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Race for a piece of protection hots up

With Standard Life&#39s announcement that it wants a slice of the protection

market, this is the hottest new business plan in town.

Scottish Provident has enjoyed a strangehold on the protection market for

the past few years but now it is having to contend with Scottish Equitable

Protect and a bolstered offering from Skandia.

Now Standard wants to jump on the bandwagon and is looking at integrating

its existing protection range with its Healthcare business. A whole new

protection brand could be launched in the same way that ScotEq rebadged its

Guardian business after its acquisition by Aegon in October 1999.

John Joseph Financial Services director John Joseph says: “The insurance

industry is very innovative and competitive and each company will strive to

outdo the other in product development. All these companies coming to the

fore shows the protection market is thriving and I am very enc-ouraged by

it.”

As pressure on margins and profitability on pensions increases from

stakeholder, both providers and IFAs are looking at ways to diversify

revenue streams and increase operations in more profitable business areas

such as protection.

Joseph says: “The industry is growing up. It is realising that for too

long advisers have just been pension consultants and forgetting about being

financial planners. IFAs have been looking to reduce the pressure on their

cash flow and move towards fees from commission.”

Increasing public awareness of the need to have adequate protection for

individuals, their family and standard of living is also cited as a major

cause of the growth in protection business.

Standard Life marketing manager Gerry Warner says: “The Government&#39s

message is that it expects people to take more responsibility for their

welfare. People are more aware that they need to protect themselves.”

Portfolio Insurance Consultancy principal Brian Lentz says: “The

protection market is booming primarily because there is an increased level

of understanding by members of the public that the state will no longer

look after them.”

But the number of people without life cover is still high and the take-up

for some products such as income protection is very low. Providers can see

there is still room for the market to grow and there are a lot of

opportunities for IFAs to assess their clients&#39 protection needs.

Scottish Equitable Protect marketing manager Heather Armstrong says: “We

believe the protection market will continue to grow. Evidence suggests

people are still not taking up full protection cover such as

critical-illness cover and income protection so there is a big opportunity

for IFAs to move into those areas.

“Providers taking a specialist approach to protection can do more to help

educate IFAs and their clients about protection benefits. From an IFA

perspective, people will always need protection.”

The demise of the endowment market has left many people who would have had

life cover included in their policy without cover and the move towards

repayment mortgages means people are having to arrange separate protection

insurance.

Warner says: “People have to buy other products to protect themselves.

They now need stand-alone life cover, critical-illness cover, income

protection and mortgage repayment protection. Also, through pension

changes, people can&#39t buy integrated life cover.”

This is the gap that pro-viders are looking to fill by offering products

on a menu basis which allows the customer to pick and choose different

cover within a single plan.

Standard looks set to follow in Skandia, ScotEq and ScotProv&#39s footsteps

by offering products packaged on this menu basis. ScotEq believes menu

products provide IFAs with the means of building lasting client

relationships with individual and corporate clients and expects that the

protection market will ultimately be dominated by menu-based products.

Armstrong says: “Menu products provide the IFA with a catalyst to revisit

their clients&#39 personal finance or business portfolios on a regular basis

and review their protection needs.”

Products designed on this basis can be administered simply by the provider

and the IFA, making them more attractive to IFAs and product providers.

Skandia senior marketing manager Lynda Cox says: “Companies used to only

sell unit-linked whole-of-life products. But disclosure changes meant it

became a very complicated process, with key features documents and

reasons-why letters. So there has been a move back to term insurance. The

market is picking up its development of new products, all of which are

des-igned for clarity and simplicity and are guaranteed for the lifetime of

a mortgage.”

The regulation surrounding protection is another reason why IFAs will be

keen to reap the growth of protection business. While regulation is driving

some advisers out of the pension market, protection is relatively loosely

regulated.

Lentz says: “Protection is not an area of extensive litigation and is not

terribly stringently regulated. As an IFA, you can talk to your clients

sensibly rather than from a regulatory approach.”

Providers are obviously convinced that the protection market is set to

grow further and IFAs are also hoping this revenue stream will not be bled

dry by regulation and Government restrictions.

Lentz says: “Undoubtedly, long-term care and income protection is set to

grow provided the Government does not start to meddle. Catmarking

protection products will bring all kinds of complications to the market. If

the Government insists on making protection too rigid, it will stifle the

market.”

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