New report finds intermediaries in a strong position as direct sales continue to fall
Standard & Poor's has released its annual review of the top 40 life insurers. The report acknowledges the overall strength of the market at present, but warns of problems to be faced, through depressed investment markets, and uncertainty in the UK economy, which is expected to dampen consumer enthusiasm for savings-related life contracts.
The report states that the key areas for success in the next year are likely to be successful positioning in the market and effective distribution of products.
The economics of distribution have altered, with high cost direct distribution increasingly abandoned. IFAs accounted for 53% of sales in the 2000 life market, and direct sales force distribution continues its decline, now accounting for 34% of sales, down from 40% in 1999.
As a result, the report is good news for IFAs.
Paul Waterhouse, Standard & Poor's director and principal author of the report, said: 'Direct sales are perhaps not the optimal way to distribute. Simple products will need cost-effective distribution, such as online. For value-added products, where good advice and getting the right product is crucial, IFAs are in a good position, providing they have the appropriate expertise. While there will always be a role for direct sales it is likely to continue to lose ground to IFAs.'
There has been a lot of consolidation in the industry over the last few years. This has led to polarisation in the market and mid-sized companies and insurers that lack niches are losing market share. Conversely the insurers with economies of scale and specialist market segments are expected to prosper.
Waterhouse said: 'Success is about companies with a narrow product range or market segment, which have real expertise within that sector. The medium-sized companies with no real advantage in any market segment have been squeezed in the past and will be squeezed again.'
Overall, the report states that since last year, the market has shown signs of improvement and the majority of insurers are leaner and more focused than before, although growth is expected to be relatively modest in light of market conditions.
