However bounce back growth of 70% expected over the next four years, Mintel research suggests
According to new research by Mintel, the income protection (IP) market is likely to decline in value by around 25% this year - down to £47m from a value of £66m in 2019.
Despite the initial slump, the market research, which took in industry data to make the forecast, indicated that the IP market is likely to rise in value next year, and to grow by around 70% over the next four years to be worth £79m by 2024.
Douglas Kitchen, Mintel Financial Services Analyst, said he believed income protection sales will be hit hard this year by the stalling housing market caused by the COVID-19 lockdown. He added that rising unemployment will also hit people's willingness to consider taking out IP and might also lead to policy cancellations for those who lose their jobs or whose income significantly falls.
However, he added: "The pandemic is likely to have a positive medium to long-term impact on the market - as people have a greater understanding of the need for protection as the mortgage market recovers."
As a result, Kitchen expects the income protection market to start to recover in 2021, before returning to growth levels seen before the crisis from 2022.
Mintel's research, carried out among 1,972 internet users aged 18 and above in February 2020, also found that 24% of employed people surveyed who don't own income protection said they would be interested in taking out cover in the next two years, however only 9% said that they do own it.
Interest increases to 32% among those who said they would struggle within six months or less if they were forced to take time off work, while workers on temporary, flexible or zero-hours contracts (29%) are significantly more likely to be interested in taking out income protection than the self-employed (18%), the research found.
Kitchen said: "The pandemic has raised people's awareness about how vulnerable they really are to a period of lost income. If providers can find ways to build on this engagement, then growth over the long term should be boosted.
"First and foremost, it will be important to identify groups who have been most exposed to the crisis, such as certain groups of self-employed workers and those who have been forced to rely on statutory sick pay. By doing this, providers will be able to build on increased awareness of the need for protection."
The research findings also suggested that flexible policy terms, such as the ability to increase and decrease cover, are the most important feature (38%) for those interested in or owning income protection.
Offering additional protection for other family members (e.g. critical illness cover for children) is the next popular reason (34%) and is the most important factor for parents, the research revealed.
However, according to the survey, the cost of income protection is the main reason (48%) holding customers back from taking out policies, while other reasons include frequent changes to personal circumstances (26%), such as regularly moving job or house and not understanding what the policy covers (17%).
Kitchen added that the term ‘income protection' can be "confusing". "The increased interest in income protection was partly driven by people who mistakenly believed that they would be covered if they were made unemployed," he explained. "Now, more than ever, with more consumers waking up to the need for cover, it is vital that providers are clear in their messaging regarding what is actually covered.
"Taking steps to help consumers understand what is covered and being explicitly clear over the various exclusions that are in place will be crucial. Additionally, encouraging people to think seriously about how much they have saved and whether they are truly protected in the long-term will be vital."
Kitchen added that the traditional model of income protection does not work for those who have a varying income or those whose personal circumstances change regularly. "The rapidly growing self-employed population and the rising number of workers in the gig economy, mean that it is increasingly important to develop products which meet the needs of this group. The COVID-19 outbreak has arguably pushed this issue further up the agenda," he said.
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