UK Term Assurance 2008

The current economic turmoil, characterized by plummeting share prices and a troubled housing market, is having an impact on the term assurance market. However, in spite of these challenges, insurers and providers can capitalize on consumers’ realization of the value of term assurance through emerging distribution channels such as aggregator sites.

Report Highlights
This report evaluates how the term market has changed over the last few years due to intense price competition. An assessment of how well providers are harnessing the full benefit their distribution strategies is important, particularly to capitalize on consumers’ realization of the value of term assurance.
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Overview 1
Catalyst 1
Summary 1
Executive Summary 2
Table of Contents 3
Table of figures 4
Table of tables 5
Special feature - distributing Term through aggregator sites 6
Aggregator sites challenge the term distribution landscape 6
Term will see increased sales through aggregator sites 6
Technology is affecting the way term assurance business is being conducted 7
Consumers have embraced the online sales channel 7
Aggregators earn their revenue in two main ways: the 'cost per click' or 'cost per sale' model 7
Aggregator sites offer a wealth of opportunity 8
Aggregators are striving to set themselves apart as competition intensifies 8
Aggregator sites introduce a new layer of competition to the term market 8
Increased competition could lead to pressure on margins 9
Aggregator sites compete in a variety of ways 9
uSwitch launches life comparison service making life policies more accessible 9
Confused.com offers fully underwritten guaranteed quotes 9
Moneysupermarket.com offers comprehensive comparison of life policies 10
Gocompare.com offers a unique ""five-star"" proposition 11
Comparethemarket.com sells life policies on multiple comparison sites 12
Aggregator sites are often controversial 12
Consumers continue to use aggregator sites despite a lack of trust towards them 12
Aggregator sites are looking to turn from price to quality 12
Providers are looking to broaden their distribution strategy to open up new markets 13
Insurers face increased pressure to expand online sales capabilities 13
Concerns and criticisms are arising towards non-advised sales 13
Problems are emerging between direct sales and advisor channels 14
Providers need a more suitable approach 14
Market context 15
The total regular premium life market has declined by a compound annual rate of 4.1% between 2003 and 2007 15
Term assurance accounts for over half of the regular premium life market 15
Income protection new business premiums have declined significantly between 2003 and 2007 while standalone critical illness insurance premiums have remained flat 16
Customer demand for endowments has collapsed, although this has spawned a new area of business in traded endowments 16
Savings-related term has withstood market pressures, despite mortgage-related sales being strongly impacted by the housing market 18
The regular premium life market will see a slight increase in new business over the next five years 20
Datamonitor forecasts term sales to rise by a slender compound rate of 1% between 2008 and 2012 21
Future sales of mortgage-related term will be impacted by the current pessimistic housing market 21
Sales of savings-related term are expected to rise as customers get more cautious over their finances 22
The rider market is a vitally important element of regular premium sales 23
Number of regular premium contracts written have recovered in 2007, despite a significant decline since 2003 25
Average sums assured in the term market have grown substantially over the last five years 27
Market issues 29
Term insurers are operating in a difficult environment 29
Competition is the biggest issue facing term assurance providers 29
Market decisions have been affected by the price war 30
Price is the defining feature for term assurance 30
Prices may have bottomed out but this may be an effect of the insurance market cycle 30
A shift in emphasis from price to quality is needed to make term meaningful to consumers 31
Attracting new customers to term assurance has proven to be challenging 32
The protection gap still persists at £2.3 trillion in the UK 32
The price war is not impacting on the protection gap 32
Negative press adds to customers' mixed feelings about term assurance 33
Consumers overestimate life insurance costs 33
Tele-underwriting is found to reduce non-disclosure 33
Customers take out term assurance once they have had their first child 33
In times of falling mortgage markets, term sales must be bolstered through customer education 34
Providers need to focus on customers rather than price 35
Advisors have a chance to change the perception of the term assurance market 36
Improving product distribution is at the forefront of providers' minds 37
COMPETITOR FOCUS 39
The term assurance market is highly concentrated 39
Legal & General writes £66.9m of new business premiums in level term assurance 39
Aviva is the market leader in decreasing term assurance 40
Top companies reveal strategic differences 42
Legal & General puts the intermediary and the end user firmly at the center of its propositions 42
Legal & General's strength lies in distribution 42
Legal & General has a strong relationship with IFAs 42
Legal & General also has strong historic relationships with banks 42
Aviva competes on innovation and price 43
Fortis enters the UK life market 43
Standard Life exits the protection market 43
Distribution Dynamics 44
Term assurance distribution remains focused on the IFA channel 44
APPENDIX 48
Definitions 48
Term assurance 48
Convertible term assurance 48
Decreasing term assurance 48
Increasing term assurance 48
Level term assurance 48
Mortgage-related term assurance 48
Pension term assurance 49
Renewable term assurance 49
Further reading 49
Ask the analyst 49
Datamonitor consulting 49
Disclaimer 49
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Table 1: Total regular premium life market, new business premiums, £m 17
Table 2: Term assurance segmented by savings-related and mortgage-related, new business premiums, £m 19
Table 3: Forecast total regular premium life market, new business premiums, £m 21
Table 4: Forecasts term assurance market, new business premium, £m 22
Table 5: Total regular premium life market adjusted for rider products, new business premiums, £m 24
Table 6: Total regular premium life market, no of new contracts 000's 26
Table 7: Average term assurance sums assured 2003-2007, £ 27
Table 8: What are the biggest challenges facing your term assurance business at the moment? 30
Table 9: The Top 10 players in the level term assurance segment in 2006 and 2007 40
Table 10: The Top 10 players in the decreasing term segment in 2006 and 2007 41
Table 11: Savings-related term assurance, new business premiums segmented by distribution channel, £m 44
Table 12: Mortgage-related term assurance, new business premiums segmented by distribution channel, £m 47
Figure 1: The term assurance market will see increased sales through aggregator sites over the coming 12 months 6
Figure 2: Moneysupermarket.com offers a transparent life comparison service 11
Figure 3: Total regular premium life market, new business premiums, £m 15
Figure 4: Term assurance segmented by savings-related and mortgage-related, new business premiums, £m 18
Figure 5: Regular premium life premiums are forecast to increase slightly as the economic situation turns positive 20
Figure 6: Total regular premium life market adjusted for rider products, new business premiums, £m 23
Figure 7: Total regular premium life market, no of new contracts 000's 25
Figure 8: The average term sum assured has risen from £118,572 in 2006 to £125,578 27
Figure 9: Term assurance providers are most concerned by competition in the market 29
Figure 10: Customers take out term assurance once they have had their first child 34
Figure 11: In times of falling mortgage markets, term assurance sales must be bolstered through customer education 36
Figure 12: Improving distribution channels claim top current priority for term assurance companies 37
Figure 13: Legal & General is the dominating force for level term, 2007 39
Figure 14: Aviva and Legal & General command top spots for decreasing cover products 41
Figure 15: Savings-related term assurance, new business premiums segmented by distribution channel, £m 45
Figure 16: Mortgage-related term assurance, new business premiums segmented by distribution channel, £m 46
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