Broadstone’s analysis of the Financial Conduct Authority’s (FCA) latest Financial Lives Survey points to areas where life insurers may strengthen policyholder understanding and engagement, with the potential to enhance trust and deliver improved outcomes.
Life insurance protection products are recognised as important for building long-term financial resilience. However, survey results suggest that life insurance lags other general insurance products in customer satisfaction.
Findings also indicate low levels of understanding and engagement with life insurance policies, while trust remains limited, despite customers often holding policies for extended periods.
The FCA’s data highlights several trends in the life insurance market. Customer satisfaction with life insurers was reported at a score of 7.6, the lowest among general insurance protection providers. Only 53% of policyholders expressed satisfaction with their life insurance provider, compared to 73% for contents insurance.
Engagement levels were also found to be low. About 26% of life insurance policyholders reported not understanding their policy, whereas around 10% of customers for other protection products said the same. Additionally, only 25% of life insurance customers read their policy documentation in detail, compared with 39% of contents insurance customers.
Despite these concerns, policyholder loyalty remains high. Around 38% of life insurance customers have stayed with their provider for more than 10 years, and 24% have held their policy for between 5 and 10 years - figures that surpass those of other insurance products.
In terms of trust, life insurers recorded an average score of 7.6, consistent with previous years. However, 22% of customers indicated low levels of trust in their provider, and a further 20% said they did not know. This combined figure represents the highest among all insurance product categories, even though life insurance policies typically involve the longest customer relationships.
Ewen Tweedie (pictured above), actuarial director in Broadstone’s insurance, regulatory and risk advisory division, noted that there is scope to improve transparency, communication and consumer engagement.
“It finds many customers are unclear on the purpose or value of their life protection insurance leading to inertia, low levels of trust and satisfaction, and the potential to lead to poorer outcomes further down the line,” Tweedie said.
Broader market trends show a decline in life insurance ownership in the UK. The FCA’s Financial Lives 2024 survey reported a decrease in ownership rates, with only 28% of adults holding a life insurance policy, down from 29% in 2022.
This decrease was most notable among individuals aged 25 to 44 and mortgage holders, suggesting potential vulnerabilities in segments that traditionally rely on such coverage for financial protection.
Financial pressures have also played a role in altering consumer behaviour. According to a follow-up survey conducted by the FCA in January 2023, 8% of UK adults with existing insurance or protection products had cancelled one or more of their policies, and 7% had reduced their coverage levels.
The rising cost-of-living was cited as a key driver behind these decisions, pointing to the broader economic challenges influencing the insurance landscape.
Data from the industry also shows the continuing importance of life insurance payouts. In 2023, UK insurers paid out £4.84 billion in claims related to life insurance, income protection, and critical illness cover. The average payout for a life insurance claim stood at £80,403, illustrating the material support these policies provide to beneficiaries at times of financial need.
In parallel, the growth in private medical insurance (PMI) offers additional insight into changing consumer priorities. The Financial Lives 2024 survey highlighted an increase in PMI coverage, rising from 6.7 million adults in 2020 to 7.6 million in 2024, now accounting for 14% of UK adults.
This trend suggests a shift toward securing access to healthcare services alongside financial protection, potentially influencing how consumers assess the value of insurance products more broadly.
Tweedie says that life insurance serves to provide financial security to families and dependents if the policyholder becomes ill or dies, covering living costs, debts or expenses such as funeral costs.
“For consumers that understand the role of life insurance in long-term financial planning, it should offer peace of mind but this latest FCA data implies a market that is not functioning as well as it could be,” Tweedie said. “For life insurers, there is a clear opportunity to gain brand trust and a competitive advantage if they are able to help customers understand the purpose of their policy and its benefits to them.”
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