Members of the Association of Financial Mutuals (AFM) that provide income protection products now account for around 60% of claims on individual income protection products (i.e. excluding group business).

The AFM said that while these members currently hold 15% of policies, their “commitment” to paying claims is leading to strong demand for mutual products.

In 2023 AFM members paid out over £70 million in claims to 7,000 customers. This compares to £52 million in claims in 2022. Part of the increase recognises that Wesleyan Assurance re-joined the AFM in 2023. On a like-for-like basis, the amount paid out in 2023 was 6% higher than in 2022.

The most common form of claim was musculoskeletal (38% of all claims). There was also a sharp increase in the number of claims relating to mental health, rising to 11% in 2023 compared to 8% in 2022. This coincides with a new report from the Centre for Mental Health, which indicated that the economic and social costs of mental health rose to £300 billion in 2022.

Around 90% of mental health claims are for stress, anxiety and depression, though claims for PTSD and eating disorders were most costly, averaging £56,000 per claim.

The average duration of claims in 2023 for income protection policies was 68 weeks, though nearly a quarter of claims have been running for over five years.

The AFM said that while the number of people who need to claim is modest, the benefits to those that do can be immeasurable, as income protection allows families to maintain their standard of living during a protracted illness and not rely solely on state benefits. The average value for each claim was just over £10,000. In addition, AFM members also intervene to help claimants recover, and undertook rehabilitation with nearly 600 people in the year.

The proportion of claims approved was 92.1%, up from 91.6% the previous year. The main reasons for claims to be declined were those where key information was not disclosed at the point of application or claim (54%), with a further 26% not paid because the claim did not meet the definition of disability.

Andrew Whyte, chief executive of AFM, said: “According to the FCA’s Financial Lives survey, 6.1% of the population hold an income protection policy. AFM members are becoming an increasingly important part of the market, managing around 400,000 policies at the end of 2023, just under 15% of the market, but they accounted for over 60% of all claims paid to individuals.

“We expect the mutual influence to continue to grow: in 2023 ABI reported total sales of income protection of 247,000, with 57,000 new policies (or 22% of the total) sold by AFM members. Affordable premiums and a greater likelihood of paying a claim are key reasons in the growth of the mutual market.”