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Polar points to a split sector

Predicting what will happen in the protection market, particularly after such a turbulent year, is never going to be easy but there are some things that we can expect.

Despite some experts predicting Prudential’s severity-based insurance model would catch on, there has been little evidence of it so far. Although certain providers are rumoured to be working behind the scenes on similar propositions, CBK principal Peter Chadborn believes most will wait to see how well Pru’s model does before making any commitments. He believes severity-based payouts could become more common but in a watered-down format.

HSBC has confirmed it is looking at entering the intermediary sector but details are scant and speculation is rife on whether it will offer anything innovative.

Bright Grey products director Roger Edwards predicts the bancassurer will look at launching a simplified version of its direct products.

Many commentators hope the introduction of Solvency II and more relaxed capital adequacy requirements will free greater sums of capital for insurers. Providers may decide to feed back these benefits to customers as cheaper premiums for products such as guaranteed critical-illness cover.

Most commentators expect the price war to continue, with margins being increasingly squeezed and price-driven providers offering cheaper and simpler cover.

But others think the market will become increasingly polarised into two categories – the stack them high, sell them cheap mass-market providers, which include the supermarkets, and advice-led, higher-priced but more comprehensive insurance.

The non-contestability period suggested by the Law Commission for protection will be hotly debated.

Initial findings of the FSA’s Icob review are due to be released in the first quarter. Most in the industry will hope the new Icob handbook will contain fewer rules in line with the FSA’s move to principle-based regulation.

Watch out for the Icob review’s consultation period in the second quarter as many in the industry will have strong views on changes.

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