Life Assurance Protection Gap Reaches £2.4Trillion

According to calculations by Swiss Re, the life assurance protection gap has increased for the first time since 2004 to reach £2.4 trillion.

The world's 2nd largest reinsurer has published its latest annual Term & Health Watch report which builds a picture of the level of new individual protection business written in 2009. Swiss Re says that the life assurance protection gap, measured in sums assured, hit £2.4trn last year, from £2.3trn in 2008.

It attributes this increase to a decline in the number of in-force policies despite the report showing that new whole of life business, new term assurance sales, and critical illness sales all rose last year, which can only mean that existing policies are being cancelled or allowed to lapse at a greater rate than new policies are being taken out.

New whole life business increased by 12.6% to 318,078 policies, new term assurance sales were up 4.1% to 1,507,685 policies, while critical illness sales rose 3.8% to 530,214 policies.

Meanwhile the income protection gap remains at £190m annual benefit, the same level as last year.

Overall, income protection sales fell 7.5% to 117,288 from 126,815 in 2008.

Ron Wheatcroft, co-author of Term & Health Watch 2010, says: “There are some encouraging signs that the industry is making progress through sales of more innovative income protection products, such as those which incorporate redundancy or unemployment cover or through shorter deferred periods.

“But the growth is modest when compared against the overall net decline in sales. As people find it increasingly harder to claim state benefits, the government can play a key role here too by setting out clearly to consumers that they need to take positive action to protect themselves against the risks they run.”