Life InsuranceApr 22 2016

Lifecos: Back to life?

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      Lifecos: Back to life?

      Life companies are an integral piece of the financial industry jigsaw and have been for a long time. The concept of life assurance dates back more than 1,000 years although Equitable Life, which formed in 1762, is regarded as the first UK life company. Despite its well-documented demise, which culminated in the firm ceasing trading in 2000, its approach provided the framework for how life companies still operate today. It spawned the emergence of 379 authorised life companies in the UK, of which 200 are UK-authorised and 179 headquartered in another European country. The importance of lifecos to our world today should not be underestimated. According to the Association of British Insurers’ (ABI’s) UK Insurance & Long term Savings Key Facts 2015, the UK is the third largest insurance and long-term savings industry in the world, behind the US and Japan, and the largest in Europe. In addition to this, the UK insurance and long-term savings industry generates 24 per cent of total EU premium income.

      But the latest raft of government changes, particularly relating to pensions, have delivered a series of challenges that life companies must tackle to survive. The banning of commission through the RDR has impacted many retail life companies, which rely on the IFA market to drive new business. If these challenges can be turned into opportunities, then lifecos can continue to establish themselves as successful advice and product providers.

      So how are life companies coping with the changing advice world? And can these regulatory demands actually enable life offices to flourish like they did in the past?

      Mutual understanding

      Mutual companies are rare today, but years ago it was a different story. After several large companies demutualised in the 1990s, questions were raised as to whether the traditional strategy and set-up of a mutual company could continue to operate successfully in the financial marketplace. Steve Webb, former pensions minister and now director of policy at Royal London, says recent legislative changes have been hugely beneficial for mutual companies. He says, “The biggest change was on 1 January, when we were able to make all of our workplace pension customers members of the mutual. So instead of membership being a rather quaint historical thing, slowly dying as with-profits worked its way through the system, suddenly in a few years time we expect to have a million members.”

      Opportunity or obstacle?

      Pensions have long been a staple for lifecos. From traditional with-profits retirement annuities, group schemes and Sipps, product ranges are continually adapted and widened to reach out to consumers. However, recent changes have been received with some pessimism and also some optimism, as potentially being more suited to the current needs of consumers than older offerings.

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