the life industry has seen much consolidation in recent years yet the offshore and cross-border market seem to have bucked the trend and enjoyed rapid growth
In recent years there has been considerable consolidation in the life assurance industry, particularly among UK providers, but also internationally. In the UK, this can probably be traced back to the 1986 Financial Services Act which formed the basis of much of the current regulation, and allowed other types of institutions to become involved in life assurance business. It has ultimately seen the demise of most of the innovative unit-linked companies that established in the 1970s and early 1980s.
Over this period we have seen the growth in investor protection and a massive increase in regulation across the board, resulting in increased overhead costs which, in itself, has lead to further consolidation.
Has all this benefited the consumer? It has not prevented corporate failures and industry scandals. Investor confidence has certainly been dented. There has also been a reduction in competition within the marketplace and, to a certain degree, innovation has been inhibited.
One area of the life assurance market that has gone against this trend and where there has been enormous growth in the number of companies and business levels has been the offshore and cross-border market. Despite some recent consolidation, the offshore market has seen rapid growth from the mid-1980s. There has been further real growth in EU cross-border business from the mid-1990s following the introduction of the 3rd Life Assurance Directive.
Many of these firms, both independent and subsidiaries of predominantly UK and EU parents, are significant companies in their own right with billions of funds under management. There also continue to be new entrants to the market.
What are the reasons behind this success? Firstly, there is still an entrepreneurial spirit in these companies with a focus on providing products and services to meet the real needs of their clients. The client focus is predominantly the high net worth individual and those living or working outside their country of domicile. Specialist products have been developed to meet their specific needs that are not generally available from domestic providers, including wealth creation and protection schemes and legitimate tax planning arrangements.
Most of the companies are still of a size where clients and intermediaries are provided with a personal service backed by multi-currency and multi-lingual IT systems that have seen huge investment over recent years.
The regulatory regimes under which many of the companies operate, while both soundly based and thorough in their application, are less prescriptive than many domestic regimes. This allows innovation in both product and fund design while also offering policyholder protection but at a reasonable cost.
Many of the international financial centres in which these firms are based have been the focus of international bodies such as the OECD and IMF in recent times, and there has been the Edwards Report on the Crown Dependancies commissioned by the UK government. Such examination has only reinforced the high standards of governance applied by the regulators and the companies.
The target market for international companies is set to grow further. Two million Britons are set to work abroad by 2020 and 20% of the population over the age of 50 are considering retiring abroad. There were over 500,000 high net worth individuals in the UK in 2002 and this is expected to grow by more than 8% by 2007.
The Association of International Life Offices (Ailo) has been increasingly active over the last year in further supporting the development of this market. As well as raising the profile of the industry both to intermediaries and the consumer, Ailo has been active in lobbying both regulators and tax authorities on key issues and is now a member of the International Association of Insurance Supervisors.
It provides its members with regular market, taxation and regulatory updates to help raise standards across the industry. It has launched a series of tax briefs for both members and intermediaries to assist in the support for clients worldwide as well as a guide on the value of offshore products for UK IFAs. Ailo is planning further support initiatives to help raise standards across the industry.
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