Has the offshore life assurance industry finally developed into a mature industry, or at least in th...
Has the offshore life assurance industry finally developed into a mature industry, or at least in the UK market? Our industry is still young compared to the more established sectors of financial services. The oldest offshore life companies have been around for about 25 years but the majority having been operating for 15 years or less. Consequently, up until the last few years, the market has displayed all the characteristics of an immature market.
Within immature markets all players think that there is room for them. As the offshore industry grew then many UK life offices set up offshore operations with the desire to gain a share of a rapidly growing market. The late 1980s and early 1990s saw many companies set up in the Isle of Man, Luxembourg, the Channel Islands and Dublin.
However, the last few years have seen the market finally mature in the UK. Some providers have pulled out of offshore business entirely, while others have concentrated their efforts on the UK market and have pulled out of international markets. Today, the offshore UK market has polarised into two main camps. At one end of the spectrum there are the companies competing for business at any cost. This end of the market is highly competitive and each participant is attempting to capture a significant market share to make such low margin business viable. It is the commoditisation of offshore bonds. At the other end of the spectrum there are the niche players or those companies specialising on the provision of products for the truly high net worth individual and complementing it with a first class service. An excellent analogy, that demonstrates a classically mature market, is that of the airlines. We now have the budget airlines fighting it out for business at the lower end of the market and cost is virtually the sole determining factor for the prospective passenger. At the other pole are the airlines competing for those passengers who value service and comfort above price.
To the professional adviser the competition at the lower end of the market has seen product charges fall to levels that make offshore life products cheaper than their onshore equivalents. Gone are the days when offshore life offices operating in the UK market were accused by many advisers of having product charges which were excessively high. Many advisers have welcomed this development. However, with the squeeze on product charges, comes a cutting back of the services provided and the ability of the provider to deliver a quality proposition. For clients or their advisers wishing for a better quality of service then a small handful of providers have positioned themselves to meet this demand, albeit with higher product charges.
Of course, a provider could participate in both market segments, but generally have to make a choice as to the type of business they wish to write. The big danger is to those offshore life companies who end up somewhere in the middle and are neither cost competitive nor a provider of quality service. They are faced with the choice of adapting or pulling out of the market entirely.
The cost-orientated and highly competitive lower end of the market will more than likely see a contraction in the number of providers so that in the end no real choice will exist. Will this really benefit advisers and will we see two quite separate offshore life industries in the UK market?
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