The protection sector has recently lost some leading providers. First it was Canada Life calling time on its individual protection business, followed by Aegon selling to Royal London, and then Aviva merging with AIG Life.
The exits raised eyebrows, with many worrying about the impact on competition and innovation.
The Aviva-AIG Life deal caused the most alarm as AIG had been viewed by many as an innovator and challenger.
It had fostered a culture of innovation and brought many groundbreaking products and services to the market, people claimed, and they feared that AIG’s trailblazing spirit and pool of talent wouldn’t survive the merger process.
The worry in the sector was that AIG’s trailblazing spirit and pool of talent wouldn’t survive the merger process
It’s too early to say how this merger will play out. But some of the concerns raised have come to pass. Dozens of AIG staff, including senior managers, have been made redundant just months after Aviva completed the deal.
The £460m AIG acquisition also attracted the attention of the Competition & Markets Authority (CMA) earlier this year. The CMA launched an investigation into the merger after concerns were raised about “a substantial lessening of competition”. However, it ruled out an in-depth probe following consultation with stakeholders.
The deal was given the green light, paving the way for Aviva to increase its market share with the addition of 1.3 million individual protection and 1.4 million group protection customers to its existing portfolio.
‘Asleep at the wheel’
Protection Guru founder Ian McKenna thinks the CMA was “asleep at the wheel” when it allowed the Aviva-AIG merger.
“They didn’t do their homework properly and they’ve landed the FCA with a problem. Ironically, the CMA is supposed to protect competition and quite literally they’ve damaged it. They’ve now created a scenario where something of the order of 50% of the market is made up of two insurers. That’s not good for providing a competitive environment.”
‘I think — and this could be part of the FCA review — that in some areas the market is stuck,’ says Kevin Carr
The UK protection market is lucrative but cut-throat as insurers battle for a shrinking market share amid an ongoing squeeze on incomes. This has affected their bottom line, making some businesses unviable.
However, experts say the departure of insurers has been happening since the 1990s. Notable names include AXA, Bupa, Old Mutual and Scottish Provident.
“Insurers large and small have always come and gone from the protection market,” says Kevin Carr, protection consultant and MD at Carr Consulting.
“If you look back over 10, 20, 30 years, a dozen or more have left and another dozen have joined. Beagle Street is coming next year and I’m told at least one more.
The exits raised eyebrows, with many worrying about the impact on competition and innovation
“The more important issue is not so much the number of insurers — remember that L&G and Aviva combined is half the market — but the specialisms: Aegon for large cases and business protection; Canada Life for certain lifestyles; AIG for added benefits.
“I also think — and this could be part of the FCA review — that in some areas the market is stuck. There are issues that need fixing but there is no first-mover advantage in fixing them, and you can’t all move at the same time because that is anti-competitive. So, some issues aren’t getting fixed.”
In August, the FCA announced a ground-breaking review of the protection sector. It said it would explore protection products, the competitive constraints on insurers and intermediaries, and potential conflicts of interest in the structure of commission.
The review is the latest in the regulator’s drive to ensure financial services firms deliver fair value and good outcomes for customers.
The UK protection market is lucrative but cut-throat
“Consumers should be able to buy products that meet their needs and provide fair value,” says FCA executive director of consumers and competition Sheldon Mills.
“We have seen indications that this may not be the case across the pure protection market, and we will act if we find the market is not working well.”
The FCA review will start later this year. It is a daunting task — but the protection market needs fixing to ensure more innovative products, better customer service and stronger competition.
Momodou Musa Touray is senior reporter
This article featured in the October 2024 edition of Money Marketing.
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The problems are huge: some are structural, some are cultural.
The structural ones are:
the UK is a mature heavily regulated market where ROI is small in comparison to other less mature/regulated markets;
there is quite a high barrier to admission into the UK protection market from the capital viewpoint; and
as has already been said 50% of the market is dominated by two players.
Culturally, it is a very diverse market with the extremes of Baby Boomers at one end and Gen Z at the other. We are regularly being told the largest seller in the Boomer market is the “Guaranteed Product”, which is a pretty poor value product in my view. For Gen Z, (and I know a few) most of them do not want to talk to an IFA, preferring a machine if they even think about protection at all.
The FCA will pontificate, but ultimately no real solutions will emerge (you cannot force new entrants to enter the market after all).
Kevin Carr is right: what we need at this point is revolution, not evolution.
Perhaps a return to the 80s entrepreneurial spirit, which was driven by radical tax changes is needed. Preferably without the “wild west” that we also had, before I get pilloried (again!).
Reducing the regulatory burden would be a good first step: perhaps the FCA should also review how much difference and benefit its constant changes inflicted on the market has helped competition and ultimately the public?
Well put. I also think the reason is also one of statistics. A life policy is a liability to the issuer which has to be covered by investment. The profit only appears if the insured dies on or before their actuarial life span. With the advances in medical science and the general increase in longevity (yes I know there have been recent longevity glitches) this is a business that really isn’t worth the candle for many and is suited to the biggest of players who can ‘pile it high’.