The UK's income protection insurance market is forecast to shrink by more than a quarter this year, despite the COVID-19 pandemic causing the largest drop in employment for over a decade.
Demand for income protection policies soared at the outset of the pandemic, however, various insurers have since withdrawn their cover for new customers amid fears of high job losses in certain sectors.
In response, GlobalData anticipates that the individual income protection market will plunge by 26.5% in 2020, with new business premiums set to fall to £48.2m, down from £65.5m in 2019.
The data and analytics company also warned that there is a risk of consumers not knowing exactly what they are covered for.
Beatriz Benito, senior insurance analyst at GlobalData, said: “It is still possible to purchase income protection that provides long-term accident and sickness cover." However, she added: “Some individuals may buy these policies being unaware that they do not provide cover against job losses – given the strong growth of the unadvised channel in recent years.”
Figures from the Office for National Statistics show that the number of people in work fell by 220,000 between April and June this year, which was the largest quarterly decrease since May to July in 2009.
According to GlobalData’s research, 56.1% of consumers purchasing income protection bought policies providing cover against redundancy – either unemployment insurance or comprehensive income protection – in 2019. The latter, in addition to providing unemployment cover, also provides protection if the policyholder becomes incapacitated to work because of sickness or an accident.
That still leaves a significant number of people potentially unprotected, however, GlobalData expects the income protection market to bounce back in 2021 and sustain growth to 2024.
“COVID-19 will trigger appetite for income protection products in the medium to longer term and raise awareness of the benefits they provide,” Benito continued.
“In addition, individuals will become warier about unprecedented events and will rethink how best to protect themselves against them. These factors are expected to contribute to future growth of the income protection market.”