Income Protection  

Individual protection market grows 5.9%

Individual protection market grows 5.9%

The individual protection industry grew by 5.9 per cent in 2018 as the market saw the highest level of new business since 2004, new data has shown.

According to Swiss Re’s latest Term & Health Watch report, the level of new business was up across the life insurance, income protection and critical illness sectors.

IP saw the biggest increase of 22.6 per cent, with 82.5 per cent of sales coming from directly-authorised firms including independent financial advisers and mortgage brokers.

The report stated this was no surprise given the complexity of the product compared to other insurance policies.

The findings also showed that 42 per cent of new IP sales were products with a limited benefit duration on a claim — where a plan will only pay out for a limited amount of time after the claim.

Although this helps reduce the cost of IP, limited benefit plans often don’t address long-term needs, according to the report. 

Data from platform service iPipeline used in the report showed there was a direct correlation between the affluence of the customer and the payout period of the policy as one-year payouts were typically written to clients on an average annual salary of £30,000 compared to £47,000 for 'until retirement' policies.

However this could be aligned as the IP market saw a reduction in the average cost of premiums, the report showed. 

Although the annual benefit pay-out had increased from 15,993 in 2017 to 16,775 last year, the average cost of a policy dropped from £465 per year to £422 in the same period.

Critical illness policies saw a less dramatic rise of new sales of 2.1 per cent in 2018 when compared with the previous year.

The different types of CI policy consumers were opting for saw a more substantial shift however, as stand alone CI policies fell 1.4 per cent while ‘acceleration of life cover’ accounted for 90.8 per cent of new CI sales.

Accelerated life cover is a type of policy that pays out a portion (typically 25 or 50 per cent) of the arranged death benefit in case of a specified illness or medical emergency.

The number of consumers choosing this type of ‘mixed benefit’ product increased drastically — from 123 in 2017 to 2851 in 2018, an increase of 3030 per cent.

In terms of life insurance, the number of new term policies (which stop at a certain age) increased about 7 per cent while whole life policies (which cover until death at any age) increased by 2.3 per cent.

The increase in new protection policies overall could be down to the increase in first-time buyers, according to the Term & Health Watch report.

The report cited UK Finance figures which show that 370,000 new first-time buyer mortgages were completed in 2018 — the highest level since 2006 and up 1.9 per cent on 2017.

On top of this, the report stated residential lending and remortgage activity was up, which "provides opportunities to discuss protection needs".

The cost of protection has also decreased overall. The iPipeline data showed the unit cost of term life cover decreased by 15 per cent in the past five years while IP is 4 per cent cheaper now than in 2015.