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Consolidation in insurance market "could result in bad outcomes for consumers"

Journalist: Newspage Admin

ended 04. October 2023

Following Aviva's acquisition last week of AIG’s UK protection business, a number of brokers and protection experts have expressed their concern that this could result in bad outcomes for consumers. 

The acquisition by Aviva follows Royal London's purchase of Aegon’s protection book earlier this year, and some experts are concerned that a protection market made up of a handful of mega-insurers could herald the death of innovation, higher prices and lead to a stagnant, undifferentiated marketplace.

According to Richard Campo, founder of London-based Rose Capital Partners: “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 Norwich-based Yellow Brick Mortgages, was concerned that less competition could mean less innovation: “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 Leicester-based broker Barnsdale Financial Management, agreed: "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 Potters Bar-based MortgageShop.com, also believed the latest act of consolidation could have a negative effect: "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 Lichfield-based Kind Financial Services, was not overly 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.”

But 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 Canterbury-based mortgage broker, Release Freedom, suggested fewer providers could actually be a positive as it would make protection less daunting: "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.”

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8 responses from the Newspage community

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Stephen Perkins
Managing Director at Yellow Brick Mortgages
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.
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Michelle Lawson
Director at Lawson Financial
The proof is in the pudding here and it is tricky with 2 well known household names. It has been successful in the past when Axa, Bupa and Friends Provident merged to become Friends Life before Aviva took over. They took the best of each policy and made an excellent market leading policy. The protection market needs a lot more innovation and it isn't about the number of conditions but the likelihood of paying out at claim that matters. In my opinion, insurance companies need to reverse public opinion in that they are anti-payouts and do everything they can to avoid dispel this perception, sooner rather than later.
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Simon Bridgland
Director at Charwin Private Clients
Reducing the number of insurers available in the market could be seen as a negative if it was a truly magnificent product that was disappearing. One less vanilla offering is nothing to lose sleep over. If any remaining insurer was really excited about a particular feature or benefit for the end user that they could scoop up and take to market, they would certainly scream about it if they were the only ones to offer such a thing. Having competition amongst insurers is of course needed but only if it truly does benefit the end user. 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 which is easy to make. It could mean more people get plans put in place if it seems less daunting.
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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
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.
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Sabrina Hall
Mortgage Adviser & Protection Adviser at Kind Financial Services
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.
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Gary Bush
Financial Adviser at MortgageShop.com
"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.
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Richard Campo
Founder at Rose Capital Partners
With a reduction in the market, I am worried this could potentially drive prices up and mean the protection gap widens even further. It is hard to say what is a good number of providers. I believe it is all about being able to compare benefits/underwriting decisions and pricing. Now the market is fine, but will it be in 5 years’ time? Who will be around still? The market will potentially stagnate in the future and I fear insurers will lose that competitive spirit. I am hoping the insurers will keep clients at the forefront of things. New innovations are vital from insurers going forward. I really like Vitality’s reward scheme, but clients can sometimes be put off by the policy interaction to get some of the rewards. I think insurers need to focus on medical underwriting and become a little clearer regarding critical illness definitions just like Guardian have done. I will miss AIG, because as an adviser I never had an issue to get hold of them.
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Paula Steele
Director at John Lamb Hill Oldridge
We will miss AIG as their underwriting is more responsive to clients' actual circumstances. We arguably now have more re-insurers than insurers, and desperately need more innovation in the market. We would like to see single premium 7-year decreasing term for IHT, we would like to see term insurance to age 99 (as we can buy in the international market), we would like a joint life second death term contract running to a termination age of the younger life not the older life as at present, and we would like to have a contract with limited premium payments so you could have whole of life but with premiums ceasing at age 65/70. We would also like to see far more innovation around providing cover against U.K. liabilities for non-residents.