Sales in the protection market are still booming as critical illness and term assurance sales rose b...
Sales in the protection market are still booming as critical illness and term assurance sales rose by over 30% last year, but consumers may pay a heavy price when regulation is introduced, says Swiss Re Life and Health.
Sales figures were compiled from over 70 UK-based protection and life product providers for this year's Term and Health Watch 2003 to reveal over 2m term assurance policies were sold in 2002, a rise of 30.6% over 2001, at a time when investment and pension premiums have fallen.
Critical illness policies saw the largest change as over 1.16m policies - 1m of which were accelerated policies - were sold compared to 871,000 in 200, again a rise of almost 34%.
Sale of income protection policies were up almost 20% to 245,000, but IFAs only managed to increase sales by 18.5%.
But threatening the stability of protection take-up is the introduction of FSA regulation for protection products, suggests Ron Wheatcroft, technical manager, says even though introduction of FSA regulations on such products are designed to improve conditions for consumers, the likelihood is it will in face make matter worse.
"Ironically, for consumers, the biggest risk that the introduction of regulation could bring is a structure where the rules are disproportionately biased towards consumer needs and protection, and against a regime which enables them to access the market readily," says Wheatcroft in his assessment of market developments.
"Intermediaries, subject to regulation for the first time, will have to consider whether they remain in the market and what their proposition might be. Disproportionate regulation poses two threats to consumers: an initial consequence will be the withdrawal of distributors who consider the market to be too uneconomic or are unable to meet the standards required," he continues.
"Ultimately, consumers will pay the cost of regulation through increased insurance premiums. There are disturbing parallels with the way in which regulation of investment business has evolved and a real threat that the problems for consumers could be replicated if overly-detailed regulation results in many distributors exiting the market," adds Wheatcroft.
Distribution figures also gathered by Swiss Re Life and Health suggest IFAs still hold the largest chunk of market share for term, CI and income protection policies, as all three sectors made up almost half of all product sales through independent advisers.
|IFA sales||2002||2001||% change|
|Individual term assurance||904,946||653,498||38.5|
|Individual critical illness||571,382||402,100||42.1|
|Individual income protection||116,302||98,138||18.5|
That said, while whole of life policy sales rose by 13.5% to over 254,000, the bulk of distribution went through direct mail packages, and IFAs only took 15% of WOL distribution.
More than half of all new policies were mortgage-related, stresses the report, except in the case of critical illness, which tends to suggest the financial services industry is too dependent on the housing market to generate new business, says Swiss Re, particularly given that a downturn in the housing sector could then have a negative impact on protection take-up.
According to research conducted by Swiss Re, statistics suggests there is a Protection Gap - alongside the Savings Gap - of around £2trn between the amount of term assurance cover consumers hold and the amount they should have in place, while the income protection gap stretches to £130m.
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