The cost of living crisis has tested the financial resilience of many households, and underlined the value of a safety net that income protection can provide.
Despite pressures of rising costs, figures from reinsurer Gen Re show a 16 per cent year-on-year increase in the number of income protection policies sold (249,000) in 2023.
What is more, growth in premiums exceeded the growth in IP policy sales, at 23 per cent year-on-year. The reinsurer says this was a potential result of high levels of earnings growth in the employment market, and inflation driving larger indexation increases.
Daren Boys, Aviva’s protection distribution director, also notes a shift in demand for index-linked policies.
“Indexing cover has always been slightly less popular than level cover,” he says. “Over the course of 2021 and 2022 we saw that gap widen as fewer index-linked policies were being sold, potentially due to budgetary pressures.
“In 2023 we saw this downward trend begin to improve, which could suggest that the appetite for index-linked policies is growing again alongside wage inflation.”
So what has been driving the rise in IP sales in the face of inflation?
One in three people said they would not be able to cover two months of outgoings if they had a health event that prevented them from working, according to a January survey from Vitality.
“Coupled with the cost of living crisis, people are increasingly thinking about this and whether they could afford everything if they couldn’t work for a while,” says VitalityLife managing director Justin Taurog. “This awareness is reflected in some of this sales growth.”
New business sales in 2023
Market | 2023 annual premium equivalent | 2022 annual premium equivalent | Year-on-year change | 2023 policy counts | 2022 policy counts | Year-on-year change |
|---|---|---|---|---|---|---|
IP | £99mn | £80mn | +23% | 249,000 | 215,000 | +16% |
Source: Gen Re Protection Pulse 2023 Review, which gathers new business sales from all major writers of insurance in the UK protection market | ||||||
Besides consumers’ awareness of their own financial resilience, Boys cites a collective effort across the industry to raise awareness of IP.
“Aviva’s research highlighted that one of the main barriers to sale was the perception that IP is a complex product. Advisers were particularly concerned about calculating the appropriate financial benefit, and this put some off recommending the product.
“We responded to this need by introducing our digital adviser education programme. In 2023 we held six live online events dedicated to income protection, which were joined by more than 8,000 advisers wanting to up-skill and gain the confidence to have more meaningful protection conversations with their clients.
“We find case studies and access to our claims and underwriting experts land particularly well. We support the Income Protection Task Force approach of offering adviser-to-adviser education too, sharing best practice and new ideas for the benefit of customers.
“Initiatives like these have helped improve adviser confidence, which is resulting in increased growth through advised sales channels.”
Product innovation also appears to have played its part behind an expanding IP market.
“We see a number of factors driving a rise in IP, including growing awareness of the value that the protection offers, and through the evolution of the products and proposition in recent years,” says Taurog.
“Having revamped our product in 2023, we have seen our IP sales increase by 40 per cent, over 2023 compared to 2022, favourable to the overall market increase of 23 per cent.”
