The spread of COVID-19 has forced the UK economy into uncharted waters. With a significant contraction in GDP expected due to the lockdown measures, the UK government has unveiled a ‘mini-Budget’ that aims to stimulate growth in different areas of the economy after COVID-19.
The increase in threshold on which stamp duty is paid to £500,000 from £125,000 is one measure included and has the potential to stimulate demand in the life insurance market.
Findings from GlobalData’s 2019 UK Insurance Consumer Survey indicate that buying a new home ranks as one of the top three reasons behind purchasing term assurance, critical illness, and income protection products. With the change to stamp duty expected to help boost activity in the housing market and benefit an estimated nine in 10 buyers, there is an opportunity for the insurance industry to capitalise on, providing that protection products are marketed effectively.
The industry will also benefit as COVID-19 will have increased the awareness and interest in protection products among consumers. However, it should be clearly outlined under what conditions a claim can be made, as coronavirus-related claims will likely be excluded. The stamp duty savings made by prospective homeowners will enable them to purchase homes that were previously out of their price bracket, resulting in a higher amount insured and an increase in premiums.
However, it should be highlighted that the new measures only offer a glimmer of hope and are unlikely to spur the market into high levels of growth, as continued economic uncertainty and employment security concerns will likely weigh heavy on consumer confidence. Instead, the measure is expected to reduce the extent to which the market contracts in 2020 and give some reprieve to life insurance providers, many of whom have been under increased pressure from claims and balance sheet performance due to financial market volatility.