Does Aviva’s purchase of AIG benefit the UK Protection market?
The major headline this morning is Aviva acquiring AIGs UK Protection business. After much speculation across the market it comes as no surprise that AIG are selling their protection book. The deal, expected to close in the first half of 2024, will add a further 1.3m individual and 1.4m group protection customers to Aviva’s client book. Whilst this may be good news for Aviva, is this really good news for the protection market as a whole?
AIG were one of the few insurers doing something different, particularly in the critical illness market. They are also one of the few insurers to really specialise in high net worth and business protection and in this sense, Aviva’s purchase of the business could help them build in an area where they are not traditionally strong.
My biggest concern is what impact this will have on competition in the UK protection market. Will this deter insurers wanting to enter the UK? It certainly reduces current competition as Aviva, alongside Legal & General, already hold over 50% of the protection market. Are insurers who are looking to enter (or indeed re-enter) the UK protection market likely to be concerned about their ability to compete against such dominant insurers?
The next question is what will happen to the staff currently working at AIG? The statement from Aviva is understandably light on detail at this stage and we expect further announcements going forward on how the transition will work. Aviva are currently making the right noises but inevitably with things like this talent will come to the market, naturally Protection Guru will support as much as we can.
Last week revolved around a ‘Dear CEO’ letter sent by the Financial Conduct Authority (FCA) to all insurance companies. This letter brought to the forefront several noteworthy issues and has undeniably sparked extensive discussions within the protection market.
One of the primary concerns highlighted by the FCA pertained to the poor response times for claims processing. This particular matter has long been a cause for concern here at Protection Guru. We are keenly interested in observing what the FCA intends to implement to enhance this critical aspect of the industry. Additionally, the letter drew attention to the fact that, although insurers have been taking measures to identify and rectify improper broker behaviour, the FCA believes that these could have been acted upon sooner.
Regarding the concept of fair value, the FCA specifically focused on reviewable premiums particularly for whole-of-life insurance policies. We’ve heard numerous concerning accounts of substantial premium increases during policy reviews, putting clients in a dilemma where they must either reduce their coverage (resulting in underinsurance) or pay a hugely inflated premium. In many cases this results in the policy lapsing all together. Personally, I am not a fan of any premium type that increases based on either market conditions or age as significant price increases always happen at the time in a client’s life when they need cover the most.
Perhaps the biggest area of concern for the protection industry was the focus on commissions and linking these to “unnecessary product churn”. This has once again sparked the debate about whether commission is fair and has led to a response from the Protection Distributors Group defending the levels of commission paid. In their open response to the Dear CEO letter the PDG state “While we feel that the commission received by our members is a fair reflection of the value we add to the process, and that adjusting long- established commission structures will almost always cause unintended consequences, we stand ready to help the FCA better understand and differentiate in its regulation of this area.” Given the impact that removing commission has had on the Australian Protection market there is understandable concern from protection advisers and we will follow any progress in this area closely.
The FCA concludes the ‘Dear CEO’ letter by stating that a “significant portion of our efforts over the next two years will involve assessing firms against our priorities and expectations.” This signals that insurance companies will be closely monitored with regard to the issues raised. The letter also notes that insurers must take all necessary actions to meet these expectations and prepare for the additional requirements introduced by the Consumer Duty. The Senior Managers & Certification Regime will be employed to engage directly with accountable individuals in areas of concern, placing key personnel at each insurer in a position of scrutiny.
On Thursday evening the team at Protection Guru had the pleasure of being finalists at the Money Marketing Awards, an evening of glitz, glam and celebrations, it really was a fantastic event. What was great to see were so many individuals, companies and providers being recognised within the financial industry. A huge congratulations to Paul Reed and the team at Vita for winning ‘Best Protection Advice Firm’ and Aviva for winning ‘Best Protection Provider’.
