ProtectionMay 23 2022

Protection payouts climb 9 per cent since 2021

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Protection payouts climb 9 per cent since 2021
FT Montage: Getty/Dreamstime

Individual payouts for protection policies rose 9 per cent last year, continuing on a three-year upward trend.

The value of an average protection payout now sits at £14,994, according to data published by the Association of British Insurers over the weekend.

In total, £1.6mn a day more was paid out over 2021 in individual and group life insurance, income protection and critical illness claims compared to the previous year, totalling £6.8bn.

Payouts for Covid-19 related individual claims almost doubled in 2021, reaching a collective value of £261mn, despite the number of claims paid remaining “almost identical” to 2020, the ABI said.

Protection insurance is there to reduce some of the financial risks and stresses.Roshani Hill, ABI

The trade body put this down to a 69 per cent increase in term assurance claims, where the average payment reached £69,760. 

“Coupled with the backdrop of a global pandemic and financial uncertainty with the cost of living crisis, the role of insurance as a financial safety net is arguably more important now than ever before,” said ABI’s head of protection and health, Roshani Hill.

The rise in value of Covid-19 payouts is, according to Hill, “a stark reminder of the devastating impact the pandemic has had” on people in the UK. 

She added: “Although nothing will ease the distress of loss, protection insurance is there to reduce some of the financial risks and stresses that can accompany these difficult and unpredictable events.” 

Products 

New claims paid** 

Percentage new claims paid 

Total value paid (000s)** 

Average value of claim paid** 

Critical Illness 

18,016 

91.3% 

£        1,224,200  

 £                 67,951  

Life 

48,091 

97.3% 

£        3,870,633  

 £                 80,485  

Total Permanent Disability 

378 

67.7% 

£              28,067  

 £                 74,209  

Whole of Life 

229,586 

99.99% 

£            947,031  

 £                    4,125  

Income Protection 

27892* 

86.0% 

£            734,677  

 £                 23,380  

All Protection Products 

296,071 

98.0% 

£        6,804,609  

  

Source: ABI

Despite the bumper increase in the value of individual protection claims, there was a 1.6 per cent drop in the total number of new claims paid.

The ABI credited this to more individual term assurance and critical illness claims, which have much higher values.

While term assurance claims rose significantly last year, individual protection claims fell by 14 per cent, from 17,000 to 14,600.

The ABI said the drop could have been as a result of “a number” of things, including more people still being on the government’s furlough scheme, higher unemployment levels, and insurers increasing their early intervention offerings in 2021 making it less likely for issues to reach the point of making a claim. 

Of these 14,600 claims, the ABI said those for musculoskeletal conditions increased 40 per cent to 5,012 in 2021, as a result of the return of products with shorter deferred periods which had been stopped during the pandemic.

Alongside a drop in income protection claims, the ABI also recorded 20 per cent fewer mental health claims following what it had called “a significant rise” in mental health claims under individual income protection in 2020.

However, the trade body did say they are still higher than in 2019, suggesting that the pandemic continues to have an impact on the UK’s mental health.

'The message is getting through'

Almost one in 10 (9 per cent) British adults have considered taking out or taken out a protection policy such as life insurance, income protection and critical illness, rising to 17 per cent when looking at those aged 18-34.

This is according to a survey conducted by LifeSearch. The insurance broker's chief executive, Debbie Kennedy, said the average age of customers enquiring about its products "is falling".

It appears that the message of protecting income and debts is getting through to the younger generation.Alan Lakey, CIExpert

She said: "Those aged 18-34 represented 41 per cent of enquiries in 2021, which is a 4 per cent increase on pre-pandemic levels.

"This age group are also more likely to take out some form of sickness cover with 45 per cent of policies bought by 18-34 year-olds last year being either income protection or critical illness, opposed to just 36 per cent for the 35-49 year-old age group.”

Looking at these statistics, CIExpert founder Alan Lakey, said they looked particularly encouraging in respect to critical illness and income protection.

"It appears that the message of protecting income and debts is getting through to the younger generation," he said.

"As always, advice is needed to ensure that consumers do not veer towards the default cheapest option. One only has to compare the quality of cheap direct-to-consumer offerings with the quality offerings used by specialist protection advisers."

Insurance broker Reassured's corporate strategy director, Phil Jeynes, said his firm has not seen a shift towards a noticeably younger applicant in recent years.

"These survey results are positive and might demonstrate a generational shift away from a belief that the state will look after you if push comes to shove. We are certainly developing our omni-channel services across digital, non-advised and advised sales to cater for all demographics," he said.

ruby.hinchliffe@ft.com