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‘Life office household names will be crushed by regulation’

Small and medium-sized life insurance companies will be unable to cope with the avalanche of regulation and some could be wiped out, according to a report by consultants Deloitte.

The report, 2005: UK Financial Services at a Watershed, warns that many household names from financial services could disappear under the burden of regulation. It says that by 2010, the industry will have changed altogether.

Head of financial services research and report author Chris Gentle believes increasing regulation such as the FSA’s focus on treating customers fairly, senior management responsibilities and the Sandler review puts smaller firms at risk.

The report says providers with capital strength and the ability to diversify their offerings hold the high ground. Banks have the natural edge and all but the biggest life and pension companies could struggle unless they move away from their traditional with-profits models.

Gentle says: “Adapting to the new regime will drain capital for all types of financial services firm. Success lies in insurers turning their knowledge of longer-term savings products to their advantage.

“Banks will increase their share in life and pensions in response to changing market conditions. With mortgage business at a low, banks have had to increase their business in other sectors. IFAs have a huge share of this market.”

Capital Tower training and compliance officer Graham Clarke says: “I am not negative about the future. The issue is over the fixed costs to the FSA, the FSCS and PI cover which cannot be avoided. I do not think you can start setting targets, though, because that is a recipe for misselling, putting pressure on advisers to push where sales might not be required.”

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