Kevin Carr: Is the UK protection market imploding?

Just last week I wrote in these very pages that the UK protection industry might, just might, soon end up with just a handful of serious product providers in the market.

With the news Aegon is considering pulling out of the market we could face a situation where seven becomes two - and that may not be the end of it.

With Friends Provident and Axa (and Aegon?) falling under Resolution's wing, and Scottish Provident, Bright Grey, Royal Liver (and Liverpool Victoria?) thought to be in talks with each other, we could quickly see what once was seven providers become just two, no doubt with further changes on the horizon.

But why now? Why all this activity when the economy is stuffed? It's not as if intermediaries and the wider industry aren't already tied up with RDR, Solvency II and budgets of varying kinds, including yesterday's.

Could it perhaps be the failings of the protection market itself? Are we finally seeing the real cost of the so-called protection price war? Could it be that the margins on writing ever-cheaper life cover are just too small, while sales of better products with better margins, such as critical illness and income protection, continue to struggle?

Everyone - well, almost everyone - has been going for the lowest hanging fruit in this market for too long. In true chicken and egg fashion, everyone blames somebody else ("You started the price war",  "No we didn't, you did") and, at the end of the day, you have to swim with the tide, don't you?

For too long, and at too many levels, the focus has been on selling cheap life cover, even though this isn't the protection that most people need most.

As an industry we aren't selling enough of what our customers need most. Tell this to a retailer from another industry and they'd be perplexed to say the least.

One day we might be left with just five providers in the market offering poorer service and vanilla products, with new entrants put off by the scale of the competition and small margins.

How might this new market shape impact strategically on other parties such as reinsurers and protection distributors? There could soon be as many reinsurers as there are insurers, and does the mass market consumer still need a protection IFA if there are only five similar products in the market?

Someone once said that if you make your own bed you lie in it. Maybe, just maybe, if we'd worked together to sell more of what people really need we would all be in a better place.

Kevin Carr is chief executive of the Protection Review and managing director of Kevin Carr Consulting.