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A hunch on the crunch

The protection market has been caught in the crunch, according to the latest figures from the Association of British Insurers showing a fall of 2.1 per cent in regular-premium accumulation and protection new business for the first quarter compared with last year.

ABI assistant director of media relations Jonathan French says: “It could be this is an example of the credit crunch beginning to bite. People are not as likely, or as willing, to take out this kind of insurance when they are having to pare back on other items of expenditure. It is ironic because it is at times of economic uncertainty that protection insurance is at its most valuable.”

Friends Provident’s protection business for the first quarter has fallen by 12 per cent on last year. The company says this is a direct reflection of the fall in house purchase transactions and mortgage-related protection sales have dropped.

Bright Grey also says mortgage-related business has reduced.

Some might consider that the tightening on criteria by lenders could increase protection sales as lenders require proof of insurance products but Annuity Direct director Stuart Bayliss says: “If lenders and mortgage brokers needed to know you have a life policy that is up to date, usually they let the guy say yes, and no one really checked. When they have tightened before, lenders started wanting evidence.

“This time the whole market has just stopped. If it is stopped, you will not be selling term insurance. What you have had this time is a 30 to 35 per cent reduction in mortgages issued. Well, how much term insurance do you want the remaining 60 per cent to take?”

However, Lifesearch policy adviser Matt Morris says: “We are selling more protection products than ever. What tends to happen, particularly if the mortgage market has problems, is that a lot of mortgage providers and non-advice sellers want to broaden their market by selling protection.”

Morris thinks providers should take some of the blame for the decline in sales.

“There are an awful lot of providers fighting over the existing, and it would seem dwindling, section of the market, rather than working to try to expand it,” he says.

Other areas of the market, which are not so closely tied to the credit crunch, have also seen a drop.

Critical-illness cover has been one of the worstperforming products in terms of new sales.

Bright Grey product director Roger Edwards says: “Critical-illness cover has been declining year on year since about 2002 so I would not read any thing specifically ominous into the ABI’s figures for the first quarter. I do not believe that is symptomatic of the current economic environment. It is symptomatic of the long-term trend in the critical-illness area.”

However, it is worth noting that the ABI’s income protection figures show that sales are up by about £2m. Morris says: “That could well be because people are worried about their jobs and are looking for some form of cover.”

Edwards says: “When the economy is on a bit of a downturn and people are reading doom and gloom in the media, then naturally they become a bit more worried about their financial security and take it a bit more seriously, so will look to protection.”

Bayliss points out that economic downtown has not just affected the housing market but keyperson business is also down because there is been less corporate activity.

Another trend affecting sales, according to Bayliss, is a reduction in the number of people re-brokering.

He says: “The number of people who used to re-broker to reduce their premium has dropped quite rapidly because we went through a period where as long as you were under 45 or were in the first five or even 10 years of a policy you could quite often do better when you came to renew it because rates were falling.

“That has been stopping and there are now relatively few people who come back fora cheaper re-broke.”

But Bayliss says it is important not to extrapolate a year’s worth of bad news from one quarter’s results.

He says: “There are groups of people who are substantially reducing their borrowing and what they will do after that is save.

“I think that group will be in a defensive attitude and that could lead to a significant improvement in protection sales.”

Edwards agrees and says: “You always get that month or two where people have to start reacting to changes so IFAs will have seen their mortgage business drop but they are all starting to take steps now to compensate for that.”


Insurers and wet signatures

Just last month I read that someone has launched a campaign for wet signatures for electronically submitted protection business.

IFAs paying an unfairly high price

It comes as little surprise to read that, now the FSA-orchestrated hindsight review of mortgage-related endowments is finally fading into history, we are seeing a dramatic increase in the proportion of complaints against banks and other big financial services organisations.

World view

It would seem that the expanding fund universe should offer plenty of choice for advisers. However, the fund universe isn’t really growing, at least not as much as one would expect, considering that there have been nearly 500 launches in the past five years. Numerous closures have kept the overall number of funds fairly consistent for much of the past decade.


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