First, Royal London took hold of Scottish Provident and Bright Grey and then Resolution snapped up Friends Provident and Axa. Now Royal London seems on the brink of a merger with Royal Liver and speculation mounts that Aegon is soon to withdraw.
It would seem the protection market is shrinking faster than Fabio Capello’s Christmas card list. Why is this?
The obvious answer is that insurers are not making profit in the protection sector. Aegon’s chief executive said last week: “The UK market is difficult and we are not satisfied with the returns.”
A contributing factor must be the price war that has seen term insurance premiums continually drop over recent years. Insurers can still differentiate their offerings in areas such as critical illness and income protection but the same cannot be said for simple life cover, where price is key.
The Swiss Re Term Health Watch figures for 2009 show life outsold critical-illness cover by more than half a million policies despite a modest rise in CI sales compared with 2008. Income protection barely made it into six-figure sales.
The average new premium for term insurance fell yet again in 2009 to just £373, which is attributable to a slight drop in the average sum assured but also to the competitive market that has continually forced price down.
There is a suspicion that the direct market is having a marked affect on premium, as aggregator sites allow customers to compare providers side by side for life cover and the average premium for direct sales is just £249.
If advisers are worried about a contracting market with less competition from insurers, the onus remains on them to stop trying to compete with the non-advised internet sellers on cost alone. Few other markets would allow the smallest area of distribution to dictate the price – internet sales still only account for around 5 per cent of the total market.
Perversely, the recent emergency Budget was good news for protection sellers as, for the first time in a long time, the Government is being quite open about the fact that the public should not be relying on the state when times get tough.
As the state pension age increases and benefit payment changes are the tip of the iceberg in a forthcoming period of austerity ushered in by the coalition, the time is due for IFAs to return to using holistic protection advice to underpin any other strategies they implement.
Despite recent and forthcoming mergers and takeovers, there remains a strong field of innovative and engaged providers eager for protection business – and we must up our game if we want to keep it that way.
Phil Jeynes is head of new business at LifeQuote, Direct Life and Pension Services