Critical Illness Cover - UK - February 2018

OVERVIEW
What you need to know
Products covered in this Report
EXECUTIVE SUMMARY
The market
4.5 million in-force policies
New business picks up…
Figure 1: Forecast of new individual critical illness premiums, at current prices – fan chart, 2012-22
…underpinned by a buoyant mortgage market
Policy riders account the majority of new sales
Growth of non-advised sales
ABI proposes changes to Guide on Minimum Standards
Companies and brands
Legal & General retains market-leader position
Figure 2: Estimated market shares of the top five providers of new individual critical illness cover, 2015 and 2016
Smaller players gain ground
Recent trends in product development
Sparse amount invested in above-the-line advertising
The consumer
Ownership of protection insurance
Figure 3: Ownership of protection insurance products, October 2017
75% of policyholders have held their policy for 10 years or less
Figure 4: Length of time ago took out critical illness cover, October 2017
Low awareness of child benefit
Recent customers are more likely to have approached providers directly
Figure 5: Channel used to arrange policy, by when took out policy, October 2017
Scope to improve customer communication and understanding
Figure 6: Agreement with statements about provider communication and policyholder engagement, October 2017
Cost is a key barrier, but it’s not an issue for everyone
Figure 7: Reasons for not having critical illness cover, October 2017
Most of the non-insured lack an adequate safety-net alternative…
…and many could face real hardship if the worst happened
Figure 8: Ability to cope financially if unable to work for a year or more due to illness, October 2017
Significant latent demand
Figure 9: Likelihood of considering product in the future, by parents and mortgage holders, October 2017
What we think
ISSUES AND INSIGHTS
Give prospective customers time to think, and a better idea of cost upfront
The facts
The implications
Is there still potential for hybrid products?
The facts
The implications
Scope to upsell by incentivising policyholders to regularly review cover
The facts
The implications
THE MARKET – WHAT YOU NEED TO KNOW
4.5 million in-force policies
New premiums grow by 8% in 2017
Growth driven by increase in first-time buyer mortgages
Policy riders accounted for 92% of sales in 2017
Non-advised channel sees further growth, albeit from a low base
ABI issues new draft Guide on Minimum Standards
MARKET SIZE AND FORECAST
Mintel estimates there are around 4.5 million policies in force
New business levels rise again in 2017
Figure 10: Volume and value of new individual critical illness sales and average annual premium, 2012-17
Recent trends and contributing factors
Average premium stabilises, but for how long?
Steady premium growth over the next five years…
Figure 11: Forecast of new individual critical illness premiums, at current prices – fan chart, 2012-22
Figure 12: Forecast of new individual critical illness premiums, at current and constant prices, 2012-22
…with stable volume sales
Figure 13: Forecast of new individual critical illness policy sales – fan chart, 2012-22
Figure 14: Forecast of new individual critical illness contracts, 2012-22
Forecast methodology
MARKET SEGMENTATION
Most policies are sold as a rider benefit to term insurance
Figure 15: New individual critical illness sales – rider benefit versus standalone policies, 2012-17
Mortgage term customers more likely to take out a critical illness rider
Figure 16: Critical illness rider benefits as a proportion of new individual term assurance business, 2012-17
CHANNELS TO MARKET
Most sales are intermediated, although direct sales are increasing
Figure 17: Volume sales of new individual term insurance policies with critical illness riders, by channel, 2013-17
Independent advisers grow their share
Figure 18: Proportional distribution of new individual term critical illness riders, by channel, 2013-17
Standalone market sees strong growth in independent advice sales
Figure 19: Volume sales of new individual standalone critical illness contracts, by channel, 2014-17
MARKET DRIVERS
Home purchase loans increased in 2016 and 2017, driven by first-time buyers…
Figure 20: Volume of house purchase loans, by type of borrower, 2008-17
…which likely contributed to the growth in critical illness sales
Growth of Generation Rent prompts providers to adapt products
Rising longevity raises risk of ill health in later years
Industry responds to ABI’s proposed new minimum standards
Cancer accounts for around two thirds of claims
Figure 21: Proportional distribution of claims paid (volume), by critical illness, 2016
Total cost of critical illness claims reached £976 million
Figure 22: Number of critical illness claims paid and declined, value of claims and average claim, 2013-16
COMPANIES AND BRANDS – WHAT YOU NEED TO KNOW
Legal & General retains market-leader position
Smaller players gain ground
Recent trends in product development
Sparse amount invested in above-the-line advertising
MARKET SHARE
Mixed results for the top five in 2016
Royal London puts in a strong performance following subsidiary rebrand
Figure 23: Volume sales and market shares of the top five providers of new individual critical illness cover, 2015 and 2016
Smaller players increase share
COMPETITIVE STRATEGIES
Providers regularly tweak products to make them more appealing
VitalityLife upgrades Serious Illness Cover with Cancer Relapse benefit…
…and launches Wellness Optimiser
SunLife and AIG Life take the simple approach
Providers enhance existing propositions
ADVERTISING AND MARKETING ACTIVITY
Minimal above-the-line advertising specifically centred on critical illness
Figure 24: Total above-the-line, online display and direct mail advertising expenditure on life protection products, 2013-17
Other media
Nielsen Ad Intel coverage
THE CONSUMER – WHAT YOU NEED TO KNOW
Parents with a mortgage are most likely to have cover
75% of policyholders have held their policy for 10 years or less
Scope to improve customer communication and understanding
Recent customers are more likely to have approached providers directly
Cost is a key barrier, but it’s not an issue for everyone
Most of the non-insured lack an adequate safety-net alternative
Significant latent demand
OWNERSHIP OF PROTECTION INSURANCE
One in 10 adults have critical illness cover
Figure 25: Ownership of protection insurance products, October 2017
Income protection has the potential to supersede critical illness
The main targets are mortgage holders and parents
Figure 26: Ownership of protection insurance products, by parents and mortgage holders, October 2017
POLICYHOLDERS – LENGTH OF TIME HELD AND LIVES COVERED
More than half arranged their policy in the past five years
Figure 27: Length of time ago took policy out, October 2017
Scope to improve take-up of joint policies
Figure 28: Lives covered by policy, by when took out policy, October 2017
Low awareness of child benefit
POLICYHOLDERS – CHANNEL USED TO ARRANGE POLICY
Customers who took out their policy post-RDR are more likely to have arranged it directly with an insurer
Figure 29: Channel used to arrange policy, by when took out policy, October 2017
POLICYHOLDERS – PROVIDER COMMUNICATION AND POLICY CHANGES
One in six do not understand what their policy covers them for
Figure 30: Agreement with statements about provider communication and policyholder engagement, October 2017
Longer-standing customers are less likely to receive annual communications from their provider…
Figure 31: Agreement with statements about policy changes, communication and engagement, October 2017
…and much less likely to review their cover
NON-POLICYHOLDERS – REASONS FOR NOT HAVING COVER
39% say they can’t afford it
21% don’t want to pay for insurance they may never need
Figure 32: Reasons for not having critical illness cover, October 2017
15% don’t trust insurers to pay out
11% say it’s too difficult working out what is and isn’t covered
Figure 33: Reasons for not having critical illness cover, by parents and mortgage holders, October 2017
NON-POLICYHOLDERS – FINANCIAL STRENGTH
73% of the non-insured either lack alternative provision or haven’t even considered the matter
Figure 34: Level of thought given to how would manage if developed a critical illness, by parents and mortgage holders, October 2017
Most of those who say they’ve made alternative provision have a modest amount of savings
Figure 35: Amount of savings, by non-policyholders, October 2017
Figure 36: Ownership of protection insurance products, by non-policyholders, October 2017
Many without cover risk real financial hardship
Figure 37: Ability to cope financially if unable to work for a year or more due to illness, by parents and mortgage holders, October 2017
25-44-year-olds are at greatest risk
NON-POLICYHOLDERS – FUTURE PRODUCT CONSIDERATION
58% of non-insured parents would consider taking out cover in the future
Figure 38: Likelihood of considering product in the future, by parents and mortgage holders, October 2017
In conclusion
APPENDIX – DATA SOURCES, ABBREVIATIONS AND SUPPORTING INFORMATION
Product definitions
Intermediary market definitions
Abbreviations
Data sources
Consumer research methodology
APPENDIX – MARKET SIZE AND FORECAST
Total market value forecast – best- and worst-case scenarios
Figure 39: Forecast of new individual critical illness premiums – best- and worst-case scenarios, at current prices, 2017-22
Total market volume forecast – best- and worst-case scenarios
Figure 40: Forecast of new individual critical illness policy sales – best- and worst-case scenarios, 2017-22
Forecast methodology