2020 was a testing year for many businesses and industries, and the Protection market was no exception. With the first “stay at home” order issued on 23 March, it was difficult to predict how COVID-19 would shape the world, the impact it would have on the global economy and the individual impact on each and every one of us.
While 2019 was another record-breaking year for the UK Protection market, 2020 saw premiums return closer to 2018 levels, with total APE for the year coming in at £718 million, down about 8% from the prior year. We saw a slump across most product lines in 2020, with the Term Assurance market notably remaining flat. The relative “outperformance” of Term Assurance was likely correlated to the housing boom fuelled by the stamp duty holiday introduced in July 2020. Premium volumes linked to mortgages were similar to 2019, making up 26.0% of total sales.
The Underwritten Whole of Life market experienced a close to 30.0% decline and there was a 6.8% decrease in the Guaranteed Acceptance Whole of Life plans. Critical Illness was also significantly hurt by the pandemic, with sales down almost 13.0%. While overall APE for the year was down, it was interesting to note that overall policies by count were only down 1.2%, although this is largely driven by the first quarter where new policies were up 7.5%.
Income Protection sales, the fastest growing segment of the market prior to 2020, paint a similar picture with sales down 15.5%. While there was a large initial uptake of policies in March 2020 (up 43.0% from February), when the uncertainty surrounding the pandemic was arguably at its height, it was not unexpected to see volumes drop over the year as providers re-evaluated their offerings in light of emerging risks caused by the pandemic and the economic uncertainty surrounding it.
Distribution channel mix remained broadly the same as 2019. With 59% of policies coming through from the independent advice route, 24% from restricted advice and 17% from the non-advised channel. Unsurprisingly, all channels took a hit on sales, with the non-advised being the least adversely affected with sales down 4.3%. Independent advice and restricted advice were down 9.5% and 6.4% respectively.
Whilst overall volumes were down in 2020, there were signs of emerging recovery of sales in the second half of the year. Before the start of the pandemic, Q1 volumes grew by 5.3% compared to Q1 2019. Once the pandemic hit, Q2 and Q3 saw a significant decline in sales, followed by early indications of recovery in Q4.
With the government’s latest announcement of a potential return to “normality” by the end of June, thanks to the UK’s rapid rollout of the COVID-19 vaccine that is well underway, we should remain hopeful that volumes will return to pre-pandemic levels in 2021. As an industry, now more than ever we should be raising consumer awareness about the value and benefit of protection products. The UK public has, during the pandemic, become increasingly aware of its own health and mortality risk. People have also, in many cases, seen how difficult it can be to survive on savings alone in times of economic hardship. We, therefore now, have a timely opportunity to communicate the importance of the products we sell and the valuable services our industry provides.
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