Life Insurance and Life Protection Products - UK - October 2007

Table of Contents

• Issues in the Market
• Report Coverage
• Market definitions
• Abbreviations
• Market in Brief
• Insurers fail to narrow the life assurance gap
  • Figure 1: The life assurance protection gap, 2002-06
• Some growth in 2006, but unlikely to be matched in 2007
  • Figure 2: Volume and value of new individual regular-premium insurance policies written, 2001-07
• Life insurance -- performance and outlook vary between sectors
  • Figure 3: Number of new individual regular-premium insurance policies written, by sector, 2001-07
• Term assurance expected to face a tough 2007...
• ...but there is an improved outlook for whole-of-life market
• Endowment sales continue to decline
• Legal & General and AXA Sun Life dominate market share
• Protection market displays increased innovation...
• ...but the legislative and regulatory landscape continues to change
• Channels of distribution continue to shift
• Mintel' s consumer research results highlight the extent of protection gap
  • Figure 4: Ownership of life insurance and other protection products, August 2007
• Lack of trust is major factor behind the protection gap
• Product Background
• Term assurance
  • Figure 5: Overview of term assurance
• Level-term assurance
• Decreasing term assurance
• Whole-of-life insurance
  • Figure 6: Overview of whole-of-life sector
• Two discrete areas
• Typical uses
• Tax planning uses and writing in trust
• Endowment insurance
• With-profits endowments
• Typical uses
• Dramatic fall from favour
• Broader Market Environment
• Key points summary
• Growth in PDI broadly positive but some caution required
  • Figure 7: Trends in PDI, consumer expenditure, and savings, 2002-12
• Investment income boosts life insurer profits
  • Figure 8: FTSE 100 and FTSE All Share -- daily movements, May 1997-June 2007
• Market performance affects demand for life protection products
• Population changes in target markets could affect demand
  • Figure 9: Size of UK population, by age group, 1999-2011
• Increase in one-person households reduces need for life cover
  • Figure 10: Total number of UK households and one-person households, 1991-2012
• Housing market slowdown to hit term assurance sales
  • Figure 11: Number of UK property transactions, 1995-2007
• Opportunities to cross-sell life protection are declining
  • Figure 12: Number of new loans from home purchase, including number of loans for FTB, 1999-2006
• High house prices have both positive and negative implications
  • Figure 13: Average house prices in the UK, 1970-2006
• Increased opportunities for IHT planning
  • Figure 14: Estates liable for inheritance tax, 2000-04
• Internal Market Environment
• Key points summary
• The £2.3 trillion protection gap
  • Figure 15: The life assurance protection gap, 2002-06
• Mortality rates continue to drop
  • Figure 16: Age-standardised mortality rate for all causes in England & Wales, by gender, 1906-2006
• Majority of deaths among the over-75s
  • Figure 17: Age distribution of registered deaths in England & Wales, by gender, 2006
• Heart disease and strokes remain the biggest killers in the UK
• Longevity continues to rise...
  • Figure 18: Life-expectancy projections for people aged 65, by gender, 1987-2052
• ...but there is still pressure on margins
• Number of smokers gradually declining
  • Figure 19: Cigarette smoking status in GB, by gender, 1991-2006
• Impact of the smoking ban
• Other medical issues affecting life insurance sector
• Genetic testing -- set for review in 2008
• HIV -- removing discrimination
• Influenza pandemic -- a reduced threat?
• Legislative and Regulatory Environment
• Key points summary
• Non-disclosure ' most important issue' facing the protection sector
• Law Commission proposes non-contestability period
• U-turn on Pension Term Assurance
• Regulatory update
• The abolition of the age 70 rule
• Changes to ICOB -- move to a principles-based regime
• Retail Distribution Review
• Risk-based approach could lead to changes in capital requirements for insurers
• Treating customers fairly (TCF)
• Competitive Context
• Key points summary
• The evolution of the market
• Cost and apathy are key barriers in term assurance market
  • Figure 20: Motivations and barriers to purchase for term assurance policies
• Product popularity reliant on stockmarket performance
  • Figure 21: Motivations and barriers to purchase for advice-based whole-of-life policies
• Savings accounts compete with guaranteed-acceptance plans
  • Figure 22: Motivations and barriers to purchase for guaranteed-acceptance whole-of-life policies
• Strengths and Weaknesses
  • Figure 23: Key strengths and weakness of the UK life protection market, 2007
• Unique product, scope to expand, innovation and falling rates...
• ...but a lack of trust, over-regulation, static market and too price-driven
• Market Size and Forecast
• Key points summary
• Slight growth in 2006, but unlikely to be matched in 2007
  • Figure 24: Volume and value of new individual regular-premium insurance policies written, 2001-07
• Life insurance -- performance and outlook vary between products
  • Figure 25: Number of new individual regular-premium insurance policies written, by sector, 2001-07
• Term assurance -- PTA led to 11% increase in sales in 2006
• Whole-of-life -- showing signs of growth
• Endowments -- decline to continue, albeit at a slower rate
• Value of new premiums falls as average policy value falls
  • Figure 26: Value of new individual regular life insurance premiums, by sector, 2001-07
• Term assurance -- market continues to contract
• Whole-of-life -- an improving market
• Endowments -- value of new premiums declines by 84% in six years
• Business in force stabilises
  • Figure 27: Individual life insurance business in force at year-end, and sums insured, by product type, 2001-06
• Forecast
  • Figure 28: Forecast of the number of new regular-premium individual term and whole-of-life policies written, 2007-12
• Term Assurance -- Growth recovery from the tightening of interest rates
• Whole-of-life -- Decline continues but at a slower rate
  • Figure 29: Forecast of the value of new regular-premium individual term and whole-of-life policies, at current and constant prices, 2007-12
• Term assurance -- an upturn in value, as volume sales increase
• Whole-of-life -- Value decreasing at a greater rate than volume
• Factors used in the forecast
• Segment Performance
• Key points summary
• Non-mortgage term sales boosted by performance of PTA in 2006...
  • Figure 30: Mortgage-related and other term assurance as proportion of total number of term assurance polices sold, 2001-06
• ...but subsequent U-turn on PTA will reverse the trend in 2007
• Whole-of-life market divided between volume and value
  • Figure 31: Proportion of unit-linked and non-unit-linked whole-of-life plans sold, by volume, 2002-07
• Guaranteed-acceptance plans boost the volume of the market...
• ...but unit-linked sales account for 53% of new written premiums
  • Figure 32: Proportion of unit-linked and non-unit-linked whole-of-life plans sold, by value, 2002-07
• Is the end in sight for the mortgage-related endowment sector?
  • Figure 33: Number of endowment policed sold, mortgage-related and other, 2002-06
• Market Share
• Key points summary
• Legal & General holds 23% of the market share
  • Figure 34: Life company rankings, breakdown of new regular-premium business for all life insurance, 2004-06
• Legal & General tops market share for term assurance
  • Figure 35: Top five providers of individual term assurance, based on new business volumes, 2006
• AXA Sun Life accounts for 54% of whole-of-life market
  • Figure 36: Top five providers of individual whole-of-life assurance, based on new business volumes, 2006
• Companies and Products
• Market background
• Market Developments
• New entrants -- Insurers and providers
• New/changing partnerships
• Mergers and Acquisitions
• Company profiles
• Term assurance -- Major players
• Legal & General
• Norwich Union Life
• Whole-of-Life
• AXA Sun Life
• Brand Communication and Promotion
• Key points summary
• The importance of promotion
• Life insurance in top ten financial products in terms of adspend
  • Figure 37: Advertising expenditure for all financial products, 2002/03-2006/07
• Half of total adspend on over-50s guaranteed-acceptance plans
  • Figure 38: Advertising expenditure on life insurance products, by sector, 2002/03-2006/07
• AXA Sun Life has been leading advertiser since 2004
  • Figure 39: Advertising expenditure by top 15 advertisers of life insurance, 2002/03-2006/07
• Direct mail accounts for 55% of adspend
  • Figure 40: Advertising expenditure on life insurance, by media type, 2007
• Recent developments
• Channels to Market
• Key points summary
• Key sales channels
• Single-tie sales lose ground in mortgage-related term assurance market
  • Figure 41: Distribution of value share mortgage-related term assurance, by channel, 2000-06
• IFAs dominate the non-mortgage-related term assurance market
  • Figure 42: Distribution value share of non-mortgage-related term assurance, by channel, 2000-06
• Both IFAs and direct providers strengthen position in WOL market
  • Figure 43: Distribution value share of whole-of-life premiums, by channel, 2000-06
• Bancassurers continue to gain market share
  • Figure 44: Proportion of life protection business obtained through bancassurance, 2005 and 2006
• FSA survey reveals sales channel can affect persistency rate
• Purchasing distribution to assure future
• Insurer/broker acquisitions in 2006/07:
• The Consumer -- Product Ownership
• Key points summary
• Four in ten people have no protection products
  • Figure 45: Ownership of life insurance and other protection products, August 2007
• Term assurance accounts for two thirds of all individual life policies
  • Figure 46: Ownership of life insurance, by product type, August 2007
• Implications and opportunities
• Half of adults aged 35-44 have life insurance
  • Figure 47: Ownership of life insurance and other protection products, by gender, age, socio-economic group and gross annual household income, August 2007
• Implications and opportunities
• Marriage increases likelihood to have life protection
  • Figure 48: Ownership of life insurance and other protection products, by marital status, lifestage, age of children in household and working status, August 2007
• Implications and opportunities
• Mortgage ownership is major determinant in protection market
  • Figure 49: Ownership of life insurance and other protection products, by household tenure, TV region, technology users and newspaper readership, August 2007
• Implications and opportunities
• Four in ten mortgagors have term assurance
  • Figure 50: Ownership of life insurance and other protection products, by mortgage ownership, August 2007
• Implications and opportunities
• CHAID analysis
  • Figure 51: Key targets for life and other protection products, August 2007
• Implications and opportunities
  • Figure 52: The differentiation in penetration between overall population and highlighted target groups, August 2007
• Two thirds of people with one protection policy have life insurance
  • Figure 53: Ownership breakdown, by number of protection products types owned, August 2007
• Implications and opportunities
• 56% of people aged 25-34 have no protection products in place
  • Figure 54: Ownership breakdown, by gender, age, socio-economic group, lifestage, gross annual household income and housing tenure, August 2007
• Implications and opportunities
• The Consumer -- Arranging Protection and Financial Planning
• Key points summary
• Four in ten people took expert advice when arranging life insurance
  • Figure 55: Arranging life insurance, August 2007
• Implications and opportunities
• Socio-economic group governs likelihood to seek advice
  • Figure 56: Method used to arrange life insurance, by gender, age and socio-economic group, August 2007
• Parents are more likely to seek expert advice
  • Figure 57: Method used to arrange life insurance, by marital status, lifestage, age of children in household and housing tenure, August 2007
• Implications and opportunities
• Internet usage is not reducing demand for advice
  • Figure 58: Method used to arrange life insurance, by working status, technology users, Internet usage and newspaper readership, August 2007
• Implications and opportunities
• Three quarters want to ensure their dependents are financially secure
  • Figure 59: Agreement with statements concerning financial planning matters, by life insurance policyholders and non-life insurance subscribers, August 2007
• Implications and opportunities
• Over-65s are the most concerned about financial planning
  • Figure 60: Agreement with statements concerning financial planning matters, by gender, age, socio-economic group and gross annual household income, August 2007
• Implications and opportunities
• A quarter of retirees are considering taking IHT advice
  • Figure 61: Agreement with statements concerning financial planning matters, by marital status, lifestage, age of children in household and working status, August 2007
• Implications and opportunities
• Broadsheet readers are more likely to consider financial planning issues
  • Figure 62: Agreement with statements concerning financial planning matters, by housing tenure, TV region, technology users and newspaper readership, August 2007
• Implications and opportunities
• 54% of life insurance policyholders do not have a will
  • Figure 63: Agreement with statement ' I have made a will' , by ownership of life protection and other protection products, August 2007
• IHT not a priority for protection product holders
  • Figure 64: Agreement with the statement ' I have taken/am considering taking advice about inheritance tax planning' , by ownership of life insurance and other protection products, August 2007
• Two thirds without protection agree that it is important
  • Figure 65: Agreement with the statement ' It is very important to me that my dependents are financially secure in the event of my death' , by ownership of life insurance and other protection products, August 2007