Term & Health Watch 2018 – insights presentation to Protect Ron Wheatcroft, Technical Manager, 6 July 2018

Agenda The market mood High level data summary Term assurance, critical illness and whole life Income protection Market opinions

The market mood generally Optimism for growth "For me, simply the amount of innovation in individual protection during 2017 is a sign of a vibrant market; with established brands reinventing themselves and the prospect of a new insurer too." Independent consultant Broadening coverage "The main highlight for me has been the emergence of new solutions for customers who typically find it difficult to buy insurance. Flexible plans were delivered that appreciate how a customer’s health can change over the course of a policy, and new products were launched to cater for customers with severe or multiple health conditions." Product provider Better engagement with government "It was great to see the Building Resilient Households Group effectively engage with DWP to progress discussion on the interaction of protection benefits in claim with means-tested Universal Credit" Product provider Improved services "The industry has slowly realised that, as 7Families proved conclusively, 'help insurance' (third party benefits such as RedArc and Best Doctors) is just as important as paying out money." Product provider

High level data summary

In 2017 1,972,692 new term assurance, whole life, critical illness and income protection policies were sold. An of 11.6% All Term Life (with & without CI)  13.1% (+172,132) Income Protection  2.8% (+3,270) GA Whole Life  5.8% (+15,883) UW Whole Life (with & without CI)  -26.7% (-6,842) All Critical illness (incl. SACI)  21.1% (+91,883)

Term Assurance and Critical Illness Cover

New term assurance sales 2013 -2017 13.1%

Total new individual term sales, by volume 2014 - 2017 Product type 2014 2015 2016 2017 % change 2016/2017 LTA without CI 522,649 555,907 594,216 664,317 11.8 Relevant life 16,372 21,790 27,746 29,349 5.8 LTA with CI 211,694 203,945 201,614 255,564 26.8 DTA without CI 239,001 225,582 247,213 277,272 12.2 DTA with CI 232,043 196,174 199,253 212,316 6.6 FIB without CI 25,748 24,680 25,803 20,640 -20.0 FIB with CI 2,770 2,854 2,599 1,743 -32.9 Other term without CI 29,165 24,766 18,311 23,220 Other term with CI 6 88 2,212 6,678 201.9 Total 1,279,448 1,255,786 1,318,967 1,491,099 13.1

All CI cover, by policy type 2013 - 2017 2014 2015 2016 2017 % change 2016/2017 Term with CI 423,020 446,513 403,061 405,678 476,301 17.4 WL with CI 653 718 387 97 123 26.8 Stand-alone CI 22,006 18,208 26,679 28,588 49,699 73.8 Total 445,679 465,439 430,127 434,363 526,246 21.2

Growth in directly-authorised and direct business Directly authorised term sales, including with CI, increased by 18.3% Directly authorised CI sales increased by 13.7%, Direct Term sales, including with CI, increased by 22.6% Direct CI sales increased by 216%

All term assurances, with and without CI benefits, top five providers by volume of new sales, 2017

All CI policies, acceleration of life cover and stand alone, top five providers by volume of new sales, 2017

Whole Life

Guaranteed acceptance Non-linked underwritten Unit-linked underwritten New Whole Life sales; unit-linked, non-linked and guaranteed acceptance 2014 2015 2016 2017 Guaranteed acceptance 243,181 261,137 276,164 292,047 Non-linked underwritten 30,092 32,550 25,508 18,640 Unit-linked underwritten 718 387 97 123 Total 273,991 294,074 301,769 310,810

Whole life, top five providers by volume of new sales, 2017

Income Protection

Total income protection sales 2014 - 2017 2.78%

New individual IP sales written on “to retirement” and on a one, two, five year and 'other' maximum benefit payment term, 2013-2017 by volume 2014 2015 2016 2017 % change 2016/17 IP (excluding LPT) 63,339 66,167 58,661 62,053 5.8 IP 1 year limited payment term 2,200 2,383 3,314 6,193 86.9 IP 2 year limited payment term 17,329 33,271 46,041 41,573 -9.7 IP 5 year limited payment term 9,402 2,360 1,948 8,211 321.5 IP 'other' limited payment term 4,619 3,121 7,850 3,054 -61.1

Average sum assured 2014 2015 2016 2017 % Change 2016/2017   2014 2015 2016 2017 % Change 2016/2017 IP (excluding LPT) 15,008 15,320 15,438 17,334 12.28 Income protection 1 year limited payment term 15,621 14,725 15,382 15,024 -2.33 Income protection 2 year limited payment term 12,397 12,398 12,889 13,446 4.32 Income protection 5 year limited payment term 7,657 11,877 12,844 16,155 25.78 Income protection 'other' limited payment term 16,395 16,824 20,534 24,934 21.43

All income protection sales, top five providers by volume of new sales, 2017

Market opinions and opportunities for growth 30 Product Providers, 4 independent intermediaries and a mixture of consultants and service suppliers to the market.

Independent financial adviser Mortgages Length of sales process Apathy – market parties and consumers? Fear of conduct risk issues, particularly banks Positive views about initiatives to make protection an integral part of the mortgage process Little call for more regulation to drive the sales process to protection Key themes: "As an industry we have to get back to talking to every customer about the need for protection and being more persuasive. We cannot just hide behind the time argument, I did not have the time the client did not have the time etc." Product provider "Proactive, personalised messaging that engages people with need for building financial resilience. Banks too afraid of conduct risk of mis-selling to actively do this, but no real way to approach mass market." "Apathy is probably the greatest barrier we face, but lack of education and awareness are also now key contributors…However, we are now starting to see a changing tide in the mortgage market, with an increased number of mortgage providers starting to integrate protection back into the mortgage sales process, with some mandating the inclusion of protection awareness in the process and utilising data in delivering a semi-underwritten offer and reducing the time needed to complete a protection quote." Independent financial adviser

Key themes: Financial Resilience Lack of awareness Education Better integration of State and private sector benefits Key themes: "I believe that Universal Credit should be overhauled to ensure that prudent planners are not penalised for taking out insurance." Independent financial adviser "Universal Credit is a hugely complex system that will have implications for customers, advisers and providers. I would like to see the Government work with providers to ensure that customers are not penalised for protecting themselves against the impacts of illness and injury.“ Product provider "There has been a historical assumption that you pay National Insurance (note the word insurance) and therefore you are 'insured' through the state and will be looked after. More awareness of what the Government will and critically WILL NOT provide is key." Product provider “ ‘Financial resilience’ should be a statement that is heard often, spoken by the Government, by banks, by insurers, by estate agents. Anyone who deals with financial services or the purchase or rental of a home." Product provider

Meeting the needs of the vulnerable customer "The main highlight for me has been the emergence of new solutions for customers who typically find it difficult to buy insurance.” Product provider “Growth in business volumes, especially around mortgages and multi benefit. Openwork’s Mortgage Protection Risk Report showed how right distributor, right technology and right products can have material impact.” Independent consultant “The biggest for me was the realization that just offering an insurance policy is not enough. providers want to engage with their customers more during the lifetime of the policy. Annual benefit statements are a start but servicers that customers can use such as remote GP and second opinion support.” Product provider “Equally, consider how customers engage with us, through IFA models that need to flex for gender, race, background and understanding.” Product provider “We tend to focus our advertising on "family" units. However, we have to recognise that we are in a more diverse society and develop products and advertise that appeal to a wider audience. That will include single people of either gender“ Product provider

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