According to Key Note's exclusive consumer research, in 2007, one person in eight could not lead their normal life because of illness or injury for 3 weeks or more in the preceding year. Illness and disability benefits were paid to 7.2 million claimants in August 2006; healthy life expectancy as a proportion of total life expectancy is falling; women are often carers for the ill and disabled, and their incomes suffer as a result; and consumer confidence in the NHS has fallen, despite billions of pounds of extra investment in the service. Despite all of these factors, private medical insurance (PMI) and income protection remain minority purchases. Household expenditure on PMI is very low, and is above £5 a week only in the highest income decile.

Key Note's research revealed that 39.3% of respondents would pay for treatment if needed, rather than take out insurance. Paying for one's own private treatment is a key trend and is an opportunity for specialist credit issuers to work in partnership with healthcare providers. The escalating costs of medical treatment, and the amount of ill health in the UK, alarm insurers, who are concentrating on health promotion and illness prevention.

Income and payment protection, and long-term care insurance are quiet sectors in which most consumers take little interest, although there was a slight revival in income protection policies in 2006. Average annual new premiums for critical illness cover cost individual policyholders 31.9% more in 2006 than in 2002. Premium cost increases contain growth in this sector. The pre-funded long-term care insurance sector has virtually disappeared, and the market for point-of-need policies is also small.

PMI is a confusing sector for the public, and personal subscribers to PMI policies are in decline, although corporate subscriptions are rising. Premiums have become unaffordable for many personal subscribers. Demand for medical cash plans is rising gently, and dental cash plans are buoyant, as a result of dentists' retreat from the NHS. Loans to patients to pay for private treatment at the point of need form a promising and expanding sector for suppliers. The quiet personal accident sector has suffered from the popularity of post-accident negligence claims. In mortgage payment protection, individuals are less inclined than previously to take out cover.

As in the US, high expenditure on healthcare does not necessarily lead to a healthier population. In the UK, private expenditure on healthcare per capita is relatively low compared with other advanced economies. Public and private expenditure combined is in line with other large advanced economies, but is only two-fifths of the per capita spend in the US. Healthcare for ageing populations in developed economies will exert significant demands on public finances unless whole populations rapidly adopt healthier lifestyles and require less healthcare — an unlikely scenario.

In the UK, households already under financial stress will struggle to provide the additional taxation revenues that the NHS will need, unless the Government radically reduces the scope and reforms the financial basis of the service. The majority of households that cannot afford PMI in 2007 are unlikely to diminish in future.

Despite the finding that 12.2% of respondents to Key Note's survey said that they suffered illness or injury that prevented them from leading a normal life for 3 weeks or more in the preceding year, people are not prepared for this financially: 46.7% of respondents admitted that they would not be able to manage financially if stricken by illness or injury. The majority of respondents in the sample agreed that they do not have income protection, PMI, dental or personal accident insurance, and there is a trend to rely on paying for treatment, should it ever be needed. The survey also revealed a decline in public confidence in the NHS, leading more people to think about the possibility of private treatment, even if they have no insurance. One in six respondents said that they have already paid for private treatment, compared with fewer than one in 12 in a similar survey in 2004.

Men are more likely than women to have income protection, PMI and personal accident insurance, but women do most of the unpaid caring, saving the state billions of pounds a year. A key issue for policymakers should be how to improve women's incomes, for those undertaking unpaid as well as paid work, to enable more of them to afford insurance. For insurers, an equally important issue is how to design policies that more potential customers — including the elderly — understand and accept as providing good value. There appears to be considerable confusion among the public over the precise meaning of insurance terms, a matter for insurance companies to consider. `Fuzzy' perceptions of insurance products are a barrier to growth.

BUPA remains the UK leader in PMI, but it is attaching increasing importance to partnering the NHS. This parallels the trend for consumers to use medical insurance as a top-up for the NHS. Another change of focus in BUPA is a rising emphasis on long-term care for the elderly in the UK and abroad.

Traditional PMI, covering the costs of treatment, is compromised by rising costs resulting from the increasing complexity and wider range of treatments available. Organisations that provide for customers to pay part of the cost of their treatment, such as Western Provident Association (WPA) and Exeter Friendly Society, can exert some control over premium levels. Private medical providers increasingly favour cash plans, which pay out set amounts in specified circumstances. AIG and Simplyhealth Group are among the cash plan specialists. In addition, insurers are trying to persuade their customers to stay healthy so they do not need to claim. Fast-growing PruHealth is especially innovative in this respect.

Elderly people, who need PMI to an even greater extent than young adults, often cannot afford premiums. Policies catering for the elderly include AXA PPP's Retirement Essentials and Saga's Key Treatments, which provide targeted cover at lower cost than conventional PMI. Self-pay is an important trend, as individuals reject medical insurance in favour of paying at the point of need should they ever need treatment. Hitachi Capital, for example, caters for self-payers by providing loans.

In the quiet market for income protection insurance, including critical illness cover, companies are looking more to group sales and less to individuals. Canada Life, Combined Insurance and Unum are among the companies targeting the group market.

As already identified, there is a trend for individuals to pay for treatment should they need to, with a loan if required, rather than taking out PMI, for which the premiums are pushed ever upwards by rising medical costs. These costs threaten the long-term viability of medical insurance, especially for commercial insurers. Confusion is another factor: branding is under-developed in medical and protection insurances, and many policies are complicated, with lists of exclusions and lots of `small print'.

At a time of population increase, the core family type for medical and protection insurance — couples with dependent children — has declined as a proportion of all households, and this trend is unlikely to reverse. Medical insurers will focus increasing efforts on keeping their current customers in good health, and to ensure regular check-ups so there is early warning of conditions before they become so serious that they are expensive to treat.

1. Introduction
BACKGROUND
DEFINITION
Long-Term Insurance
General Insurance

2. Strategic Overview
THE UK'S INSURANCE INDUSTRY
Market Leaders
LESS CONFIDENCE IN THE NHS
OVER 7.2 MILLION CLAIMANTS GET ILLNESS AND DISABILITY BENEFITS
SICK BRITAIN, POOR WOMEN
MEDICAL INSURANCE SPENDING VERY LOW
DISTRIBUTION — TRICKY FOR LONG-TERM PRODUCTS
CONSUMER TRENDS — BRIGHT OUTLOOK FOR PRIVATE HOSPITALS AND SELF-PAY
KEY POINTS

3. Long-Term Insurance
PROTECTION SECTOR IN DECLINE
REGULATION RESTRICTING THE MARKET
INCOME PROTECTION INSURANCE: DOWN
CRITICAL ILLNESS INSURANCE: PACKAGED UP
LITTLE COMPETITION IN CARE INSURANCE
KEY POINTS

4. General Insurance
PRIVATE MEDICAL INSURANCE
CASH PLANS AND SELF-PAY
DENTAL OPPORTUNITY
PERSONAL ACCIDENT INSURANCE
MORTGAGE PAYMENT PROTECTION INSURANCE
PECUNIARY LOSS, INCLUDING MORTGAGE INDEMNITY INSURANCE
KEY POINTS

5. Promotion
MAIN MEDIA ADVERTISING EXPENDITURE
Private Healthcare
Critical Illness
Income Protection, Mortgage Protection and Accident Insurance
Compensation and Advice
KEY POINTS

6. International Perspective
THE US — HUGE HEALTHCARE SPEND, LIMITED BENEFITS
LOW MEDICAL EXPENDITURE IN DEVELOPING ECONOMIES
GENDER EQUALITY ACROSS THE EU
KEY POINTS

7. PEST Analysis
POLITICAL FACTORS
ECONOMIC FACTORS
SOCIAL FACTORS
TECHNOLOGICAL FACTORS
KEY POINTS

8. Consumer Dynamics
INTRODUCTION
ILLNESS AND INJURY, AND INCOME PROTECTION
Illness or Injury Stopped Me Leading My Normal Life for 3 Weeks or More During the Last Year
I Would Have Enough Money to Manage If I Had an Injury or Illness Which Prevented Me From Working or Leading a Normal Life
I Have Income Protection in Case I am Unable to Work Due to Illness or Injury
FUNDING PRIVATE MEDICAL INSURANCE
I Have Private Medical Insurance and I or a Family Member Pays the Premiums
I Have Private Medical Insurance and My Employer, or Someone Else, but Not a Family Member, Pays the Premiums
PAYING FOR TREATMENT AND PRIVATE MEDICAL INSURANCE PREMIUMS
In the Past I Have Paid in Full for Private Medical Insurance Rather Than Wait for Treatment from the NHS
Instead of Taking Out Private Medical Insurance Now, I Would Rather Pay for Private Medical Treatment If I Need it in Future
Premiums for Private Medical Insurance are Good Value
NHS OR PRIVATE DENTISTRY
I am Registered With an NHS Dentist
I Have Private Dental Insurance
PERSONAL ACCIDENT INSURANCE
I Have Personal Accident Insurance in Case I Get Killed or Injured in an Accident
I Would Claim for Compensation If I Was Hurt in an Accident and Did Not Have Insurance
CONFIDENCE IN THE NHS AND UNPAID CARERS
I Have More Confidence in the NHS Now Than in the Past
I Am an Unpaid Carer of an Ill, Injured, Disabled or Retired Person for At Least 10 Hours a Week
KEY POINTS

9. Company Profiles
INTRODUCTION
ABBEY
Corporate Strategy
Advertising and Distribution
Profitability
Future Company Developments
AMERICAN INTERNATIONAL GROUP
Corporate Strategy
Advertising and Distribution
Profitability
Future Company Developments
AXA PPP
Corporate Strategy
Advertising and Distribution
Profitability
Future Company Developments
BUPA
Corporate Strategy
Advertising and Distribution
Profitability
Future Company Developments
CANADA LIFE
Corporate Strategy
Advertising and Distribution
Profitability
Future Company Developments
COMBINED INSURANCE COMPANY OF AMERICA
Corporate Strategy
Advertising and Distribution
Profitability
Future Company Developments
EXETER FRIENDLY SOCIETY
Corporate Strategy
Advertising and Distribution
Profitability
Future Company Developments
FRIENDS PROVIDENT
Corporate Strategy
Advertising and Distribution
Profitability
Future Company Developments
GROUPAMA
Corporate Strategy
Advertising and Distribution
Profitability
Future Company Developments
HALIFAX
Corporate Strategy
Advertising and Distribution
Profitability
Table 40: Financial Results for HBOS PLC (£000, number, % and £), Years Ending 31st December 2004-2006
Future Company Developments
HITACHI CAPITAL
Corporate Strategy
Advertising and Distribution
Profitability
Future Company Developments
LEGAL & GENERAL
Corporate Strategy
Advertising and Distribution
Profitability
Future Company Developments
LIVERPOOL VICTORIA
Corporate Strategy
Advertising and Distribution
Profitability
Future Company Developments
NORWICH UNION
Corporate Strategy
Advertising and Distribution
Profitability
Future Company Developments
PRUDENTIAL
Corporate Strategy
Advertising and Distribution
Profitability
Future Company Developments
SAGA
Corporate Strategy
Advertising and Distribution
Profitability
Future Company Developments
SIMPLYHEALTH GROUP
Corporate Strategy
Advertising and Distribution
Profitability
Future Company Developments
STANDARD LIFE HEALTHCARE
Corporate Strategy
Advertising and Distribution
Profitability
Future Company Developments
SWISS REINSURANCE COMPANY
Corporate Strategy
Advertising and Distribution
Profitability
Future Company Developments
UNUM
Corporate Strategy
Advertising and Distribution
Profitability
Future Company Developments
WESTERN PROVIDENT ASSOCIATION
Corporate Strategy
Advertising and Distribution
Profitability
Future Company Developments
KEY POINTS

10. The Future
ILL PREPARED FOR ILL HEALTH
INSURERS' DILEMMA
THE IMPACT OF SCARCITY
Scenario 1
Scenario 2
SOCIAL STRAINS
THE NHS
LOOKING AHEAD
KEY POINTS

12. Consumer Confidence
METHODOLOGY
KEY FINDINGS THIS QUARTER
THE WILLINGNESS TO BORROW
Confidence Improves
Willingness to Borrow Slips Slightly
SPENDING FROM SAVINGS
Slight Increase in Spending from Savings
Saving Grows in Relative Importance

13. Further Sources