Term assurance looks set to retain steady leadership in the protection industry, writes Thomas Smith
In a recent speech, Andrew Bailey, chief executive officer of the Prudential Regulation Authority of the Bank of England, said that £1.8trn of assets were held by UK insurers in 2013.
Life insurers had the largest share of these assets, holding about 85% of them, equivalent to 93.5% of UK GDP in 2013.
Swiss Re's Global Insurance Outlook for 2014 compared the UK market with others and found it would enjoy growth for the next few years, at an increasing rate. The company's estimate for 2014 premium growth for life in the UK was 3.5%, compared with 2.6% in 2013, and an estimated 3.4% in 2015 and 3.3% in 2016.
Swiss Re's Term and Health Watch 2014 report found that in 2013, the Term Assurance market saw a fall in new business of 17.4%, with total new policy sales of 1,216,649. The average sum assured decreased 1.8% year on year, but the average premium rose 3.4%.
The potential for growth differences between individual and group is considerable, with the impact of auto-enrolment and the lack of a similar motivator in the individual market. While income protection has had a large push this year to make it more public, there has not been a similar movement for individual life products.
John Ritchie, CEO of Ellipse, says: "You simply have to look at the mechanisms by which individual business is distributed: the banks are still dormant in terms
of mobilising financial services advice and face-to-face advice. I think growth in individual protection is going to be relatively flat for structural reasons.
"Distribution is shrinking. It has been shrinking for ten to 15 years. It's the economics: you can reach a lot of people very efficiently through the workplace. But if you want to get to them individually, it's either the web or some face-to-face advice process.
"There will be growth in getting people to take up individual contracts on the web, but I don't really see much growth in the traditional adviser or restricted or tied sales person sitting down and persuading to buy a million pounds' worth of life cover."
Mortgage Market Review
Meanwhile, Mike Farrell, head of sales at LV=, says the introduction of the Mortgage Market Review (MMR) has been a driver. However, he describes it as both a positive and a negative for life insurance.
"It's a positive in that IFAs are thinking of affordability for customers. There is a greater onus on the IFA to gather more information, which means the average duration of an interview with a customer has significantly increased.
"What we saw initially was that protection sales suffered. It was taking advisers about two-and-a-half hours to advise the customers on the mortgage and there was customer fatigue, so they didn't want to spend that little bit of time extra talking about protection. As a result, there was a bit of a blip in Q2.
"IFAs are brilliant at reacting to changes, and a lot of advisers have become used to the new processes. They are a lot more efficient and slick about the way they do the administration in relation to mortgages. The average amount of time that they are spending on mortgages is reducing, which means that they are now actually able to start talking about protection."
Louise Colley, protection director at Aviva, says: "I'll probably be controversial in saying it has been a disappointing year. The mortgage market has been buoyant, so the number of mortgage approvals has been on the increase.
"When we look at the mortgage data coming through from the Council of Mortgage Lenders, we are seeing that mortgage approvals have been on the up.
"That should drive more protection sales because if someone's got a mortgage, there should really be a need to make sure that there is protection coverage in place. There was no correlation between growth in the mortgage market and the corresponding growth in the protection market."
While the MMR could be blamed for some of this, the lack of an upturn now that the MMR's changes are familiar suggests there is less demand from consumers for protection even when taking out a long-term commitment such as a mortgage.
For many, term assurance goes hand in hand with mortgages. Although the recent stamp duty stampede is unlikely to have been the ideal climate in which to talk to a client about life cover, the reforms could well provide an environment to encourage take-up of more individual policies.
Colley says: "I think the stamp duty announcement is another positive move for the housing market, but we need to see the correlation back into the protection market."
The right product
Industry commentators agree that the adviser's role is less to make people realise they need the product and more geared towards helping them find the right product.
Ritchie says: "Increasingly, companies are beginning to think about the basic insurances for people like a utility. They want it to work really well, they don't expect it to break down, and they don't expect to buy different bits of it from different providers."
Colley says: "People say, ‘Oh, we need innovation.' No, quite frankly you can't innovate much more on a life policy - it is a simple product.
"If you start to move away from simplicity, it makes it more difficult to advise upon and more difficult for customers to understand. How do we get it so customers are actually wanting to engage with our product categories and think about what those implications would be? If we look over the years, life insurance sold very well. The big challenge you have here is the number of advisers we now have in this marketplace to serve customers. In terms of the distribution landscape, there is less access now to advisers, so we need to consider this."
In one of the past year's most amusing episodes, Beagle Street put out a media campaign comparing IFAs to dinosaurs. An adviser firm (Informed Choice) swiftly responded by having a toy dinosaur employed as an IFA explaining all the nuances that a fast online service can lack.
While the market has not perhaps seen breakneck growth in recent years, such new firms have created a stir. While new kid on the block Havensrock may not have ruffled as many feathers as Beagle Street, both hint at a more lively marketplace in the future.
John Dean, managing director of Punter Southall Health & Protection Consulting - which launched Havensrock - says: "What we've done is to bring out a new life policy that pays out if the partner of the employee dies in addition to the employee. It doesn't matter whether it's same sex or whether you were married, it's just whether the person you are sharing your life with has died. You don't have to have children, but you do need to be in a stable relationship.
"Havensrock is the first company to launch a product that does this, and we do expect that next year some of our competitors will start doing similar kinds of products because I think they're seeing that it's a simple and easy solution."
While protection deals with the financial implications, the industry is increasingly is thinking of the other areas of life where people need help.
Ritchie says: "The at-claims services, bereavement services, giving people more than a cheque - these have almost become a [necessity], so referring the family of a deceased employee to some additional service can help, as well as the money."
Can the queen of protection continue to lead the way? Certainly, her crown has yet to shake. In the protection industry life cover is the product you're most likely to have and the one you're least likely to gain from personally.
For the time being, barring a huge surge in other areas of the market, that looks set to continue to be the case. It looks as though term assurance won't need to take out a policy on itself any time soon. l
