With the protection sector dominated by giants of the insurance world, Owain Thomas spoke to Cirencester friendly's Paul Hudson to hear a smaller provider's view
Protection market providers are going through a period of distinct upheaval at present.
Although Aegon have confirmed their status in the market after a summer of rumours and uncertainty, Resolution is in the process of pulling three providers into one as it completes the purchases of Axa's life arm and Bupa's protection wing, which will eventually combine with its already acquired Friends Provident.
So how does all this merger and acquisition activity affect those protection insurers not part of giant parent operations?
Paul Hudson is CEO of Cirencester friendly, one of the smaller providers that specialises in the income protection (IP) market, and even more specifically, the niche of Holloway products.
Remarkably, much of this action has largely unconcerned Hudson and he even manages to sound quite upbeat about it.
"Some providers do not see IP as their main focus so we may see some of these products fall by the wayside as a result of providers changing their business focus and we may also see new entrants like Fortis," he said.
"If a provider fails or products are taken from the market, this isn't necessarily a negative. It's far better to have fewer products that perform well and deliver what customers want, than have some in the market not fit for purpose.
"Data from Defaqto indicates there are currently 47 IP products available from 34 different providers. For a market where IP is a challenge to sell and possibly the least understood insurance product, we would be naive to think the market could keep expanding," he added.
Another significant talking point following the government's spending review is the welfare state's withdrawal.
Since the likelihood of this became apparent earlier in the year the market has been awash with talk of co-operation between public and state sectors and the potential for market growth as it seeks to fill the void left by retreating state benefits.
Hudson welcomes the opportunity to work alongside government and to expand IP's reach, however, he is mindful of previous experiences in this area and warns against complacency.
"We must be careful not to fall in to the trap of relying on the government or the relationship with the government, because if the state pulls away, it can have serious consequences for those who rely solely upon it," he cautioned.
"Friendly Societies were the forerunner to the welfare state as from the late 1800's to the introduction of the welfare state in 1945 they offered the only "state benefits" system available. Part of the function of Cirencester friendly in those days was to work with the government at the time and distribute welfare.
"But the Health Act of 1948 took over the business of welfare and sounded the death knell for many small societies, and today, the providers of children's trust funds who very effectively fulfilled a government requirement, have seen to their disadvantage history repeat itself," he added.
Hudson acknowledged that engagement with the government to raise the profile of IP might help make it an easier product to sell, especially given the lack of consumer awareness and pull towards the product.
But he reiterated that the more significant challenge for providers would be to ensure the proposition developed did not result in the IP industry becoming reliant on government for a sustainable business stream.
