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The group warned that failure to act would result in the gap between the level of income protection currently in force and the total amount needed by the UK working population to protect against injury is increasing.

The warning has been made in the latest edition of Swiss Re's Term and Health Watch report, which examines the level of individual protection business written in 2007.

It revealed that almost all individual protection products suffered a drop in sales in 2007. Income protection suffered the greatest fall, with 111,780 policies sold in 2007. This was down 14.3 per cent since 2006.

Critical illness policy sales in 2007 were, meanwhile, down 8.2 per cent on 2006. The products' sales totalled 536,143. Over 1.5 million new term assurance sales were made in 2007, a fall of 6.1 per cent with 2006.

Overall, the only growth area was whole life sales which amounted to 219,362 new policies in 2007, up 12.4 per cent on 2006 figures.

As a result of declining sales, Swiss Re said that the income protection gap in the UK has increased for the fifth year in a row to £190bn of annual benefits. This compares with life assurance protection gap which has remained stable at £2,300bn in sums assured.

Mark Johnson, head of marketing at Swiss Re's UK life and health reinsurance operation, said: "The life industry cannot use a perceived lack of consumer demand as an excuse not to raise people's awareness of the need for income protection.

"As sales of new individual income protection policies continue to decline, leading to increases in the size of the income protection gap, the industry must face up to the fact that this product is now in the 'last-chance saloon'.

"Fundamental changes are needed to ensure that it does not disappear altogether, and the industry as a whole must promote the benefits of income protection if we are to make progress in helping consumers help themselves."

As a result, Swiss Re has called on product providers to develop new simplified, mass market propositions for customers, and distributors to establish new distribution channels, particularly to reach the customer direct.

READER RESPONSE ON EMAIL:

Evan Owen, chairman, IFA Defence Union:

"Are we at all surprised? The problem lies with the regulator. Call it strangulation by regulation, added to the downward trend is the PPI scandal, a product which people confuse with income protection."

Roger Holloway:

"I can tell you why these policies are not sold and that is claim rejection and underwriting. I always include the plan in a protection portfolio for client, but you have to be very careful on description of occupation and what is required by the client of the plan.

"The last enquiry I had for this I did a full page screen by email to a new client with all of my thoughts and I never had a reply to that. These plans worry me because of small print and understand of the words in the legal contract."