Jamie Page
|Head of Protection Distribution at The Exeter
After three years of continuous growth, and a 22% increase in sales from 2020 to 20231, income protection is finally becoming a bigger part of the protection conversation – but it is still nowhere near where it should be.
While the growth we have seen is positive, sales of income protection still fall some way behind the numbers we see for life insurance and critical illness products. The reality is that there is some way to go before the average person considers insuring their income in the same way they think about insuring their life, car, home, or even their pets.
With that in mind, what will 2025 have in store for income protection, and what can we do to ensure it stays part of the conversation?
Maintaining and building momentum
The continued growth in sales shows just how much income protection has grown in popularity in recent years. This is a positive trend, and one we should be pushing harder.
One of the reasons for this is the continued growth in sales of limited benefit payment products, where benefits are paid for a set length of time rather than until retirement. Limited benefit products have continued to gain traction as advisers look for more cost-effective ways to offer valuable cover to clients, particularly in a market where affordability is a key consideration.
At the same time, the market is evolving. 2024 was a year of insurer consolidation, but we also saw new entrants in the income protection space, something which should be welcomed. More providers and product enhancements mean more competition, which ultimately gives consumers greater choice and helps drive a healthier, more innovative market.
But despite the progress, there is potential for further growth, and while initiatives like the Income Protection Task Force are helping our industry to understand the need for income protection discussions, is there more we can do to build on this momentum – particularly within the mortgage market?
How will the mortgage market and the cost of living affect income protection sales?
Over the next year mortgage lending for house purchases is expected to increase by 10%, external remortgages by 30%, and internal product transfers by 13%2. That’s millions of clients reassessing their financial commitments which presents an opportunity to highlight just how much of a safety net income protection is.
In a mortgage market that’s constantly shifting, if a client suddenly lost their income, how would they keep up with repayments?
Life and critical illness cover provide valuable protection; however, income protection is specifically designed to reduce the financial impact of being unable to work due to illness or injury, whether short or long-term. It therefore deserves to be a key focus in discussions around mortgages.
At the same time, cost-of-living pressures may start to ease in 2025. With the Bank of England cutting the base rate to 4.5% mortgage rates may follow suit, meaning those remortgaging this year could find themselves in a more stable, favourable market that could signal an uptick in protection sales should budgets start to loosen.
Cost will no doubt remain a barrier for consumers, but advisers can overcome this by highlighting the flexibility of income protection. Whether it’s limited benefit periods, a choice of waiting periods or the option to guarantee the amount of benefit paid at claim, income protection policies can meet a wide range of client needs at a range of price points.
What does the future of income protection look like?
The protection market is always evolving, and the upcoming Pure Protection Market Review is another chance for industry to focus on how we meet customer needs. With Consumer Duty raising the bar on value and transparency for customers, expectations have never been higher. This is a fantastic opportunity to highlight the steps we take to deliver the best outcomes for customers whilst also being open to change.
A further focus for insurers must be on making products flexible enough to meet new customer needs while also closing existing gaps to further grow the market. Engagement among female customers in the income protection market is still low3, and gaps persist in the mortgage market – let alone the rental sector. Insurers must make sure they stand out in a competitive market while delivering real value to customers.
Bridging these gaps won’t happen overnight, but with the right approach, the industry can make further progress. The longer-term challenge is making income protection a “must buy” consideration for consumers but more immediately a key focus of every protection conversation.
Sources:
1 - Swiss Re Term and Health Watch 2024
2 - ukfinance.org.uk
3 - iptf.co.uk
This article was published in IFA Magazine on 13.03.2025.