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Protection price cuts set to peter out after impetus from cash boost

The recent spate of price cuts in the protection industry is due to a technical issue and will “fizzle out” in the next couple of months, claims Legal & General.

The firm’s protection marketing director Alan Ferguson says that the extra margins which have been available to product providers since the FSA relaxed solvency requirements in January have allowed even traditionally less competitive insurers to introduce keener pricing on their protection products.

But Ferguson says protection prices are now set to stabilise because the extra capital generated by the regulatory changes will be used up and providers will be reluctant to cut into their original margins by dropping their prices further.

He says: “Weaker demand for protection resulting from, among other things, lower mortgage volumes, has encouraged product providers to spend some or all of the extra margin available to them from reserve requirement changes earlier in the year on reducing premiums to drive sales and market share.

“I believe that the recent bout of price-cutting action is likely to fizzle out this autumn as most providers are likely to have now factored these changes into their premiums.”

Aegon Scottish Equitable head of individual protection marketing Rod McKie says: “The change in the solvency requirement has helped protection providers and that benefit has been passed on to the customer.”

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