This means less competition and a rise in the number of vanilla products.
Aegon recently announced it is considering pulling out of the protection market - a further sign that providers are reviewing the profitability of protection and finding that margin is so slim, it’s not worth doing.
Kevin Carr, chief executive of Protection Review and managing director of Kevin Carr Consulting, said: “With Friends Provident and Axa (and Aegon?) falling under Resolution's wing, and Scottish Provident, Bright Grey, Royal Liver (and Liverpool Victoria?) thought to be in talks with each other, we could quickly see what once was seven providers become just two, no doubt with further changes on the horizon.
“Are we finally seeing the real cost of the so-called protection price war? Could it be that the margins on writing ever-cheaper life cover are just too small, while sales of better products with better margins, such as critical illness and income protection, continue to struggle?”
Carr says that for too long, and at too many levels, the focus has been on selling cheap life cover, even though this isn't the protection that most people need most.
He said: “As an industry we aren't selling enough of what our customers need most. Tell this to a retailer from another industry and they'd be perplexed to say the least. One day we might be left with just five providers in the market offering poorer service and vanilla products, with new entrants put off by the scale of the competition and small margins.”
Matthew Fleming-Duffy, director at London-based broker Abacus Financial, said: “The protection market in particular has become a basic comparison on price with no real need for you to investigate the company any further than that. But if you think about a mortgage, it’s not just about rate, it’s about criteria as well.
“The problem is consumers are very, very focused on the premium and not on the benefits.”
Fleming-Duffy added that the Financial Services Authority had a role to play if the market was not going to implode as Carr suggested was possible.
“With the likes of Asda, Tesco and a rise in consumer comparison websites coming in to the market, consumers just want to focus on price. And brokers can suffer very heavy questioning by the FSA on why we don’t take the cheapest product for the consumer – they can see higher premiums as detrimental for the customer.”
He points to products such as a range offered by Bright Grey which give the customer access to NHS nurses when they claim.
And he said: “That’s a really great benefit, but if Bright Grey are fourth on the list in price, then it’s tricky.”
He added that questions needed to be asked around the role of supermarkets and consumer price comparison websites and their influencing of consumer behaviour.
“Maybe the moneysupermarkets of this world need regulating?” he suggested.
But Pete Chadborn, director at broker CBK Colchester, said he believed the UK protection industry could stand to lose a few providers, adding that he didn’t believe a reduction in the number of providers would impact on product quality, as currently most providers offered deals which are “much of a muchness anyway”.
“I’m not losing any sleep losing over the number of providers that might be in the market in the next couple of years,” he said.
“I think the greater factor than advisers selling cheap life cover is that the distribution model has changed over the past three to four years. Now you can buy protection with your groceries or online. It’s become commoditised. Consumers have been taught by the industry and providers that cheap is good.
“I think too many brokers haven’t had the wit to combat the price war with online distributers and supermarkets. They followed by selling on price. It’s a self-perpetuating situation leading to a downward spiral.”
