Predictions that a slowdown in the housing market could lead to a fall in term assurance sales means that advisers should be looking at other ways to keep the sector strong. Angela Faherty reports Click here to download pdf
Looking back over the last 12 months, it is fair to say the UK term assurance market has had a good year. Sales of term assurance policies have continued to grow and this trend looks set to continue in the future.
Boom time
According to Swiss Re's Term & Health Watch 2003, new sales of individual term assurance rose from 1,571,062 in 2001 to 2,051,682 in 2002 – an increase of 30.6%. It is the eighth successive year that sales have increased in the market; and while figures from 2003 have yet to be collated, further market growth is expected.
"The indications are that 2003 was another exceptional year for the term assurance market," says Ron Wheatcroft, technical manager at Swiss Re Life & Health. "The predictions are that new business in the term assurance market grew by 5%–10% overall. That is down on the previous year – but it is still market growth, and this is good news for the sector as a whole."
There are a number of reasons for the continued rise in term assurance sales. The buoyant UK housing market has been driving the market forward at a rapid pace. As a result, mortgage-related term assurance has increased dramatically – and predictions show that this is likely to continue.
"Growth in the term assurance sector has been very dependent on the housing market, and it is likely to remain that way for the foreseeable future. But it is important to remember that there are other social factors driving the market forward," says Nick Kirwan, head of protection and product development at Abbey For Intermediaries.
Property market doubts?
And while the sustained growth in the mortgage market certainly bodes well for the forthcoming year, providers are adamant that advisers should look further afield if they wish to grow their portfolios and establish a firm position in the market.
"It is important that advisers acknowledge that the term assurance sector is also sensitive to the housing market. Should the market slow down or begin to decline, then this will impact on sales – so advisers must ensure they are looking at the bigger picture. There are shortfalls in protection in the family market – and advisers must ensure they address these protection needs," says Ronnie Martin, protection director at Legal & General.
Wheatcroft agrees: "The housing market has been driving sales forward – but it is also a potential problem area. Approximately 50% of the sector is dependent on the housing market and this will be an issue should there be a crash."
While suggestions of a fall in the housing market have been dismissed, advisers looking at potential growth areas will find they are better placed if they look at other possible ways of securing sales.
Family income benefit
One of the areas where term assurance has the potential to increase sales is family income benefit (FIB). FIB has not seen huge growth in recent years, but providers are confident that this area of the market will soon begin to flourish.
"Family income benefit has not been fully utilised and it would be great to see an increase in sales in this area. It offers financial security and peace of mind for families, and this is something advisers need to get across," says Stephen Crosbie, product development manager at Scottish Equitable Protect.
In the current economic climate, FIB offers an attractive proposition to families looking to take out cover, and is a good sales tool for intermediaries.
For example, if the client finds the premium for £100,000 lump sum benefit too high, then the same amount of cover over a certain period in installments could present a cheaper alternative. Similarly, with interest rates currently low, an invested lump sum is not going to produce as healthy an income as many would hope to achieve. Explaining this to consumers is key.
"There have been relatively low sales in family income benefit and that is due to the fact that many people see a lump sum as the more attractive option.
"We may begin to see a revival in family income benefit, as it is a simple proposition to understand. The challenge for advisers is to make it attractive to consumers," says Martin.
Further opportunities for growth of term assurance sales lie in the business protection market. Providers are frequently highlighting the untapped potential this area of the market offers, and advisers would do well to begin to look at maximising sales opportunities in this sector.
"The corporate market presents an excellent opportunity for growth. Much like the personal market, very few businesses have adequate protection – and statistics show that only around 5% of businesses hold cover for 'key men'. This opens up a whole new area to advisers," says Wheatcroft.
One of the key issues advisers looking to get into the business protection market need to focus on is that many firms have very little knowledge of the complexity of the business protection market. Issues surrounding tax and trusts can be difficult to grasp, and advisers are well placed to provide clients with advice and recommendations on products suited to their needs.
Advice on tax and trusts is also welcomed in the individual market, particularly as Inheritance Tax continues to become an issue for an increasing number of people. "The need for professional advice on issues such as Inheritance Tax is increasing as more and more people are affected by it. But it also means there is a greater need for protection to safeguard against these situations in the future," says Crosbie.
Careful customers
Similarly, increased consumer awareness on all financial matters means that a rising number of people are willing to shop around before committing to a final decision. It is here that the value of advisers is most obvious and the benefits of seeking professional advice can be seen.
"Long-term trends in the term assurance market favour the intermediary," says Kirwan, "because a growing number of consumers are less happy with the choice of one product and are more inclined to shop around to find the best deal. If this trend continues, then there is every reason to be confident that advisers can grow their place in the market."
On the other hand, however, the rise in prominence of retail providers offering term products, although also likely to help the market grow, could mean advisers need to ensure they prove their worth.
"In 2004, I think the market will see more sales of term assurance without face-to-face advice – and this is a result of the growing retail market. Advisers need to make sure they present the most value," says Wheatcroft.
Crosbie adds that future growth in the term assurance market may stem from advances in technology, and that advisers would do well to embrace these developments.
"Last year, we saw massive growth in terms of the type of technology being used in the market and this has made it easier to do business with advisers. These online solutions are ideal, as they can help to provide immediate decisions for advisers and encourage faster sales – which will, in turn, help to grow the market further," says Crosbie.
In all, the term assurance market has had a solid 12 months and this trend looks set to continue over the forthcoming year. While it is predicted that sales in 2003 will be down on the previous year, further growth is still expected.
The housing market has been one of the main drivers for market growth in recent years, but advisers should not be relying solely on this to help increase sales. Great potential lies in the business protection and FIB markets and these areas offer huge potential to advisers looking at new ways to grow their business.
Challenges may be on the way with the rise of retail players, but the need for advice will remain – and this is positive news for advisers working in the term assurance market.
