With Standard Life's 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
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's
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' 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
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't 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's 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' 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
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
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