Term assurance is the most black and white protection policy. Have we seen any colour in the market over the past year? Fiona Murphy investigates.
For years, term assurance has been the jewel in the protection crown in terms of sales volumes. However, due to the black and white nature of policies, it has hardly been a dynamic product to sell. Both of these trends have continued throughout last year.
Swiss Re's 2013 Health and Term Watch showed that despite a slight decrease of 1% in new individual term assurance sales, it is still the most popular product with 1,473,404 policies sold.
To put the sales into context, 560,911 critical illness (CI) policies and 120,094 income protection policies were sold, although the latter did have a large 8.7% growth spurt compared with the year before.
One thing term assurance has always had going for it is mortgage-related sales, which saw an increase of 7.9%. The report described individual term assurance figures for 2012 as "stable".
So what do other industry figures think of how the market has fared over the past year? Bonnie Burns, product director at Legal & General described the term assurance market as "pretty static".
She said: "We haven't seen significant growth in it or a significant drop. It's moving along slowly. There's still an enormous amount of people who haven't got the amount of life cover that they need. They're not necessarily engaging in the process of purchasing it."
For Dean Mason, principal of Masons Financial Planning, term assurance continued as his main source of protection business.
Mason says: "As I'm a mortgage broker as well, it's the protection I sell the most. I would say that's the same with the majority of mortgage brokers. It depends what type of product the client is looking at. With plain life cover, generally speaking, you're going to find a lot of customers are price driven.
"From that point of view, we don't look at a great deal of detail with the products, for example, if it's covering a repayment mortgage or a level term covering an interest only mortgage. With CI policies, it's a different game, as you're looking at what conditions are covered, what partial payments are available, what other add-ons there are. It is more advice driven than price driven."
David Carrington, marketing director at Personal Touch Financial Services agreed, hinting that perhaps this is why this type of insurance does not innovate.
He said: "40% of our term sales are joint term and CI. I guess for many people term is a price-driven proposition unless there are underwriting considerations.
"We see price competition from the big players, and looking at how much pure term we did last year it's within a percentage point the same. Also about half (48%) of our protection business is term. A lot of our business is where the protection is linked in with the mortgage sale or transaction, such a switching from a fixed rate or an adviser reviewing protection needs."
Demographic changes
Mortgages are still leading the way for adviser sales, but what have providers been up to? As you would expect, there has been little in the way of real product development over the past year, in comparison with the CI market, where a number of providers improved policies.
Mike Weedon, managing director of Life Cover For All said of term assurance: "It's the most simplistic, it's pretty black and white: you die and it pays out. There are few bells and whistles with policies. That's the challenge you're always going to have with stimulating the marketplace, there's no severity or vitality you can put into it. That's the challenge providers have."
However, Zurich recently revealed it is to launch investment-linked life cover via a platform. The policy is based over a five-year period and protects the policyholder's eligible platform investments so that in the event of their death Zurich will pay out to the beneficiaries the difference between the original investment (less any withdrawals) and the value at the point of death. This policy is perhaps the first of its particular kind, although True Potential have expressed interest in developing their own proposition and Nucleus have Term Assurance capability via a platform.
Innovation and development could also come as a result of wider industry changes, encouraging people to take individual protection more seriously.
John Ritchie, chief executive of Ellipse expects the tide of auto-enrolment to sway both industry and employers into offering individual term assurance as a workplace perk, as opposed to group schemes.
This surely could widen access to customers, who generally come to term assurance as a result of taking out a mortgage or having their first child.
In addition, the recession has encouraged more people to take out individual life insurance policies.
