Protection providers keep on cutting rates but the market just keeps on falling, with firms vying for market share rather than expanding the sector.Norwich Union analysis shows there have been twice as many rate changes in the first half of this year than in the first six months of 2004. Some commentators believe that every rate cut brings a tightening of underwriting criteria and Lifesearch senior technical adviser Kevin Carr says this “is bringing the industry closer to a preferred life model by the week” and is destroying the market. He says: “Insurance is dull and the application process is growing appallingly long. The more difficult and lengthy it becomes for consumers to buy protection the more sales will continue to fall across the industry.” There has been much written about rate cuts indicating a cheaper market but the bone of contention is that just because the average premium is cheaper, it does not mean the best product is. Carr says: “Across the board, the message is that all the life offices are putting time, resources and money into cutting rates at a time when the market is falling. Sales are down by some 25 per cent, looking at Swiss Re from figures 2004 compared with 2003 and first-quarter sales in 2005 are down on 2004. There is no real activity in expanding the market, for example, bringing new people in.” The market has been falling while new providers have entered into what is already a very competitive space, explains Bright Grey products director Roger Edwards. He says: “Everyone seems to be playing a rather short-term game at the moment and defending their own market share with numerous rate cuts, rather than looking towards the future and finding new ways of growing the market. This short-termism is potentially highly damaging as we as product providers have no option than to reprice to remain competitive.” Edwards says the vicious circle of repricing as a reaction will continue as long as the emphasis is put on price rather than advice. He says: “If this does not change, we might as well all throw in the towel and hand the complete IFA protection market to the non-advice supermarket offerings. I, for one, do not want that to happen.” Chadborn Baker & Kearle financial adviser Peter Chadborn says: “Just because a provider cuts its rates does not necessarily mean we get all excited but if a provider says ‘we have added this to our product’ or ‘we have launched a new product’, that is much more exciting and relevant.” He believes education and product innovation will give a much needed stimulus to the market, saying: “When more intermediaries start recommending on features and flexibility, then providers are going to be less keen to keep cutting rates to gain market share. “There is a lot of talk about the need to change income protection and what is going to happen with critical-illness cover but who is going to step forward and come up with a new product? There is no one at the moment and there needs to be innovation.” Carr says he views providers in two camps – the product players – “those who very rarely will be the cheapest but have far better products, companies such as Scottish Provident, Skandia and Bright Grey” and there are the firms “with very average contracts, with nothing unique about them, such as Norwich Union and Legal & General”. Chadborn has a similar view, noting it is the likes of Royal Liver and Bright Grey, “the new kids on the block so to speak, who are the ones I am always favouring”. He believes that such firms try to make a difference. “Almost without exception, it is the big companies, which go for price, such as Legal & General and Norwich Union. The exception is Standard Life as they always seem to be getting their act together.” Norwich Union pricing manager, risk products, Neil Pine agrees that price is at the forefront and that protection product providers need to continue to develop in other areas. He acknowledges that the market has been changing rates more often than in the past but he stresses that Norwich Union’s products are competitive, irresp- ective of price. He says: “We have a disciplined and consistent approach to making price changes. Price is very important but it is only one of the many things we examine. “In the area of product development, we are always looking at ways in which we can innovaste.” Pine believes that when there is a lot of activity on price it takes away the focus from other protection components. He says: “It is important that we have a quality proposition in all aspects and price is an important part of that. There are more companies competing and providers are adjusting rates more often to make sure they meet their pricing requirements. In addition to this, I think the analysis of premiums is probably more sophisticated now. Some changes can just be finetuning as opposed to cuts in rates.” Carr considers it is time for life companies to support the adviser channel and to expand the market through quality independent advice rather than spending millions of pounds chasing a shrinking market. “If the market expands, then every life office’s market share would increase,” he points out.