Better Prospect for Life Assurance

The recently beleaguered UK life assurance market will grow by over £1.8bn in the next four years to £5bn as stock markets recover and protection products remain popular, according to a report from Datamonitor.

UK Life Assurance 2004 is an overview of the total UK life market and its key products, providing market size statistics and distribution data, examination of key growth drivers, analysis of leading competitors, plus forecasts of premiums and distribution trends up to 2008.

The market has fallen in value by almost £800 million since 2000, most of it in 2002-3, with poor stock market returns, weakened consumer confidence, high-profile scandals and complex regulatory reform all contributing to a rough ride for the industry. With-profits bonds have been the biggest loser.

While the savings side of the life market has languished, the protection market has prospered, with premiums up c.12% per annum since 2000. Protection products accounted for 40% of total life premiums in 2003. The boom in credit lines and the growth of the housing market have increased consumers' perceived need for protection such as term assurance.

Total new premium income for term products has grown by an average of 23% per annum, while endowments, which have left many policyholders with severe mortgage shortfalls, have all but collapsed from £278 million in 2000 to a mere £42 million in 2003.

The single premium life market value dropped heavily in 2003, falling by 26% to just £1.8 million since 2002. Notably, premium income from with-profits bonds has plunged from over £1 billion in 2002 to less than £300 million in 2003, with many consumers seeing their bonuses slashed after bad management of funds. Datamonitor forecasts that they will pick up again from 2006 due to improved equity market returns and renewed sales effort.

The largest insurers continue to grow at the expense of the smaller players, who have found it more difficult to compete. The top ten competitors accounted for over 75% of premiums in 2002. Medium-sized insurers now find themselves potential merger targets, says Datamonitor, while the smallest have been in heavy decline since 1999, dropping from a combined value of £718 million in 1999 to just £172 million in 2002 and from 19.5% market share to a mere 5.1%.

Among individual companies, HBOS has overtaken Aviva to become the UK's leading life insurance provider with almost 12% market share in 2002 with strength in the mortgage and bancassurance market balancing a fall in annual premium business. Legal & General's strong distribution relationships with bancassurers and retailers has proven a good move while Prudential has suffered setbacks.

The bancassurance channel has become a real force in life assurance distribution, with over 15% share of the annual premium market and more than 21% in the single premium market in 2003. Banks are increasingly cross-selling savings products as well as life products and the report forecasts that bancassurers will continue to increase their share of the annual premium market to 26% by 2008, although IFAs will continue to dominate the single premium market.

'Life insurance companies will have to work hard and make sure they have learnt their lessons from the last few years if they are to regain customer trust and interest', warns Liz Hartley, Financial Services Analyst at Datamonitor and author of the report.

The company's web site is at www.datamonitor.com

All articles 2006-23 written and edited by Mel Crowther and/or Nick Thomas, 2024- by Nick Thomas, unless otherwise stated.

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