical illness and income protection, and learn how to increase consumer engagement.
- Explore how the distribution landscape is changing for these products.
- Discover which providers lead the critical illness and income protection markets.
- See how critical illness and income protection are forecast to grow over the next five years.


Companies Mentioned

Legal & General Aviva Vitality Friends Life Royal London LV= AIG

Table of Contents
1. EXECUTIVE SUMMARY 3
1.1. Growing consumer engagement with IP and CII is vital 3
1.2. Key findings 3
1.3. Critical success factors 3
2. MARKET DYNAMICS 10
2.1. Introduction 10
2.2. The protection market has reached a new normal following the RDR 10
2.2.1. Contract levels for protection products reduced in the wake of the RDR 10
2.2.2. Protection is sold and not bought, making advisors key to the market 11
2.3. Contracts and premiums for IP and CII grew in 2016 12
2.3.1. IP and CII increased their share of the total protection market 12
2.3.2. The IP market continued to grow in 2016 15
2.3.3. The success of IP policies is due to products that cap payout duration at two years 16
2.3.4. Standalone CII has grown, but remains small compared to the total protection market 17
2.3.5. There are 16 times as many CII contracts sold as a with-rider product than standalone 18
2.3.6. Mortgage-related term customers are most likely to choose CII as a rider 19
2.3.7. Cross-selling CII as a rider product will be the easiest way to grow the CII market 19
2.3.8. The group protection market is shrinking 20
2.4. Consumer engagement with CII and IP is still relatively low 22
2.4.1. The 7 Families campaign helped raise awareness of protection products 22
2.4.2. The Building Resilient Households project looks to promote IP 23
2.4.3. There is confusion around the different types of protection products available 23
2.4.4. Only one in 10 people have IP in place 23
2.4.5. There is confusion around what employers and the government will provide 23
2.4.6. Individuals do not believe they will need protection products 24
2.4.7. Protection products are seen as a luxury purchase, and the application process is long 24
2.5. Over 90% of CII and IP claims received are paid 24
2.5.1. Cancer is the largest cost for critical illness insurers due to the high number of claims 24
2.5.2. The ABI is consulting whether stage one cancers should be excluded from full payment 25
2.5.3. 93.1% of CII claims submitted were paid in 2016 25
2.5.4. Mental illness is the highest claims cost for IP insurers 26
3. DISTRIBUTION DYNAMICS 28
3.1. RDR has changed the distribution landscape 28
3.1.1. The total protection market shows a decline in the restricted advice channel 28
3.1.2. IP as a product is highly reliant on advisors, and this is not likely to change soon 29
3.1.3. Individuals are purchasing CII independently without advice 31
3.2. Robo-advice has entered the life space, but is not expected for IP or CII soon 33
3.2.1. Life insurance products remain the focus for robo-advice tools 33
3.2.2. IP is too complicated to be sold directly or advised without a human 33
3.3. Insurers are developing their tools for advisors to aid distribution 33
3.3.1. Tools that help advisors sell protection products more efficiently are beneficial 33
3.3.2. Legal & General is testing how well advisors know its products 34
3.3.3. Legal & General helps advisors prevent policies being lost through its early warning system 34
3.3.4. LV=’s advisors can check likely underwriting outcomes using its new tool 34
3.3.5. Royal London has improved the flexibility of its online service for advisors 34
3.3.6. Royal London introduces e-signatures to speed up applications 34
4. COMPETITOR DYNAMICS 36
4.1. The injury and illness protection market is dominated by a few players 36
4.1.1. Legal & General dominates the critical illness market by number of contracts 36
4.1.2. LV= and Friends Life account for half of new IP sales 36
4.1.3. Innovation and technology is driving competition and will decide who wins 37
4.2. The CII market is trying to cover more conditions at a cheaper rate 38
4.2.1. Choosing how many conditions to cover is a cause for debate for critical illness insurers 38
4.2.2. AIG Life has launched a CII product that only covers for cancer, heart attack, and stroke 39
4.3. Legal & General leads the critical illness market 39
4.3.1. Legal & General’s CII has a range of benefits at no additional cost 39
4.3.2. Legal & General’s IP product has a range of options to reduce premiums 39
4.4. Friends Life is now part of the Aviva Group 40
4.4.1. Friends Life will move under the Aviva brand in October 2017 40
4.4.2. Aviva’s and Friends Life’s new critical illness product offers three tiers of cover 41
4.4.3. Aviva’s and Friends Life’s new IP policy allows advisors to flexibly design cover 41
4.5. LV= leads the IP market 42
4.5.1. LV= offers a specialist IP policy for doctors and surgeons 42
4.5.2. LV=’s critical illness product is only available as a rider alongside its term life insurance policy 42
4.5.3. LV= and Allianz are combining to form a joint venture in general insurance 42
4.5.4. LV= is looking to develop its rehabilitation services to aid the recovery of claimants 42
4.6. Royal London offers its Helping Hand support service to customers 43
4.6.1. Royal London’s IP customers can choose when payouts start and how long they last 43
4.6.2. Royal London’s CII covers 43 definitions and 14 additional conditions 43
4.6.3. Royal London has removed the age limit for its IP product 43
4.7. Vitality works to differentiate itself from other players 43
4.7.1. Vitality’s IP customers can benefit from rewards and discounts 43
4.7.2. Vitality’s serious illness payouts are based on severity, allowing it to cover more conditions 44
5. THE MARKET GOING FORWARD 46
5.1. The CII and IP markets are forecast to grow to 2021 46
5.1.1. The IP market is forecast to grow by 17.0% from 2016 to 2021 46
5.1.2. IP and CII policies can reduce Universal Credit payments, outweighing their value 47
5.1.3. The standalone critical illness market is forecast to grow by 11.5% from 2016 to 2021 48
5.1.4. Protection providers want government help to promote IP and CII 50
5.2. Policies are becoming personalized 51
5.2.1. Wearable healthcare technology is assessing individual risk 51
5.2.2. Genomic profiling could be used to assess risk in the future 51
5.2.3. Personalization could create an uninsurable underclass 52
5.2.4. Specialist policies for existing conditions could enter CII and IP 52
5.3. Providers want to actively help individuals manage their health 52
5.3.1. Providers could offer wearable technology that diagnoses and manages medical conditions 52
5.3.2. Facial analytics is being developed to detect early signs of disease 53
5.3.3. Aviva is investing in companies helping to protect and prevent against injury and illness 53
5.3.4. Rehabilitation and support services are helping customers get back to work 53
5.3.5. Wellbeing apps are being launched 54
5.3.6. Providers are launching digital healthcare and virtual GP services 54
6. APPENDIX 56
6.1. Abbreviations and acronyms 56
6.2. Bibliography 56
6.3. Further reading 57

List of Tables
List of Tables
Table 1: IP and CII within the total protection market, by contracts and premiums, 2011-16 15
Table 2: CII cover as a bolt-on to other protection products, 2016 20
Table 3: Distribution of IP contracts and premiums, split by channel, 2013-16 31
Table 4: Number of conditions covered by the top five CII providers in 2016 38
Table 5: Percentage payout of claims by severity and Vitality serious illness cover policy type 45

List of Figures
List of Figures
Figure 1: The non-mortgage-related market saw the biggest decline due to the RDR 12
Figure 2: Contracts and premiums for IP and CII grew in 2016 14
Figure 3: Premiums have performed better than contract numbers for IP 16
Figure 4: The standalone CII market doubled in size from 2015 to 2016 18
Figure 5: The number of contracts in the group market has fallen drastically since 2013 22
Figure 6: Cancer is the highest cost for critical illness insurers 26
Figure 7: Mental illness claims are the highest cost to IP insurers 27
Figure 8: The restricted advice channel has shrunk as a result of the RDR 29
Figure 9: Independent and restricted advice are the main channels of distribution for IP 30
Figure 10: All distribution channels for CII have grown, but the non-advised channel is gaining market share 32
Figure 11: Legal & General dominates the CII market, while LV= leads the way in IP 37
Figure 12: Vitality rewards customers who lead an active lifestyle 44
Figure 13: The IP market is forecast to grow by 17.0% to £56.5m from 2016 to 2021 48
Figure 14: The standalone CII market will grow 11.5% to £15.7m from 2016 to 2021 50

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