Following Aviva’s acquisition of AIG’s UK protection business last week, a number of brokers and protection experts have expressed concern that this could result in bad outcomes for consumers.
The acquisition by Aviva followed Royal London’s purchase of Aegon’s protection book earlier this year, and some experts voiced concern that a protection market made up of a handful of mega-insurers could herald the death of innovation, higher prices, and a stagnant, undifferentiated marketplace.
Speaking with Newspage, Richard Campo, founder of Rose Capital Partners, said: “With a reduction of players in the market, I am worried this could potentially drive prices up and mean the protection gap widens even further.”
Stephen Perkins, managing director at Yellow Brick Mortgages, was concerned that less competition could mean less innovation.
He added: “With every lost seat at the table, there is less competition and less need to innovate and challenge the norms, so the market as a whole suffers.
“The protection market needs a shakeup, especially to provide cover for those who are not perfectly healthy at the time of application.
“While we have smaller insurers, such as Vitality who are unique with their Serious Illness rather than the Critical Illness policy, Guardian, the Ferrari of critical illness plan definitions, and specialists like Exeter helping clients with managed health conditions, the major insurers such as Aviva, L&G, LV=, Zurich and Royal London are all much of a muchness.
“Sure, they will each have the odd GP helpline or some extra add-on that is unique to them, but overall, their policies and pricing do not vary much, and that lack of differentiation is the worry. It could result in bad outcomes for consumers.”
Scott Taylor-Barr, director of Barnsdale Financial Management, agreed.
He said: “Sadly, I feel that consolidation in this area of the insurance market is not great news for advisers or clients.
“As we get fewer and fewer choices, we also get fewer and fewer options for more complex situations.
“While consolidation can drive down costs, this only helps those that are considered ‘good risks’, namely young and healthy individuals.
“Those looking for cover later in life, with more complex medical histories or ongoing conditions, or with high-risk jobs or activities, could find themselves paying a far higher price than today or being excluded from cover completely.
“The market will need some smaller, more specialist insurers within it to properly underwrite and support those that fall outside of the mega-insurers’ ‘computer says no’ model.”
Gary Bush, financial adviser at the MortgageShop.com, also believed the latest act of consolidation could have a negative effect.
He added: “Having seen consolidation happen a lot over the decades, it is likely to have a negative effect on the protection market.
“Although these particular providers ran on roughly the same underwriting basis for price, they had a different monthly pricing structure, often less for AIG.
“To lose two main providers of life cover in 2023, having seen Aegon get purchased by Royal London earlier in the year, should create concern over both the competition and varied underwriting conditions.”
However, Sabrina Hall of Kind Financial Services, was not as concerned: “While consolidation and therefore less choice are often a bad thing for consumers and advisers, in this case I think it’s less likely to have a significant impact on consumers.
“The reason for this is that Aviva and AIG had similar underwriting rules so I don’t feel that we will suddenly see tightened criteria and less choice with these two particular brands consolidating.”
Paula Steele, director at London-based specialist life insurance broker, John Lamb Hill Oldridge, said: “We will miss AIG as their underwriting is more responsive to clients’ actual circumstances.”
Simon Bridgland, director at Release Freedom, suggested fewer providers could actually be a positive as it would make protection less daunting.
He said: “Too much choice can sometimes be a turnoff for some and could deter them from starting to look at purchasing cover as it might be seen as a faff or simply too confusing.
“Consolidation does help many buyers, as they want something, a process, a choice that is easy to make. It could mean more people get plans put in place if it seems less daunting.”
But Michelle Lawson, director at Fareham-based broker, Lawson Financial said the real issue around the lack of insurance is the scepticism among the public that insurers will pay out, something they should urgently address: “In my opinion, insurance companies need to reverse public opinion that they are anti-payouts and do everything they can to avoid dispel this perception, and sooner rather than later.”
