UK Term Assurance 2007

Table of Contents

• Overview
  • Catalyst
  • Summary
• Executive Summary
  • Market focus
  • Sector issues
  • Competitor Issues
  • Distribution Dynamics
• Table of Contents
• Table of figures
• Table of tables
• Market Focus
  • The total UK protection market has shrunk over the lastfive years
  • The UK term assurance market is spiralling downwards
    • No recovery of the term assurance market is in sight
      • New business premiums for the total market have droppedby a further 6%
      • Changes in critical illness insurance have caused withrider term assurance to lose its appeal
  • The term assurance share of the protection market hasdeclined between 2002 and 2006
  • Persistency of policies is an issue in the termassurance industry
  • Datamonitor forecasts growth in both the mortgage andnon mortgage-related sides of the term market
  • The price war has had no impact on the protection gap
    • The UK protection gap may widen further
      • While personal debt goes up, consumers do not seekadequate financial protection
      • Higher premiums for older applicants may push down coverlevels
      • Young Brits seem to be more concerned by price ratherthan product suitability
      • Negative press intensifies consumers' mixed feelingsabout life insurance
    • Competition is fierce
      • Price continues to be the critical feature for termassurance
      • The scope for price reductions may not yet be fullyexhausted
      • The mortgage-related sector is less focused on price
• Insurers have been sorely disappointed on Pension TermAssurance (PTA)
  • The Government' s decision to remove tax relief on PTAhas dealt a blow to the industry
  • Government' s decision has been met with condemnation
  • There may still be loopholes in pensions term assurancethat can be exploited
• A variety of key products exist in the term assurancemarket
  • Level term assurance
  • Decreasing term assurance
  • Mortgage-related term assurance
  • Increasing term assurance
  • Renewable term assurance
  • Convertible term assurance
  • Pension term assurance
• Sector issues
  • Term assurance causes mixed feelings
    • Negative press adds distrust to dislike
  • Market decisions have been driven by the price war
    • Price continues to be a critical issue for insurers
      • Price has turned into the defining feature for termassurance
      • The price war is not over yet
      • However, price cuts have undermined distribution
    • The prerequisite for success is a sound distributionstrategy
      • Insurers seem to have underrated the importance ofdistribution
    • The underwriting process is too complex for bothconsumers and distributors
      • Electronic underwriting could become the norm for themajority of applications
      • The discussion regarding the efficiency of tele-underwritingis on-going
      • Legal and General has been awarded for its InteractiveUnderwriting
  • Key strategies exist for providers to boost termassurance sales
    • Ongoing education should improve the consumer perceptionof term assurance
    • Providers need to rethink distribution strategies
      • Distribution partners need incentives
      • Online sales should offer as much advice as possible
      • Providers will need to make term assurance easier tosell
    • Providers need to differentiate the product
• Competitor issues
  • The term assurance market is highly concentrated
    • In 2005, the top 3 competitors controlled 54% of themarket for both level and decreasing term assurance
      • Legal & General alone has a market share of close to20% in level term assurance
      • Legal & General is also the clear market leader indecreasing term assurance
  • Company profiles reveal strategic differences
    • Legal & General -a key strength is distribution
      • The products give only limited flexibility
      • Life Insurance and Mortgage Life Insurance
      • Family Life Insurance Plan
      • Legal & General distributes through a most extensivechannel network
      • A strong relationship with IFAs, coupled with a broaddistribution network, is one of L&G' s strengths
    • Friends Provident - differentiation through servicelevels
      • The products show a good degree of flexibility
      • Friends Provident wants to be different in service
      • Friends Provident has recognized the need to expand itsdistribution network
    • HBOS - using its strength in the mortgage market
      • Life insurance is offered in the context of acomprehensive protection package
      • HBOS concentrates on the less competitivemortgage-related segment
      • HBOS' strength in the mortgage market gives it a headstart in the protection business
    • Aviva - competing on price in the front line
      • Norwich Union policies are simple and standardized
      • Norwich Union aims at process optimization to facilitatethe low-cost offering
    • AEGON Scottish Equitable - differing through productquality
      • The product package can cover a comprehensive protectionneed
      • Flexibility is the key feature of AEGON ScottishEquitable' s offering
  • White-labeled products allow for new market entries
    • Greenbee is expanding into the life insurance market
  • Innovation is centering on underwriting
    • Electronic underwriting appears to be the most efficientway forward
      • Norwich Union is at the forefront of tele-underwriting
      • Legal & General has developed interactiveunderwriting
• Distribution Dynamics
  • Term assurance distribution remains focused on the IFAchannel
    • Single-tie sales of savings related term assurance havebeen hit by a lack of customer confidence in the product
    • Bancassurers have increased their share of the mortgagerelated term market
    • Datamonitor forecasts solid growth in single tieddistribution of savings related bancassurance
    • Banks are set to continue increasing their presence inthe mortgage related term assurance market
  • Providers are looking to broaden their distributionstrategy
    • Insurers are looking more into direct sales
      • The pressure has increased to expand online salescapabilities
      • Problems are arising between direct sales and advisorchannels
      • Non-advised sales have been harshly criticized
• APPENDIX
  • Definitions
    • Term assurance
      • Convertible term assurance
      • Decreasing term assurance
      • Increasing term assurance
      • Level term assurance
      • Mortgage-related term assurance
      • Pension term assurance
      • Renewable term assurance
  • Further reading
  • Ask the analyst
  • Datamonitor consulting
  • Disclaimer
• List of Tables
  • Table 1: Total UK protection market 2002-2006, newbusiness premiums £m
  • Table 2: The UK term assurance market 2002-2006,segmented by mortgage related and non mortgage-related, new businesspremiums £m APE
  • Table 3: % share of UK protection market attributed toeach of the 3 key product, 2002-2006
  • Table 4: Comparison of business in force value to newbusiness premiums written 2001-2005, £m
  • Table 5: Forecast term assurance segmented bymortgage-related and non mortgage-related 2007-2011, new businesspremiums £m
  • Table 6: Savings related term assurance distribution2002-2006, new business premiums £m
  • Table 7: Mortgage related term assurance distribution2002-2006, new business premiums £m
  • Table 8: Forecast savings related term assurancedistribution 2007-2011, new business premiums £m
  • Table 9: Forecast mortgage related term assurance newbusiness, 2007-2011 new business premiums £m
• List of Figures
  • Figure 1: Premiums in the stand-alone term assurancemarket have declined
  • Figure 2: Since 2003, new business premiums havedropped by 10% compounded annually, 2002-6
  • Figure 3: In 2006, with rider policies accounted for40% of the total new business, compared to 46% in 2002
  • Figure 4: % share of UK protection market attributedto each of the 3 key product
  • Figure 5: Comparison of business in force value to newbusiness premiums written, £m
  • Figure 6: Mortgage related products will continue todominate the market
  • Figure 7: The Top 10 players controlled 88% of the newbusiness in the level term assurance segment in 2005
  • Figure 8: Legal & General is the dominating forcefor decreasing cover products, 2005
  • Figure 9: The largest decline in savings related termassurance distribution has been through non-bancassurance single tieadvisors
  • Figure 10: Banks have increased their share of themortgage related term assurance market
  • Figure 11: Datamonitor forecasts solid growth insingle tied distribution of savings related bancassurance
  • Figure 12: The distribution of mortgage related termassurance will remain largely unchanged