Invigorating the Life Insurance Sector - UK - October 2005

Table of Contents

• Introduction and Abbreviations
• Scope of the report
• Market definitions
• Other relevant reports
• Global information and research
• Key sources
• Consumer research
• ACORN
• Abbreviations
• Executive Summary
• Changing social trends
• Other factors driving the market
• The size of the UK life insurance market
• The competitive landscape
• Product penetration
• Key target groups
• Consumer attitudes
• Market outlook
• Market Background
• Life insurance crosses the protection and investment divide
• Market dynamics and motivations to purchase
  • Figure 1: Life insurance -- the higher, higher model
• The main product types
• Term assurance
• Whole-of-life insurance
• Endowment insurance
• Writing under trust
• Taxing times: a note about POAT
• Market Drivers
• Demographic and Social Trends
• Assessing the risks and underwriting the policy
• Mortality rates reduced dramatically over the 20th Century
  • Figure 2: Age-standardised mortality rate for all causes, by gender, in England and Wales, 1901-2004
  • Figure 3: Age distribution of registered deaths in England and Wales, by gender, 2004
• Life-expectancy continues to rise
  • Figure 4: Life-expectancy at age 50 and 65 for men and women, 1981-2051 (actual and projected)
• Proportion of cigarette smokers has declined since 1996
  • Figure 5: Cigarette smoking status in GB, by gender, 1996-2004
• Changing lifestyles could raise premium rates
• Assessing the HIV risk fairly
• An update on using genetic data
• Nearly a third of all households have sole occupants
  • Figure 6: Total number of GB households and one-person housedholds, 1961-2004
• Housing market statistics
• Number of property transactions takes a dive in 2005
  • Figure 7: Number of property transactions in England, Wales and Northern Ireland, 1995-2005
• Resurgence in the FTB market forecast
  • Figure 8: Total number of loans for house purchase, by type of borrower, 1998-2005
• Implications of rising house prices
• Economic and Investment Conditions
• Less dynamic, but still reasonably favourable
• Conditions improve for equity investment
  • Figure 9: FTSE 100 and FTSE All Share -- daily index movements, August 1998-August 2005
• Regulatory developments
• A changing regulatory landscape
• Consumer protection and treating customers fairly
  • Figure 10: Treating customers fairly at every stage of the product lifecycle
• Clarify policy terms to avoid confusion and reduce number of declined claims
• Market Size and Trends
• Penetration of whole-of-life assurance has fallen by a third over the past five years...
  • Figure 11: Ownership of life insurnance, by type, 2000-05
• ...while take-up of term insurance has grown steadily
  • Figure 12: When policy taken out, by type, 2000-05
• Business in force contracts
  • Figure 13: Individual life insurance business in force at year end, 2001-04 Figure 14: Number of individual life insurance policies in force at year end, by product type, 2001-04
• Value of benefits paid exceeded net premium income in 2003 and 2004
  • Figure 15: Benefits paid on life insurance policies and as a proportion of total premiums, 2001-04
• The main culprits behind the protection gap
• New business recedes in 2004
  • Figure 16: An overview of new life business, by industry classification and premium income, 2003 and 2004
• Number of new contracts takes a tumble
  • Figure 17: Number of new individual regular-premium life policies written, 1999-2005
• New premium income also on the slide
  • Figure 18: Value of new individual regular-premium life protection, by premium income, 1999-2005
• Mortgage sector accounts for a growing proportion of new term business
  • Figure 19: Number and value of new mortgage-linked and other term assurance contracts, 1999-2005
• The general picture disguises significant price volatility
  • Figure 20: Average annual new individual regular life premium, by type, 1999-2005
• Key Players and the Competitive Environment
• Intense price competition
• Life insurer rankings
  • Figure 21: Top 15 suppliers of new regular-premium life business, 2002-04
• Legal & General leads the way in the term assurance sector
  • Figure 22: Top five suppliers of individual term assurance, based on new business volumes, 2004
• AXA Sun Life dominates whole-of-life
  • Figure 23: Top five suppliers of individual whole-of-life assurance, based on new business volumes, 2004
• Distribution and the Internet
• The changing distribution landscape
• New alliances
• Tailored products
• A growing proportion of consumers have purchased term assurance directly from an insurance company
  • Figure 24: Source used to buy term life assurance, 2000-05
• Single-tie intermediaries account for the largest segment of new term assurance business
  • Figure 25: Distribution of mortage-related and other term insurance based on premium income, 2000-05
• A fifth of whole-of-life policyholders bought their policy from a direct insurer
  • Figure 26: Source used to buy whole-of-life life insurance policy, 2000-05
  • Figure 27: Distribution of whole-of-life insurance, based on premium income, 2000-05
• Online opportunities
• Three in five adults are Internet users
  • Figure 28: Internet penetration -- GB, by gender, socio-economic group, age, lifestage, working status and region, 2001-05
• As yet, very limited online sales of life and pension products
  • Figure 29: Websites browsed and purchased from, by type of financial product, 2002-05
• Advertising and Promotion
• Total adspend on life insurance products has declined
  • Figure 30: Total advertising expenditure on life insurance and protection products, by sector, 2001-05
• Big brand names feature in the top ten
  • Figure 31: Top ten advertisers of life insurance and protection products, 2001-05
• Heavy reliance on direct mail to promote the benefits of life cover
  • Figure 32: Distribution of life insurance advertising expenditure, by main media, 2001-05
• The Consumer and Product Ownership
• Nearly half of all adults do not own any form of life protection cover
  • Figure 42: Ownership of life insurance and other protection products, August 2005
• Rising house prices offset the pain of an endowment shortfall
• Ownership increases up the socio-economic scale...
  • Figure 43: Ownership of life insurance and other protection products, by gender, age and socio-economic group, August 2005
• ...and peaks in the 45-54 age group
  • Figure 44: Ownership of life insurance and other protection products, by age group, August 2005
• Working couples are a major recipient group...
  • Figure 45: Ownership of life insurance and other protection products, by marital status, lifestage, Mintels Special Groups and working status, August 2005
• ...while young, single people are least likely to have any life cover
• Income and tenure are key to take-up
  • Figure 46: Ownership of life insurance and other protection products, by tenure, household income, region and ACORN category, August 2005
• Internet users record above-average take-up
  • Figure 47: Ownership of life insurance and other protection products, by new technology usage, newspaper readership, commercial TV viewing and supermarket usage, August 2005
• The more affluent are more likely to have whole-of-life cover
  • Figure 48: Ownership of life insurance, by type, and lapsed policyholders, by gender, age and socio-economic group, August 2005
  • Figure 49: Ownership of life insurance, by type, and lapsed policyholders, by working status, household income and tenure, August 2005
• Is life insurance worth having?
  • Figure 50: Life insurance is worth having, by type of life cover held, August 2005
• There is less agreement among the retired
  • Figure 51: Life insurance is worth having, by gender, age, socio-economic group, working status, household income and tenure, August 2005
• Do consumers trust insurance companies?
  • Figure 52: Insurance companies can be trusted to pay out, by type of life cover held, August 2005
• The young-to-middle age groups are least confident
  • Figure 53: Insurance companies can be trusted to pay out, by gender, age, socio-economic group, working status, household income and tenure, August 2005
• A contract of the utmost good faith
• Do applicants really read all the policy terms and conditions?
  • Figure 54: I dont read all the small print whenever I take out a new insurance policy, by type of life cover held, August 2005
• The middle-age groups and full-time workers are among the least likely to read small print
  • Figure 55: I dont read all the small print whenever I take out a new insurance policy, by gender, age, socio-economic group, working status, household income and tenure, August 2005
• Should smokers pay more?
  • Figure 56: Smokers should pay higher life insurance premiums, by type of life cover held, August 2005
• Groups who are more likely to smoke are more likely to disagree
  • Figure 57: Smokers should pay higher life insurance premiums, by gender, age, socio-economic group, working status, household income and tenure, August 2005
• Do consumers mind insurance firms knowing their medical background?
  • Figure 58: I dont/wouldnt mind insurance companies knowing my medical history, by type of life cover held, August 2005
• ABs and high earners are least happy about insurers knowing their medical history
  • Figure 59: I dont/wouldnt mind insurance companies knowing my medical history, by gender, age, socio-economic group, working status, household income and tenure, August 2005
• Are a lot of insurance products a waste of money?
  • Figure 60: A lot of insurance products are a waste of money, by type of life cover held, August 2005
• Most insurance is not worth buying say three in four 55-64-year-olds
  • Figure 61: A lot of insurance products are a waste of money, by gender, age, socio-economic group, working status, household income and tenure, August 2005
• Further analysis
• The Future
• Mixed fortunes
• A revival in the FTB market should help term sales
• Pension simplification offers tax relief on PTA...
• ...but not all advisers will be able to recommend it, as things stand
• Whole-of-life suffering from uneven regulation
• Restoring consumer trust
• Less emphasis on upfront commission in the future, perhaps
• Forecast
• Term assurance sales will decline in 2006 before picking up again in 2007
  • Figure 77: Forecast of the number of new regular-premium individual term and whole-of life policies written, 2005-10
• New premium income boosted by price rises
  • Figure 78: Forecast of the value of new regular-premium individual term and whole-of life policies written, at current and constant prices, 2005-10
• A note about endowments
• Factors incorporated