The Financial Conduct Authority (FCA) is hopeful that exits and entries into the protection insurance market will drive “dynamism,” but the regulator is also alive to the risks of protection gaps emerging.
This is according to Ed Smith, FCA director of competition (pictured furthest left) who was responding to a question from Health & Protection at the Association of British Insurers (ABI) annual conference.
When asked specifically about adviser concerns that HSBC Life’s closure to new protection business following its acquisition by Chesnara had left the market bereft of a strong brand, Smith pointed out that the FCA’s Protection Market Study interim report did not find any particular problems with competition in the sector.
Just this morning, a further market consolidation was announced with news breaking that OneFamily and Scottish Friendly are to merge.
“We found a good variety of products,” Smith said.
“We found a good variety of providers – both at the intermediary and insurer level.
“Obviously, HSBC has left the market, but we have seen evidence of entry in the last ten or so years into the market, so we would hope there would be some dynamism like that in the market; entry and exit coexisting. That can be a sign of healthy competition in and of itself.
“Margins aren’t particularly high in this industry. We didn’t find insurers earning significant margins, so you would expect to see some degree of entry and exit given that.”
Product gaps
But Smith added product gaps in the market were “interesting” to note.
“It’s interesting to note your comments about the products and the product range,” Smith continued.
“Generally we found that there was a good range of products, but it may be that there are gaps in particular areas and that would be interesting to note if that’s what you’ve found.”
Picking up the point, Jo Miller, managing director of the Income Protection Task Force (IPTF) (pictured second from left), added: “When you’ve got market consolidation and you lose products with particular features, that gap needs to be filled.
“Who’s going to do it if they don’t see the advantages of doing it or they don’t feel that the regulator is not backing them, so I do feel that we do need to address that.”