Swiss Re’s Term & Health Watch 2008 and 2009 reports throw up some figures indicative of this trend.
Friends Provident is ranked third in the list of biggest providers by term insurance sales in 2007, selling 137,259 policies, and had been number three in the life insurance category throughout 2005 and 2006. But in 2008, the company lost some ground and fell to number five, selling just 91,789 policies, to be overtaken by Scottish Widows and RBS.
Similarly, in the critical-illness cover market, Friends Provident fell from the top five altogether in 2008, having occupied the number four spot from 2005 to 2006 and the number five position in 2007.
On the income protection side, Legal & General, number four in 2005, third in 2006 and fourth in 2007, dropped out of the top five list of providers in 2008. HSBC took the number one spot, having previously not featured in the top five.
Swiss Re life and health technical manager Ron Wheatcroft says he is seeing companies outside the top five grabbing more market share from the traditional players.
“Axa, Bright Grey, Royal Liver, Bupa and Aegon are all doing very well. I think it is partly because we are seeing more business insurance in the intermediary sector, such as keyman insurance,” he says.
Wheatcroft believes some of the bigger life insurers have suffered from exposure to the declining mortgage market, which has in turn led to a fall in protection sales.
He says: “It is very encouraging that we have more competition in the market. There are innovative ways in which these newer players are coming into the market.”
In the income protection sector, he says there is a lot of healthy growth by mutuals and friendly societies such as Exeter Friendly and Cirencester Friendly because advisers like their products.
However, he notes there is usually only one new player a year entering the top five.
He says: “The firms at the top have got very big numbers and we would expect them to remain there. Those that can successfully harness the bank channels could do well.”
Le Beau Visage managing director Peter Le Beau says it is relatively easy for providers to take market share in the term insurance market if they go in with a cheap proposition, as it is a commodity product, but it is much harder to gain ground in the CI and IP sectors.
He says: “If some of the bigger companies go a little bit stale, there is an opportunity for companies like Prudential and Axa to come in. A lot of IFAs rate them highly but the traditional companies will not give up the fight easily.
“The danger is that traditional players are seen as being a little bit bland. I am not saying they are, but they could be seen like that.”
PruProtect director of protection Kevin Carr says there does seem to be a trend towards placing business with Axa, Fortis and other newer providers. He says: “There is definitely some movement away from the established providers, perhaps because it is easier for newer companies to be different. It is the oil tanker analogy – newer players are more nimble and can make changes more easily and introduce new products.
“Legal & General and Friends Provident seem to be falling off the most but are still the market leaders by a long way.”
Carr expects this trend to carry on in line with continuing innovation.
Master Adviser IFA Roy McLoughlin is glad to see the dominant players losing their grip on the market and welcomes increased competition brought to the market by the likes of Fortis.
He says: “Competition is healthy in the majority of cases and it gives the traditional insurers a bit of a kick. What you do not want is a price war, but I do not think it is about that. It is more about different and innovative new products.”
McLoughlin adds that, innovation aside, the newer providers are often better at engaging with IFAs.
He says: “Marketing and communication is vital. Most IFAs are one or two-man bands who will place business with the companies which bother with them. Pru, for example, are all over us.”
He feels that IFAs are not put off by less established firms so long as they have financial strength behind them.
However, Aviva protection director Richard Verdin does not believe that innovation is the reason for newer companies gaining market share.
He says: “There is a trend towards two-year clawback periods and companies which focus just on protection. But it is not a smooth run, it is sporadic, there are ups and downs in that trend.
“For some time, Aviva has not been a specialist in the market but its intention is to specialise in protection.”
Friends Provident head of protection sales Ed Stuart-Brown says the new entrants will gain some ground but it is not a long-term trend he is worried about.
He says: “There are certain parts of the protection market we have deliberately pulled back on because we started not to make much margin on it.
“As one of the more established players, we welcome new entrants as it stimulates innovation. I think in the long run, you should not watch the waves but the tide. The winners will be those with the proven scale, the right platforms and technology.
“It is great coming in and starting afresh writing new business but at some point this will turn into claims.”
Stuart-Brown says Friends Provident’s strength is in its long relationship with distributors and its deep understanding of the market.
Legal & General protection PR manager Joe Wiggins says income protection is not a key sector for L&G and it tends to focus on life insurance and CI cover.
He admits the decline in mortgage business has affected protection sales but says L&G gets a lot of business from IFAs.
Wiggins says: “There are areas of the market where smaller players are chipping away but I do not think we have ceded ground to any other providers. We are always looking to fight back. We focus on what we do well – core products with good value. We cannot compete with every single provider and every single product at all times.
“There are no plans to go off on tangents and introduce some of the newer things like severity-based products.”