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Term & Health Watch 2016

2 Swiss Re Term & Health Watch 2016

An encouraging year for direct to consumer propositions in the UK, but a stark decline in bancassurance business. In percentage terms, growth for both income protection and whole life with sales is on the up. Much more needs to be done to generate sustainable growth in this challenging market where flexible lifestyles and appropriate access are vital: a one size fits all approach simply will not do.

As welfare provision is withdrawn further to enable the Government to reduce overall spending, the private sector has a great opportunity. It’s time to step up to the challenge, working in partnership with Government to improve the financial security of society and help people look beyond purely short-term need.

Understanding the factors impacting our industry and current protection trends form a key part in this approach.

Swiss Re Term & Health Watch 2016 3

Introduction 42015 in summary 5The market at a glance 62015 in context 8Term assurance 9Critical illness 15Income protection 18Whole life 21The market perspective 23About the authors 26

Contents


Introduction

Term & Health Watch 2016 is Swiss Re’s market-leading analysis of new individual life and health protection sales in the UK. In this report, we set out the 2015 results for individual death benefit, critical illness and income protection business. We look at market trends and provide an analysis of current themes, including views shared with us by industry participants. We would like to thank all product providers who contributed their data, as well as the 44 individuals who expressed their opinions in our recent questionnaire. A number of these responses are quoted throughout the report.

Income protection

The number of new income protection policies increases

by 10.7%.

The number of term life policies with critical illness

decreases by 9.7%.

The number of term life only

policies increases by 2.4%.

Termassurance


2015 in summary

Whole life

The number of new unit-linked whole life policies decreases

by 46.1%.

The number of new non-linked whole life policies

increases by 8.2%.

The number of new guaranteed

acceptance whole life policies

increases by 7.4%.

Critical illness

The number of new critical illness

policies, stand-alone and acceleration of life cover decreases

by 7.6%.

In 2015, 1,683,841 new term, whole life,

critical illness and income protection policies were sold,

an increase of 0.9%.


The market at a glance

Individual term assurance including accelerated critical illness

2013 2014% change

2014/2013 2015% change

2015/2014

Total new sales 1,216,649 1,279,448 5.2 1,255,786 –1.8

Change in % 2014/2013: +5.2% 2015/2014: –1.8%

Individual critical illness

2013 2014% change

2014/2013 2015% change

2015/2014

Accelerated policy 423,673 447,231 5.6 403,448 –9.8Stand-alone policy 22,006 18,208 –17.3 26,679 46.5Total new sales 445,679 465,439 4.4 430,127 –7.6

Change in % Accelerated policy: 2014/2013: +5.6% 2015/2014: –9.8%Stand-alone policy: 2014/2013: –17.3% 2015/2014: +46.5%Total new sales 2014/2013: +4.4% 2015/2014: –7.6%

Individual income protection

2013 2014% change

2014/2013 2015% change

2015/2014

Total new sales 90,794 96,889 6.7 107,302 10.7

Change in % 2014/2013: +6.7% 2015/2014: +10.7%

Individual whole life

2013 2014% change

2014/2013 2015% change

2015/2014

Total new sales 273,423 273,991 0.2 294,074 7.3

Change in % 2014/2013: +0.2% 2015/2014: +7.3%

Distribution by product line

Distribution by product line, % market share 2015 Tied Directly-authorised Direct Bancassurance

Term assurance 11.9 69.2 9.2 9.7Critical illness (CI) 14.9 70.8 4.3 9.9Income protection (IP) 17.9 79.6 0.4 2.1Whole life (WL) 9.8 17.2 68.1 4.9

Distribution is split as follows: ̤ Tied – where the product provider has responsibility for the sales channel ̤ Directly-authorised – where regulatory responsibility for product advice and

sales lies with the distributor (this includes Independent Financial Advisers, limited panels and firms which are directly-authorised and arrange products on a non-advised basis)

̤ Direct – this includes internet, direct mail and telesales made direct by a product provider

̤ Bancassurance – where a bank has responsibility for the sales channel.

Product type by volume


Top five product providers, measured by number of new term assurance sales, with and without CI

Product provider 2015 position 2015 2014 positionLegal & General 1 450,737 1Aviva 2 192,505 2Friends Life 3 112,155 3Zurich 4 100,327 6Royal London 5 97,810 8

Top five product providers, measured by number of new critical illness sales, including stand-alone and acceleration of life cover also reported under new term and whole life sales

Product provider 2015 position 2015 2014 positionLegal & General 1 131,430 1Friends Life 2 63,206 2Aviva 3 55,310 3VitalityLife 4 51,528 5Royal London 5 37,246 6

Top five product providers, measured by number of new individual income protection sales

Product provider 2015 position 2015 2014 positionLV= 1 34,470 2Friends Life 2 26,265 1Legal & General 3 10,379 3Aviva 4 6,598 7Royal London 5 5,840 6

Top five product providers, measured by number of new individual whole life sales, with and without a CI rider, including guaranteed acceptance, non-linked and unit-linked

Product provider 2015 position 2015 2014 positionSunLife 1 137,619 1Legal & General 2 35,885 3Aviva 3 29,719 2LV= 4 19,807 4VitalityLife 5 18,218 5


2015 in context

Critical illness

Whole of life

Income protection

Multiple products

Pension Freedoms, April 2015

Illness-specific CI cover

Simplified critical illness definitionsABI’s statement of best practice for CI, December 2015

Short health questionnaire for over 50s plan

Premium cap option

Protected pay-out

Whole of Life care rider – individual and joint life

Automatic medical evidence limits

“Personal” IP plan tailored to the needs of professionals

Family carer benefit

High court redresses fraudulent income protection claim

Overseas serious illness treatment add-on

Multi-product quote and apply systemCritical illness income protection policy

General Election and a new Government

Welfare Reform Ageing population

Auto-enrolment roll-out

Financial responsibility


Term assurance

It is positive to report an increase in new term only sales of 2.4%. However, term with critical illness sales decrease by 9.7% in percentage terms. This results in a decline in total new term assurance sales for 2015 of 1.8%, with a substantial fall in new bancassurance business.

In fact, if we exclude bancassurance, total new term only sales increase by 10.5% year-on-year and total new term with CI sales, by 8.5%.

Total new term sales split between term and term with CI, 2011–2015 by volume

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

Term with CI

Term

20152014201320122011

Term only Term with CI Total term

1,488,106 1,473,404

1,216,6491,279,448 1,255,786

New term sales with a CI benefit represent 32.1% of total new term sales in 2015 (34.9% in 2014).

Total new individual term sales split by level term assurance (LTA), decreasing term assurance (DTA), family income benefit (FIB) and other term new sales, 2011–2015 by volume

Product type 2011 2012 2013 2014 2015% change

2015/2014

LTA without CI 644,848 632,292 508,884 522,649 555,907 6.4 Relevant life – – – 16,372 21,790 33.1 LTA with CI 253,542 260,637 201,502 211,694 203,945 –3.7 DTA without CI 292,648 279,838 234,492 239,001 225,582 –5.6 DTA with CI 267,471 262,718 220,487 232,043 196,174 –15.5 FIB without CI 25,385 32,463 29,417 25,748 24,680 –4.1 FIB with CI 2,482 2,750 1,022 2,770 2,854 3.0 Other term without CI 1,344 2,052 20,836 29,165 24,766 –15.1 Other term with CI 386 653 9 6 88 1,366.7 Total 1,488,106 1,473,404 1,216,649 1,279,448 1,255,786 –1.8

Term only 2011: 964,225 2012: 946,645 2013: 793,629 2014: 832,935 2015: 852,725

Term with CI 2011: 523,881 2012: 526,759 2013: 423,020 2014: 446,513 2015: 403,061


Data published by the Council of Mortgage Lenders show that gross mortgage lending for 2015 totalled £220.3 billion, an 8% increase on the prior year and the highest annual gross lending since 2008.

Despite this increase, fewer consumers are arranging protection on the back of their mortgage transaction. Although life cover to protect a mortgage loan is sometimes arranged on a level basis, this decline is reflected more so in the number of new DTA sales.

MarketcommentatorIt seems to be holding fast but could be so much better. Increases in protection sales reported last year are eclipsed by the longer-term downward trend. Regulation has worked against protection sales, e.g. Mortgage Market Review.

The implementation of the Mortgage Market Review from April 2014 onwards will have played a part in this decline. A number of respondents to our questionnaire reported on the extended process to arrange a mortgage which left less time to arrange loan protection. ProductproviderThe elongated mortgage process makes it harder to introduce protection conversations and keep the customers attention, particularly with existing, complex propositions. This drives sales down, with fewer people willing to enter the conversation in an advice-led market.

There is a considerable risk that the increased focus and rigour devoted to improving the quality of the loan book has meant one part of the problem is fixed, but another is created with

fewer people having cover in place. It is easy to spot this when looking at paying off a loan on death, or when the mortgage holder suffers a critical illness. But the problem is much wider: far too few people have cover in place to protect their mortgage payments should they become long-term sick.

The Government is looking for ways to stimulate affordable housing. Simple messages about protecting mortgage loans and incomes are necessary. The application process will need to be as efficient and user-friendly as possible for this to be a success.

The mortgage market has always been an important source of new protection business for long-term insurers. Looking back ten years to our earlier Term & Health Watch reports, around 50% of all new term business was mortgage-related. We estimate this to be approximately half this figure now.

We cannot continue to rely on house purchases as the stimulus for new protection sales to the same extent we did previously. As we discuss in the income protection chapter, more people will be renting rather than buying homes in the future. What worked for first time buyers in a bygone age, has evolved. If needs have changed, we should too.

We also report 21,790 new relevant life policies (RLP) for 2015. Relevant life cover has become an attractive proposition as a tax-efficient way to set up employer-funded life cover for an individual.

In Group Watch 2016, we reported that the number of people covered under Excepted Group Life Policies (EGLP), which provide non-pension death benefit only cover, had increased by 91,790 people, from 391,438 to 490,911. These figures relate to in-force rather than new policies.

Term assurance


Taking EGLP and RLP together and allowing for modest lapses or withdrawals from EGLPs, we estimate that around 110,000 more people were included in employer-funded non-pension death benefit policies in 2015. In the absence of pension tax reforms to alter the current Lifetime Allowance framework, we’d expect to see further growth in 2016 and beyond.

This year, for the first time, the “Other” distribution category has been redefined as “Direct”. As a result, some providers have changed the way they classify sales for the purpose of this report. We estimate this to account for approximately 25,000 of the 2015 “Direct” sales.

Total new individual term sales by distribution channel, 2011–2015 by volume

Distribution channel 2011 2012 2013 2014 2015 % Change 2015/2014

Directly-authorised 878,320 941,983 759,492 891,415 868,629 –2.6Tied 593,167 481,201 172,825 117,169 149,244 27.4Direct 16,619 50,220 45,563 36,586 115,663 216.1Bancassurance – – 238,769 234,278 122,250 –47.8Total 1,488,106 1,473,404 1,216,649 1,279,448 1,255,786 –1.8

Despite this reclassification of some sales, as providers diversify their distribution, the increase in direct to consumer sales is encouraging. The fall in bancassurance sales has yet to be offset by an increase in direct to consumer propositions, but we are beginning to see real signs of growth.

Average new sum assured (£), all term sales, including term with CI, 2011–2015

0

40,000

80,000

120,000

160,000

20152014201320122011

121,522 126,168 123,868132,968

139,360

Average total term sums assured increase by 4.8% year-on-year, yet total premiums decrease by 0.4%.


Average new sum assured (£), split by distribution channel, stand-alone term and term with CI, 2014–2015

Stand-alone term Term with ACCI

Distribution channel 2014 2015 2014 2015

Directly-authorised 165,306 171,692 113,509 116,562Tied 142,969 146,143 97,937 91,293Direct 127,859 99,317 73,954 84,047Bancassurance 99,739 106,936 57,089 83,528

Average new annual premium (£), all term sales, 2011–2015

0

100

200

300

400

500

20152014201320122011

363376 389 396 394

Average new annual premium (£), split by distribution channel, stand-alone term and term with CI, 2014–2015

Stand-alone term Term with CI

Distribution channel 2014 2015 2014 2015

Directly-authorised 363 356 568 580Tied 302 311 537 502Direct 252 232 400 376Bancassurance 224 202 364 456

Average premiums alone can be misleading. A ten year snapshot of total term and term with CI rates per mille, indicates that term rates are decreasing overall. With the exception of a reaction to gender-neutral pricing in 2013, rates are decreasing at an average of approximately 2% per year.

This assessment is based on a comparison of total new annualised premium for term with and without CI and total sums assured. It makes an assumption that the mix of new business, based on age or gender, has remained the same.

Term assurance


Total new individual term sales, term and term with CI, by volume with total new term and term with CI rates per mille (£), 2006–2015

Term total sales with and without CI Rate per mille

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2015201420132012201120102009200820072006

2.60

2.93

3.10

3.26

3.43

3.60

2.76

Even though term assurance prices have been falling, fewer new products are being purchased. As the industry look to widen provision and build greater resilience, managing down prices should not be our only focus: price is not the main barrier.

Term total sales with and without CI 2006: 1,642,884 2007: 1,541,930 2008: 1,447,895 2009: 1,507,685 2010: 1,540,798 2011: 1,488,106 2012: 1,473,404 2013: 1,216,649 2014: 1,279,448 2015: 1,255,786

Rate per mille: 2006: 3.40 2007: 3.16 2008: 3.14 2009: 3.02 2010: 3.06 2011: 2.99 2012: 2.98 2013: 3.14 2014: 2.98 2015: 2.83


“Legal & General, which started the price war last autumn, has just shaved more of its rates.”

The Times, March 1996

“Standard Life has cut its term rates by over a quarter but insists it will not get dragged into a price war.”

Money Marketing, April 1996

“Zurich Life is cutting term assurance rates by up to 8.6% in an attempt to regain its position as cheapest in the market.”

Money Marketing, October 1996

It is time to move the debate on from price to focus on the areas where we can make a difference. Demand is finite; simply reducing the cost of the supply can force down the perceived value of a product. Do we focus on marginal improvements to the detriment of appealing to the needs of a wider audience?

As we have seen throughout our series of Insurance Reports, consumer engagement and apathy towards making financial decisions remain the key challenges. Accessing the consumer at the right time and in the right way is key if we are to compete successfully with prioritising financial commitments, already influenced by limited budgets and precarious consumer confidence.

The biggest challenge has to be adapting to the ways in which consumers want to interact with us. The growth in direct business is very positive, but this is just the beginning.

ProductproviderIt remains a market dominated by financial advisers and complex products for advised sales. Simpler, more direct to consumer or tied/affinity type propositions are beginning to arrive and may shake things up. Marketcommentator Recognition is now widespread that the current model is broken. Green shoots are showing in that the adoption and use of technology is the solution for distributor and customer engagement but the same challenge remains – how do you make yourself relevant for today’s consumer.

With health and wellbeing high on the agenda, how best can we harness the potential of wearables? This may lead to us reconfiguring the fundamental basis of business models, although it may be some time before our natural industry caution means the use of such technology becomes commonplace.

ProductproviderIn the short term, this will be limited, but it is easy to see that the model of underwriting at outset and at point of claim is probably going to be redundant over time. We will need to build products and models that encourage/respond to new information. Productprovider Long term, wearables will encourage more of the population to track their health and activity, which will lead to a proportion of the population being fitter and healthier. However, long term studies need to be proven before I would be comfortable providing insurance products directly connected to these wearables. Productprovider I don’t see these having a large impact – people quickly tire of using them – how popular will they be over the lifetime of a long term contract? Perhaps, they have a place in short term PMI insurance.

Having an interest in your health is great; finding how this will translate into sales is the next step.

Looking back 20 years to Term & Health Watch 1996, some things never change. Headlines suggest the market environment was thought to be at its most challenging and competitive yet:

Term assurance


Critical illness

2015 sees a 7.6% fall in new critical illness sales, driven mainly by a drop in cover written as a rider to a term assurance policy. This decline is in stark contrast to the growth reported in Group Watch 2016, where the number of people covered overall in group schemes increased by 15%. Simple messages laid before employees, combined with an easy buying process, work well. Are there lessons we can learn for our dealings with retail customers? The way to connect with consumers perhaps requires simple targeted disability propositions.

Total new individual CI sales, 2011–2015 by volume

0

100,000

200,000

300,000

400,000

500,000

600,000

20152014201320122011

551,382 560,911

445,679 465,439430,127

2015 sees an uplift in stand-alone CI sales, comparable to 2011 levels. Acceleration of life cover accounts for 94% of total new CI sales.

New individual stand-alone CI and CI written as an acceleration of life cover, 2011–2015 by volume

Product type 2011 2012 2013 2014 2015 % Change 2015/2014

Term with CI 523,881 526,759 423,020 446,513 403,061 –9.7Whole life with CI 387 686 653 718 387 –46.1Stand-alone CI 27,114 33,466 22,006 18,208 26,679 46.5Total 551,382 560,911 445,679 465,439 430,127 –7.6

The increase in tied and direct sales does not counterbalance the decline in new bancassurance sales.


Critical illness

Total new individual CI sales split by distribution channel, 2011–2015 by volume

Distribution channel 2011 2012 2013 2014 2015% Change

2015/2014

Directly-authorised 280,421 329,330 268,809 319,197 304,629 –4.6Tied 269,272 226,449 45,631 39,246 64,117 63.4Direct 1,689 5,132 5,548 5,663 18,601 228.5Bancassurance – – 125,691 101,333 42,780 –57.8Total 551,382 560,911 445,679 465,439 430,127 –7.6

Average new sums assured for total CI sales continue to increase, mainly influenced by the fall in bancassurance business, where average sums assured have, historically, been lower. Average premiums year-on-year for ACCI increase from £520 to £550 and for SACI decrease from £461 to £452.

Looking at a basic calculation for rates per mille for total CI sales, including term with CI and stand-alone sales, rates on average decrease by just under 1% per year over a ten year period. Unlike pure mortality cover, we caution that the scope of CI coverage has changed a fair amount over this time.

Average new sum assured (£), all CI sales, 2011–2015

0

20,000

40,000

60,000

80,000

100,000

120,000

20152014201320122011

85,55792,607 91,983

99,589107,474


It’s encouraging to see continued growth in the income protection market, with an increase of 10.7% in total new IP sales.

ProductproviderThe activity of both the IPTF and GRiD in actively engaging DWP on the part that appropriate IP can play in reformation of the welfare system points to the way ahead. In addition, the work of the 7Families project has been a standout for me, delivering a multimedia consumer and industry education initiative in conjunction with health charities and at minimal cost. Had it MAS-type funding and resource, one wonders about the potential.

Total new individual IP sales, 2011–2015 by volume

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

20152014201320122011

110,472120,094

90,79496,889

107,302

Income protection

While the 7Families initiative has no doubt raised awareness and contributes to this growth, the data shows the product remains a niche proposition. Sales figures remaining depressingly low given the potential opportunities which exist. Protecting mortgages is one option where regular benefit payments on disability can support consumers better. Earlier we discussed how mortgage-related life and CI cover has been declining as a proportion of total mortgage activity. Yet, this barely scratches the surface compared with the failure to support consumers and lenders through propositions which protect against loss of income and the subsequent risk that they can no longer manage their mortgage repayments.

And what about Generation Rent? Research published by PwC suggests that, despite government attempts to boost homeownership with schemes such as Help to Buy, only 40% of people will own their own home in London by 2025. While the housing market in London does not reflect housing activity throughout the UK, it is not unique. This generation will require easily accessible propositions to guard against loss of income. Arguably, this is a more fundamental need than alternatives such as saving for a pension: without income, other sought-after financial behaviours simply can’t happen.


In Group Watch 2016, we report a 1.3% increase in the number of people covered through insured long-term disability income arrangements. This modest increase combined with more than 100,000 more people covered in the retail market is a step in the right direction. After allowing for people who are covered but where their employer chooses not to insure the risk, the

UK continues to have an inadequate level of self-provision. The industry should step up if we are ever to achieve greater market penetration. Yet, we need to come to the table with Government to agree a basis on which disincentives to insure are removed. It is a sobering thought that we are covering 20% fewer people overall now than in 2006.

New individual IP sales split by duration of limited payment term, 2014–2015 by volume

2014 2015% Change

2015/2014

IP (excluding LPT) 63,339 66,167 4.5Income protection 1 year limited payment term 2,200 2,383 8.3Income protection 2 year limited payment term 17,329 33,271 92.0Income protection 5 year limited payment term 9,402 2,360 –74.9Income protection ‘other’ limited payment term 4,619 3,121 –32.4

The majority of business continues to be written to “retirement age” but 38% of new IP business is written on a limited payment term basis (34% in 2014) as people focus on the short-term.

It can only be a good thing that the number of people covered is growing, albeit modestly. Sometimes this can be driven by the lower cost of a limited payment term product. Yet, at a time when people are working later in life, are we using cost as an excuse to defer the problem?

In 2014 a DWP analysis was released to mark International Older People’s Day (1 October). The analysis showed that 1,103,000 people aged 65 and over are still working.

This, combined with a decline in defined benefit pensions and the impact of low savings rates in direct contribution pensions, can only accelerate working later in life. The need for extended term income protection will increase to accommodate this flexibility for older ages.


New IP sales split by distribution channel, 2011–2015 by volumeDirectly-authorised

Distribution channel 2011 2012 2013 2014 2015% Change

2015/2014

Directly-authorised 68,550 67,807 55,874 69,312 85,443 23.3 Tied 41,419 52,224 19,637 17,174 19,156 11.5

Direct 503 63 82 105 414 294.3 Bancassurance – – 15,201 10,298 2,289 – 77.8 Total 110,472 120,094 90,794 96,889 107,302 10.7

Most business continues to be sold through directly-authorised firms, with only a handful of sales made direct. The complexity of the current IP model makes it difficult to reach the mass market.

Average new annual benefit (£), 2011–2015

0

5,000

10,000

15,000

20,000

20152014201320122011

12,30613,183

13,950 13,908 14,369

Average new total annual benefits and premiums continue to rise, mainly as a result of the decline in bancassurance sales.

Average new annual premium (£), 2011–2015

0

100

200

300

400

500

20152014201320122011

416 412 425 431 445

Income protection


Whole life

A year of growth in the whole life market, with an increase of 7.3% in new sales, mainly guaranteed acceptance plans. However, looking back to 2011, total new whole life sales have fallen 26.6%.

New whole life sales, 2011–2015 by volume

0

100,000

200,000

300,000

400,000

500,000

20152014201320122011

400,682

344,110

273,423 273,991 294,074

A number of variations, based on whole of life cover, are offered:

̤ Guaranteed acceptance plans, usually – but not always – targeted at the over 50s market or with the express purpose of paying for a funeral or expenses on death

̤ Fully-underwritten non-linked products, such as those designed to mitigate inheritance tax

̤ Unit-linked products.

New WL sales, unit-linked, non-linked and guaranteed acceptance plans, 2011–2015 by volumeGuaranteed acceptance

Product type 2011 2012 2013 2014 2015

Guaranteed acceptance 385,132 314,869 246,326 243,181 261,137

Non-linked 14,245 26,230 26,441 30,092 32,550

Unit-linked 1,305 3,011 656 718 387

Total 400,682 344,110 273,423 273,991 294,074

Compared to 2011, the increase in non-linked underwritten sales seems intuitive given increasing longevity. The average sum assured for a new non-linked underwritten WL policy is £101,662.

The whole life market continues to be dominated by guaranteed acceptance plans. With funeral poverty on the up as funeral costs increase and the value of state funeral grants erode, the value this proposition can bring is irrefutable.

The average sum assured for a new guaranteed acceptance plan is £3,940. According to Royal London, the

average funeral cost is £3,702. The product therefore fulfils its brief with a return that meets a specific financial need. The simple marketing message makes sense to many, after all: “nothing can be said to be certain, except death and taxes.” Benjamin Franklin

It is positive that some providers are offering whole of life products with care riders. It is too soon to collect data this year. It will be interesting to follow this more closely in 2016 and to track how these products address and begin to develop a market for pre-funded social care plans.


The market perspectiveHeadlines about increasing costs arising from an ageing society, a poorly-funded health and social care system and a retreating welfare state are the new norm. The Government is increasingly looking for ways to transfer risk to the individual or to their employer. Meanwhile, employers may be looking to a very different mix of benefits and services to attract and retain the workforces of the future. As people move jobs more frequently, group risk benefits could play a lesser role. The result? Consumer need is greater than ever.

When it comes to welfare reform, it’s a challenge to promote our part in the solution when a Government fails to deliver consistent messages and regulation and timeframes keep changing. We should ensure our own messages are clear and consistent to Government, yet responsive and agile to changes inevitable in a public/private partnership.

ProductproviderWhilst the need for appropriate financial protection has never been greater; the market is currently in a phase of decline and losing consumer, government, third sector, media and financial adviser trust, confidence and fundamental understanding of its purpose, mission, value and relevance to society, households, individuals and businesses.

The market needs to adapt to take in to account factors such as flexible lifestyles, the millennials and Generation Rent. People may be very digitally aware but deciding to purchase products beyond click and buy propositions, such as funeral plans, and selecting the appropriate level of coverage, without advice or guidance is not simple – even with best intentions.

New ways to access the market will be essential if, as widely forecast, fewer customers will have access to advice about their protection needs or just choose to purchase directly in the same way that they make other purchases.

With the announced changes to money guidance services, we are likely to need

to do more to promote our propositions and improve financial inclusion. Whether the service MAS provided was sufficient or not, it’s up to us to help the consumer.

For many, banks are the most obvious place to go for their financial needs. With the demise of bank distribution, there is nothing yet on the same scale to replace this point of access. Going forward, this could, of course, be a different proposition, harnessing the distribution power such organisations have.

The total number of financial advice firms registered with the FCA in December 2015 was 14,491. For people without access to adviser firms – or for whom the typical advice model does not appeal – their bank could be crucial, especially a phone-based or digital proposition.

ProductproviderBank distribution has retreated to largely single tied, unadvised life cover only online/digital banking integrated sale to clients under age x and selected via predictive analytics – this is a far call from meeting the greater needs of customers and is all about profit generation with minimal cost and compliance risk. Productprovider Protection is moving closer the edge of the adviser radar as they focus on large corporate AE and, post-RDR, wealthy client pension provision, at retirement freedoms, investments and buy-to-let.

A year after pension freedoms and FCA data shows the amount of people accessing their savings has abated. Did the focus on greater flexibility in delivering retirement income result in the industry taking its eye off the ball to the detriment of protection? The timeframes did not help. We have seen precious little new coming from the regulatory authorities with a specific impact on protection.

The Financial Advice Market Review sets out recommendations across the themes of affordability, accessibility, and liabilities and consumer redress.


Protection is low on the agenda with the focus on retirement income. It is for us to make sure our propositions appeal to customers and their advisers.

MarketcommentatorThe advice sector still is in general terms fixated on pensions and wealth and protection remains the poor relation in terms of marketing spend.

Pressures on the welfare budget are likely to place a greater responsibility on the individual to take action. Our 2015 Insurance Report shows we are behind the rest of Europe in protecting ourselves against the financial consequences of prolonged disability. Herein, lies one very big opportunity.

The extent of the IP shortfall across EU markets: Disability Gap using 60% income replacement ratio750 billion Euro

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000 60

50

40

30

20

10

0

Protection gap per worker (EUR, LHS) Actual replacement ratio Target replacement ratio

Ger

man

y

UK

Irela

nd

Net

herla

nds

Italy

Bel

gium

Isra

el

Pola

nd

Turk

ey

Spai

n

Fran

ce

Swed

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The UK has a Disability Protection Gap totalling £200billion p.a. This is the largest shortfall in any European country, yet many people in the UK continue to assume that their employer, if they have one, or the State, will provide for them. The message that this is not always the case is resonating, but not enough to create action. Unlocking the public/private partnership is integral to grow disability cover.

Autoenrolment is expanding the number of people covered in pension arrangements. A similar model may be necessary in the longer term if the current model does not build resilience against the consequences of disability risks.

In a world when people are increasingly expected to buy insurance products direct, what do they need? A viable alternative to the bancassurance model is one element. Given consumer attitudes to advice models, we run the risk of trying to fix yesterday’s problems. Our propositions need to fit with how consumers want to engage with us, allowing access in a way and at a time that suits people best.

A one size fits all approach is a thing of the past.

UK: 7,672Germany: 5,872Ireland: 5,332Netherlands: 5,271Italy: 4,004Belgium: 3,321Israel: 3,222Poland: 2,170Turkey: 1,700Spain: 1,269France: 824Sweden: 314Switzerland: 284

The market perspective

Source: European Insurance Report 2015, Swiss Re


Contacts and authors

Daniel CusworthSenior Communications Manager [email protected] Phone: + 44 20 7933 4865

For further information, please contact:

Maxine manages the technical marketing initiatives for Swiss Re’s Life & Health client markets team. She is the principal author of Term & Health Watch 2016, providing an analysis of market trends and current themes.

Maxine has co-authored a number of other Swiss Re communications, including our series of Insurance Report publications where she specialised in interpreting in-depth consumer analysis to reactions on financial service propositions. She has shared these insights, with clients and other external stakeholders on a regular basis.

Max is kept busy outside of work with two small boys to entertain. This provides the opportunity to question her sanity on a daily basis.

Ron works with the market, looking at the likely impact of legislation and regulation. He is a regular commentator in the media.

He is a Board Member of the Investment & Life Assurance Group where he leads the development of ILAG’s protection strategy, a member of GRiD’s Regulations Committee and Growing the Market Working Party, and the ABI’s Social Care Working Party.

Outside work, Ron chooses to ignore Premiership hype, preferring instead the delights of Gillingham FC where the somewhat unexpected rise to close to the top of the table and the prospect of a possible promotion have been a welcome change from the usual mid-table position.

Maxine UdallMarketing & Research Manager [email protected]: +44 20 7933 4544

Ron WheatcroftTechnical [email protected]: +44 20 7933 3548

Authors

Journalists should contact:

Swiss Re Europe S.A., UK branch 30 St Mary Axe London EC3A 8EP United Kingdom

Switchboard +44(0)20 7933 3000

© 2016 Swiss Re. All rights reserved.

Swiss Re Europe S.A., UK branch

Title: Term & Health Watch 2016

Graphic design: Swiss Re Corporate Real Estate & Logistics/Media Production, Zurich

The material and conclusions contained in this publication are for information purposes only, and the authors off er no guarantee for the accuracy and completeness of its contents. All liability for the integrity, confi dentiality or timeliness of this publication or for any damages resulting from the use of information herein is expressly excluded. Under no circumstances shall Swiss Re Group or its entities be liable for any fi nancial or consequential loss relating to this publication.

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