Gen Re shares the results of its Protection Pulse, which identified key market trends to Q4 2014.
When we reached the end of the first quarter in 2014, things appeared to be looking up. In spite of the lower sales post gender in January and February 2013, which influenced the picture of growth that we saw in Q1 2014, we started to wonder if we had indeed turned a corner and whether we were seeing protection sales starting to rise again.
However, it became apparent during the year that our early optimism was to be short-lived, with overall new business up just slightly in Q2 and Q3. Could we hope to end 2014 with a bang? Sadly not.
The year ended with Q4 sales being a damp squib: down by almost 1%. As table two demonstrates, a dreadful November seems to have been the main contributor to this result.
Is direct to consumer gaining momentum?
At the end of the year, the overall picture for advice shows increases in both the independent advice and non-advised channels, and a reduction in the restricted advice channel.
The overall reduction in restricted advice of 13% for the year, masks the true picture where we have seen significant falls in the past two quarters, with Q4 down by just over 20%, compared with 13.4% in Q3.
This overall picture reflects a significant decrease in sales through bank channels, buoyancy in the direct to consumer channels and a relatively strong independent advice channel, which has been steady through the past three quarters, with a slight uptick in Q4.
Which is the most popular product of all?
Mortality and Accelerated Critical Illness (CI) sales continue to dominate sales, representing together almost 94% of the overall protection market.
Interestingly, Q4 is showing a slight downturn in the sales of Accelerated CI (see table six), which in the previous three quarters had shown really strong growth. It is not immediately obvious what might have caused this reduction, but it will be interesting to see if the trend continues into Q1 2015.
Volumes of standalone CI are small and continue to decrease, although not as dramatically as at the start of 2014. Reductions may be driven by the way that this product is sold.
Mortality ended the year down slightly overall. This is a pattern that has been visible in the past three quarters (only Q1 showed growth, and this is likely to be due to correspondingly low sales in Q1 2013 post gender).
On a slightly more positive note, sales of income protection (IP) have shown a consistent pattern of growth through the past two quarters, which could be attributable to a variety of factors such as new product developments and greater awareness through initiatives such as the Seven Families, and advisers giving it more focus. It would be pleasing to see this trend continue and develop further in 2015, as IP still represents only just over 5% of total protection sales (see chart one).
Impact of mortgage market on protection
We have been tracking mortgage related sales for the past four quarters to see whether there has been any impact on protection sales from the Mortgage Market Review, and what impact the underlying mortgage market has had on protection sales.
Statistics from the Council of Mortgage Lenders (CML) for 2014 indicated the following:
• First-time buyer loans were up 15% on 2013 (311,500 loans), but down 2% in Q4 compared with Q3.
• Home-mover loans were up 8% on 2013 (365,400 loans), but down 8% in Q4 compared with Q3.
• Re-mortgage loans were down 6% on 2013 (303,100 loans), but down 3% in Q4 compared with Q3.
• Buy-to-let loans were up 23% on 2013 (197,700 loans) and up 4% in Q4 compared with Q3.
So while the picture for the mortgage market in Q4 did not look so good, overall the number of new loans advanced in 2014 looks healthy when compared with 2013, with a total of 1.17 million new loans.
By way of comparison, the proportion of mortgage-related sales of protection business has remained fairly consistent as a proportion of the overall market by contract count during 2014 at about 32% to 34%.
It is reassuring to see that mortgage-related sales as a proportion of protection business by contract count have increased from 2013 to 2014: up from 26.8% of the overall protection market to 33.2%, reflecting the growth of the underlying mortgage market.
It is also reassuring to see that the Mortgage Market Review does not appear to have had a negative impact on mortgage-related protection sales. The total number of mortgage-related sales in 2014 was 515,138, which when compared with the overall number of new loans seems quite positive. The split by distribution channel is fairly even between independent and restricted advice and can be seen in table seven.
Summary
It would have been great to have seen overall protection sales increase more significantly in 2014, but this was not to be the case. An overall growth of 2.2% feels a little disappointing, given the large proportion of the population who should and could buy protection insurance, but don’t.
However, there were some good news stories: notably the sustained growth of IP sales in the past two quarters, and the rise in non-advised sales, which could signify a rise in the direct channel, and hence the accessibility of protection insurance for those people who might not want to visit an IFA.
We hope that 2015 will continue to see a rise in the number of people buying protection insurance through a variety of different channels, and enjoying the benefits and peace of mind that having protection cover can bring.
