The long-term protection market has remained resilient through 2011 despite significant increase in the UK protection gap, Swiss Re has reported.
The re-insurer's Term and Health Watch 2012 report showed the protection gap had increased by 20% from £2trn to £2.4trn, in the last 10 years; and the income protection (IP) gap has risen by 46% in the same period.
And sales of new term assurance and income protection policies fell last year by 3.4% and 0.2% respectively.
But elsewhere critical illness sales increased by 3.1% and new whole policies by 7.9%.
Ron Wheatcroft, co-author of Term and Health Watch 2012, said: "We believe that the growth in critical illness policies reflects some of the more positive messages about claims payment rates which have been communicated.
"These messages are, in turn, improving both consumer and intermediary confidence in the product."
Swiss Re's report suggested greater clarity in communication to build consumer trust would need to be key this year.
Russell Higginbotham, chief executive at Swiss Re, said: "Under-insurance in both the life insurance and income protection areas is proving to be a long-term problem in the UK.
"The industry is faced with the challenge of better communicating to consumers how to alleviate the financial burden placed on families and dependents in difficult times."
He added the protection market had however coped well with the difficulties presented by the economy.
The Term and Health Watch 2012 also included an opinion survey of 45 providers. Results showed optimism regarding growth this year and awareness of regulatory challenges.]
Wheatcroft said: "The interest is really at industry level as protection will help cash flow as advisers transition to an RDR world where commission on investment sales is banned.
"We also expect the outcome of the Mortgage Market Review to place a greater emphasis on the use of financial products to protect and repay mortgage loans."
The document also reported the move to gender-neutral pricing to be seen as a stimulus for the industry to consider new opportunities.
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