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What are the implications of ACI’s fall?

What are the implications of ACI’s fall?

Sales figures are a good indicator of the fortunes of the protection market. But, while there were some positive stories in Gen Re’s Protection Pulse, the figures also highlight a couple of areas where sales have slipped significantly.

In particular the report, which covers the first six months of 2015, shows a decline of 5.3 per cent in sales of accelerated critical illness insurance (ACI). What makes this especially concerning is the fact that every other product had seen an increase in sales (although in the case of life this only amounted to a meagre 0.06 per cent uplift).

Furthermore, although the reinsurer is yet to publish the figures for the full year, these will show that, although there was a slight recovery, sales of ACI still fell over the course of 2015, finishing the year down 3.3 per cent.

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The drop in sales was the subject of a poll by Protection Review, with changes in the distribution mix regarded as the main reason for the decline, closely followed by the price being too high. In addition, some respondents felt the drop was a result of a greater focus on income protection, while others believed it to be simply a blip and that the numbers will flatten out going forward.

Distribution mix

Certainly, changes in distribution are likely to have played a major part in the fall in sales. The Gen Re report also looks at this area, noting that sales through restricted advice fell sharply during the first half of 2015.

While there was a 7.9 per cent increase in premium income through the IFA channel and a 9.3 per cent uplift in non-advised sales, the level of business going through the restricted advice channel dropped by 25.2 per cent.

This reduction is largely down to activity in the bancassurance channel, especially as Scottish Widows shifted its focus to the IFA market in 2015. Petra McFarlane, business development executive at Gen Re, says, “A large proportion of ACI is sold through bancassurance, but sales through this channel fell by two-thirds over the course of 2015. If you strip the bancassurance business out of the restricted advice figures, there has actually been an increase of 15 per cent over the year.”

This view is echoed by IFAs and some of the protection providers who rely predominantly on them for distribution. For example, VitalityLife saw its sales of ACI increase by 40 per cent during the first half of 2015 compared with the same period the previous year, and by 24 per cent over the full year.

Emma Thomson, life office relations director at LifeSearch, says sales of ACI have not fallen at her firm. “There have not been any large price hikes and, thanks to the improvements in definitions, the products actually offer better value for money now. It may simply be down to the fact that consumers need to be prompted to take out cover.”

Out of focus

While the move away from the bancassurance channel is a significant factor in the fall in sales of ACI, the mortgage market has also proved to be something of a distraction.