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Whole of life insurance policies taken by less than 5% of the UK marke

Industry Sector

Finance and Banking


6 October 2014


Charles Shaw

Type of News


The UK life insurance market continues to be the biggest in Europe and the third biggest in the world. However, life insurance sales in UK have been stagnant over the last decade.

The staple product int his market is level term insurance, which provides cover for a specified duration, normally up to a maximum age of 85. Customer premiums remain constant over the duration of the policy. Decreasing term insurance is often used to cover repayment mortgages. The reducing outstanding mortgage is estimated by making an assumption of the average long-term interest rate. Life cover decreases in line with this schedule.

When it comes to "whole of life" insurance, it is much more of a niche market, and terms therefore tend to be less competitive. Somewhat more popular are so-called Funeral Plans (i.e. over 50s policies), which pay relatively small amounts upon death. In this instance there is no underwriting - this is replaced by a moratorium, typically two years. Such products are often sold via direct marketing, often with free gifts, and are sometimes subject to criticism due to being poor value. According to the Association of British Insurers, of the 26.41 million households in the UK in 2012, 5.3 million had whole of life assurance.

Although they are significantly more expensive than underwritten term insurance, premium payment terms are often limited to age 80. The low interest rate environment has meant some plans have value from an investment perspective but are not marketed as such.

Industry analysts expect further consolidation in the life insurance industry, mainly in back-book acquisition. The case for retaining back-books within a broader insurance group is breaking down, and five years from now there may be fewer significant mixed businesses left in the market. There are a several reasons for this. First, the Solvency II transitional arrangements delay the onset of stricter capital requirements for back-books.

Second, insurance management teams are now radically unlike those that built the back-books over previous decades. Some teams rarely see a return to the broader product ranges of the past as feasible, and view the in-force book as an asset whose value should be maximised.

Last but not least, the recovery in equity markets has significantly improved the economics of closed with-profits funds. The sale of a back-book can now be seen as a way of releasing capital to invest in promising opportunities rather than simply the disposal of a problem.

For more information on the UK whole of life insurance market, see the latest research: UK Whole of Life Insurance Market

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