Life and Protection: Intermediary Focus - UK - October 2011

INTRODUCTION
Abbreviations
EXECUTIVE SUMMARY
The market
Number of authorised retail intermediaries
Figure 1: Number of FSA directly authorised retail intermediary firms, by primary category*, June 2008-June 2011
Term assurance distribution
Figure 2: Total new premiums (£m) for individual regular-premium term assurance policies written, by distribution channel, 2005-11 (H1)
Critical illness distribution
Figure 3: Total new premiums (£m) for individual CI rider benefit policies written, by channel, 2005-10
Income protection distribution
Figure 4: Total new premiums (£m) for individual IP premiums policies written, by distribution channel, 2009-2011 (H1)
Market factors
Stuttering economy remains a challenge to new business
A decline in mortgage lending has made it more difficult to sell protection products
Uncertainty about the effect of the RDR on protection sales
Complaints to the FOS about IFAs fall to 1.5% of total complaints about FS firms
The adviser’s viewpoint
Barriers to generating new life and protection business
Figure 5: Barriers to selling life and protection products, July 2011
Provider support
Figure 6: Developments which IFAs feel would make it easier to sell life and protection products to clients, July 2011
Confidence and future intentions
Figure 7: IFA future plans over the next 12 months, Q2 2011
Impact of the RDR on advisers’ business
What we think
ISSUES IN THE MARKET
Can providers and intermediaries remarket life and protection products in order to change consumer attitudes?
How can intermediaries and providers deal with consumer scepticism?
What does uncertainty in the advisory landscape mean for life and protection sales?
Are direct sales a threat to intermediated distribution of life and protection products?
FUTURE OPPORTUNITIES
An open approach to life and death
Online forums can help to increase transparency and boost trust
INTERNAL MARKET ENVIRONMENT
Key points
Life assurance gap remains at £2.4 trillion in 2010…
… while the income protection gap remains at £190 billion
Consumer engagement and trust is lacking
The onus is on providers and intermediaries to change perceptions
IP market could benefit from publishing claims statistics
Consumer Insurance Bill set to address payout disputes
Welfare reforms could boost demand for protection products
BROADER MARKET ENVIRONMENT
Key points
Economic uncertainty has increased consumer caution
Figure 8: GDP quarterly percentage change, Q1 2004-Q2 2011
A faltering housing market is holding back sales
Figure 9: Residential housing transactions (seasonally adjusted), Q2 2006-Q2 2011
Increasing life expectancy helps to push down premiums
Figure 10: Cohort life expectancy at age 60, by gender, 1981-2058
Growing number of ABs is positive for providers
Figure 11: Forecast adult population trends, by socio-economic group, 2006-16
REGULATORY ENVIRONMENT
Key points
RDR is causing many IFA firms to leave the market…
...but focus on life and protection products is set to intensify
Capital adequacy rules pushed back by two years to December 2015
Complaints about IFAs fall to 1.5%
Figure 12: Financial services firms complained about, by sector, 2006/07-2010/11
SWOT
Figure 13: Life and protection – SWOT analysis, 2011
WHO’S INNOVATING?
Key points
Slider tool launched by The Life Department
Ageas Protect and Asda unveil new partnership
L&G announces new protection app for the iPad and iPhone
Gender neutral IP plan already available to consumers
LV= aims to offer lowest IP premiums
Sesame Bankhall Group launches a new customer feedback system
INTERMEDIARY MARKETPLACE
Key points
The number of directly authorised firms continues to decline
Figure 14: Number of FSA directly authorised retail intermediary firms, by primary category*, June 2008-June 2011
Uncertainty about the impact of RDR on protection advice
Number of GI appointed representatives increases by 4%
Figure 15: Number of directly authorised financial advice firms, June 2008-June 2011
PROTECTION MARKET SIZE
Key points
 TERM ASSURANCE
Stability in the market expected during 2011
Figure 16: Volume and value of new individual regular-premiums term assurance policy sales, 2005-11
Focus has shifted towards non-mortgage-related policies
Figure 17: Volume and value of new individual regular-premium term assurance policy sales, by policy type, 2005-10
 CRITICAL ILLNESS
New individual sales are expected to rise again in 2011
Figure 18: New individual CI sales, by volume and value, 2007-11
The majority of critical illness sales are sold with other insurance
Figure 19: New individual CI sales, by type, by volume and value, 2007-11
Most CI policies sold alongside term assurance
Figure 20: New individual CI rider benefit sales, by volume and value and type of insurance, 2006-11
 INCOME PROTECTION
Market growth is expected in 2011 but average premiums should fall
Figure 21: New individual income protection sales, by value and volume, and average annual premiums, 2007-11
DISTRIBUTION OVERVIEW
Key points
Access to advice is very important for life and protection sales
 TERM ASSURANCE
IFAs dominate non-mortgage-related distribution
Figure 22: Total new premiums for individual regular-premium term assurance policies written, by distribution channel and policy type, 2005-11 (H1)
 CRITICAL ILLNESS
Intermediaries play a big role in new CI rider benefit sales
Figure 23: Distribution of new individual CI rider benefit premiums, by channel, 2005-10
Majority of standalone CI premiums generated by IFAs
Figure 24: Distribution of new individual standalone CI premiums, by channel, 2005-11 (H1)
 INCOME PROTECTION
2011 first-half figures show that 53.8% of new IP premiums are IFA-generated
Figure 25: Distribution of new individual IP premiums, by distribution channel, 2009-2011 (H1)
Direct sales play a small part in the life and protection markets
KEY INTERMEDIARY PLAYERS
The Tenet Group
Figure 26: Key financial data for Tenet Group Ltd, 2009-10
Sesame Bankhall Group
Figure 27: Key financial data for Sesame Bankhall Group Limited, 2009-10
Openwork
Figure 28: Key financial data for Openwork Limited, 2008-09
Intrinsic Financial Services
Figure 29: Key financial data for Intrinsic Financial Services Limited, 2008-09
Personal Touch Financial Services
Figure 30: Key financial data for Personal Touch Financial Services Limited, 2008-09
Honister Capital
BRAND COMMUNICATION AND PROMOTION
Key points
Adspend continues to decline in 2010/11
Figure 31: Overview of total adspend on protection products, 2008/09-2010/11*
Life protection advertising accounts for the majority of adspend
Figure 32: Adspend on protection products, by category, 2008/09-2010/11
Aviva has the biggest adspend in the life and protection markets
Figure 33: Top 15 advertisers of protection products, 2010/11
Direct mail and TV are the most popular methods of advertising
Figure 34: Overview of media type used to advertise protection products, 2010/11
Advertising in intermediary and trade press grows by 5.7%
Figure 35: Adspend in intermediary and trade press*, 2009/10-2010/11
THE IFA: BARRIERS TO GENERATING NEW LIFE AND PROTECTION BUSINESS
Key points
Recession is the number-one barrier to life and protection sales
Figure 36: The main barriers when it comes to trying to sell protection and life insurance products to clients, 2010 and 2011
Trust and education is lacking among consumers
Competition from insurers restricting advisers
THE IFA: PROVIDER SUPPORT
Key points
Improvements to application and underwriting processes top IFAs’ wish lists…
Figure 37: What insurers could do to make it easier for IFAs to sell protection products and life insurance to their clients, 2010 and 2011
...however, some complexity is beneficial to advisers
Increasing number of IFAs want to see consumer-focussed marketing
Insurers’ online resources help IFAs keep up to date with developments
Figure 38: How IFAs prefer to keep up to date with developments in the life and protection markets, 2010 and 2011
THE IFA: CONFIDENCE AND FUTURE INTENTIONS
Key points
IFAs are more positive about own business prospects than of the financial services market…
Figure 39: IFA confidence about own business prospects and overall financial services market compared to six months prior, Q2 2011
…however there is a mixed picture in comparison to last year
Figure 40: Confidence about own business prospects compared to six months prior, Q2-Q3 2010 and Q2 2011
Three in five IFAs plan to shift the balance of their business to recurring income
Figure 41: IFA future plans over the next 12 months, Q2 2011
Merger & acquisition activity expected to continue among IFAs
THE IFA: IMPACT ON BUSINESS
Key points
A larger number of IFAs feels that the RDR will have a negative impact on their business…
Figure 42: Opinions on the impact of the Retail Distribution Review on IFA business, Q3 2010 and Q2 2011
…however this could be good news for the life and protection markets
Half of IFAs feel that the reputation of the FS industry will have no impact on business
Figure 43: Opinions on the impact of the reputation of the financial services industry on IFA business, Q2 2011
Consumer confidence in the housing market is a concern for IFAs
Figure 44: Opinions on the impact of consumer confidence in the housing market on IFA business, Q2 2011