The need for income protection among UK working adults is significant, with just 44% of workers entitled to sick pay beyond the statutory minimum. 13% of working households would struggle financially within the first month of being unable to work due to sickness or injury, while 44% would run into trouble within six months.

New sales of individual income protection policies declined in 2020 for the first time in several years as COVID-19 held back housing transactions and restricted opportunities for advisers to sell. Government support for the housing market via the stamp duty holiday and mortgage guarantee scheme will help the market return to growth from 2021. However, this will be tempered by rising unemployment, which is not expected to fall back toward pre-COVID-19 levels until 2024.

Although cost is the most common barrier to ownership, a lack of awareness is arguably a more significant factor preventing the market from achieving greater growth. Those with the greatest need or show the most interest in taking out a policy are also among the least likely to be aware of the product.

A reliance on financial intermediaries to generate new business has made it difficult to reach under-protected sections of the target market, such as younger working adults and renters. Providers have a big opportunity to spread product awareness and ownership among these groups by forging stronger alliances with letting agents and providers of app-based financial services and management tools popular among younger demographics.

Key issues covered in this Report

  • The impact of COVID-19 on the income protection market.

  • Key factors influencing new business growth.

  • Ownership and interest in taking out an income protection policy.

  • Financial resilience of households

  • Motivations for arranging income protection.

  • Reasons people do not own income protection.

COVID-19: market context

The first COVID-19 cases were confirmed in the UK at the end of January 2020, with a small number of cases in February. Rapidly rising case numbers led to the first national lockdown, starting on 23 March. It was not until 15 June that non-essential stores were allowed to reopen, followed by pubs, restaurants, hotels and hairdressers on 4 July and many beauty businesses on 13 July.

By September, it had become clear that the UK was at the start of a second wave, and social distancing measures were intensified. Continued increases in infection numbers led to Wales implementing a two-week national lockdown from 19 October, England announcing a month-long lockdown from 5 November and Scotland introducing a new five-level system of coronavirus restrictions.

Despite these restrictions, however, case numbers continued to increase. All four UK nations tightened restrictions further in January 2021, effectively leading to a full UK-wide lockdown.

On 22 February, Boris Johnson announced the roadmap to an easing of restrictions in England, starting with the reopening of schools on 8 March, followed by easing of restrictions on outdoor gatherings on 29 March, and with a hoped end to all restrictions by 21 June. The Welsh and Scottish governments also gave more details on their plans to ease restrictions, with both nations taking a slightly more cautious approach to the one planned for England.

The UK’s vaccination programme started on 8 December 2020, and with the Pfizer-BioNTech, Moderna and Oxford-AstraZeneca vaccines licenced for use in the UK, the government aims to offer a first dose of the vaccine to 32 million people by mid-April and for all adults will have had their first jab by the end of July 2021. While concerns remain over the efficacy of existing vaccines to new strains of the virus and the disparity in vaccine availability across the globe, there are, at least within these shores, finally some reasons for optimism.

Economic and other assumptions

Mintel’s economic assumptions are based on the Office for Budget Responsibility’s central scenario included in its March 2021 Economic and Fiscal Outlook Report. After the fall of 9.9% over the course of 2020, the scenario suggests that UK GDP will grow by 4% in 2021 and 7.3% in 2022.

GDP is not expected to return to pre-COVID-19 levels until the second quarter of 2022, although this is six months earlier than the OBR forecast in November 2020, mainly because of the faster than expected rollout of vaccines.

Unemployment is expected to peak at 6.5% in the fourth quarter of 2021. As with GDP, this is more positive than the OBR’s November forecast, but the OBR does raise the prospect of long-term scarring on employment, especially in the more exposed retail and hospitality sectors.

Mintel’s forecast is based on the assumption that the vaccine rollout will limit the risk of any new outbreaks and lead to a gradual opening up of the economy. The forecast is based on the assumption that the emergence of vaccine-resistant strains can be well contained.

Products covered in this Report

This Report focuses on the market for long-term income protection (see below). It does not cover in detail short-term ASU policies that include unemployment cover. However, limited-term income protection policies are included.

For the purposes of this Report, Mintel has used the following definitions:

Income protection

Typically a long-term policy designed to replace a proportion of lost earnings in the event that the policyholder is unable to work due to sickness, accident or injury. Subject to certain conditions and level of cover, the insurer will pay, after a pre-agreed deferral period (eg four, eight, 13, 26, 52 weeks), a tax-free monthly benefit to the policyholder if they are too ill to work. The amount will usually be equivalent to between 50% and 65% (but can be up to 75%) of the individual’s gross earnings and is paid until the policyholder reaches their selected retirement age (usually between 50 and 70), or their recovery or death if these are sooner. Some lower-cost policies will pay out for a set term (eg two to five years). Monthly premiums are determined via a detailed and personalised underwriting approach and are usually fixed for the term of the policy. The longer the deferred period selected, the lower the premium.

This type of cover is also known as permanent health insurance or family income benefit and can be held jointly. It should not be confused with ASU insurance (see below).

Accident, sickness and unemployment insurance

ASU is designed to provide cover for accidental death, disability and sickness, as well as unemployment, for a limited period. In the event of a claim, benefits are typically paid out on a monthly basis for a maximum of up to one or two years (unlike with an income protection policy, which is designed to pay out until the insured’s specified retirement age). As with other types of insurance, cover can be extended to a partner and/or children. This product is sometimes marketed as a form of short-term ‘income protection’.

Personal accident and sickness insurance

Same as ASU described above but excluding cover for redundancy.

Unemployment cover

Provides short-term cover in the event of redundancy or other involuntary unemployment.

Mortgage payment protection insurance

A short-term insurance policy specifically designed to cover the policyholder against the inability to make monthly mortgage repayments due to accident, sickness and/or unemployment. The policy will pay out for a fixed period, usually a maximum of 12 months.

Critical illness cover

A long-term policy designed to pay a lump sum to the policyholder on the diagnosis of certain life-threatening but not necessarily fatal conditions such as heart attack, stroke, certain cancers, multiple sclerosis, loss of limbs, etc. It can be bought on its own (ie as a standalone policy) or as an addition (ie as a ‘rider benefit’) to other types of insurance, notably term assurance, whole–of-life and endowment.

Life insurance

A long-term policy, which pays out a lump sum in the event of the policyholder’s death, with the purpose of protecting dependants against financial hardship. It is usually available on a single or joint life basis, with benefits including paying out on the diagnosis of a terminal illness. There are two main types of life insurance: term provides cover for a fixed term and only pays out if the policyholder dies within that term (providing cover for a set number of years and only pays out if the policyholder dies within that term) and whole-of-life (designed to cover the policyholder for the whole of their life, and as such guarantees always to pay out).

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