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The British life insurance industry is re-reading reality

 


In the early 1960s, Lewis Rolfe, a Prudential employee working at the company’s headquarters that was then located in London, was sent as part of his training program to conduct door-to-door surveys about the quality of life of agents for the insurance company. In the East Midlands. Rolf spent a week wandering the streets with what they called "Men from the Pru", taking out insurance premiums in Sheffield, at that time Britain was still the dominant industrial country, and for the crowds of working-class families. Salesmen were synonymous with saving on expenses like funeral ceremonies. "That's why the agent had to be a friend of the family," Rolf remembers. "If clients need any advice outside of their fields, this is where they offer their help." And if they needed a lawyer, for example, given his contacts within the business sector, he might be able to make a suggestion in this regard, as the matter was almost like a roving Citizens Advice Bureau. But as Britain turns into a service economy, life insurers like Prudential have discovered that they cannot continue to count on such warm and comfortable relationships. Nowadays it is facing a harsh new world, in which its reputation is tarnished, and its traditional role is challenged by more active and lighter competitors. Its business model, which since the demise of the role of the direct sales groups, relies to a large extent on paying exorbitant sums to payment intermediaries to sell its policies, is under attack by the supervisory and regulatory authorities. The FSA is expected to present proposals this week that could push the industry away from the practice. The mafia of British life insurance companies means a lot to the stock market, just as much for shareholders and decision-makers. With a sum of one trillion and 200 billion pounds under management, it controls about a fifth of the shares traded on the London Stock Exchange. With its bright history and access to a mature domestic market, even if it is still in the process of growth, the British life insurance companies are bound to dominate this industry. But over the past 20 years, it has been continental European countries that have produced national "insurance champions" such as the French AXA companies, Germany's Allianz, and the Italian "Gazali". Aviva, the largest British insurance company by market value, is the sixth largest insurance company in Europe, and does not even appear among the top ten insurance companies in the world. AXA chief executive, Henri de Castrier, states unequivocally, that life insurance companies "shot themselves at their feet" through mismanagement and wrongful selling, allowing their competitors from overseas to rob their clients. The roots of the crisis of life insurance companies go back to the demise of the so-called profit-bearing policies. For decades, these complex and ambiguous products represented the true pillar of the British life insurance sector, which had enhanced the return on investment for holders by setting aside a portion of the returns in good years to support policies, when their performance was poor. In times of high inflation and tumultuous money markets, with the money that was invested in stocks, they were making good profits, but with declining inflation and three continuous years of stock market collapse between 2000 and 2003, the policy returns dwindled, and policy sales fell with the profit falling. Great. Likewise, confidence in the life insurance industry has been undermined by a series of mis-selling scandals, and the crisis at Equitable Life in 2000, which led to the loss of more than a million policyholders worth billions of pounds, when cooperative insurance companies came to the brink of collapse. In response, regulators have accelerated their oversight of the industry. According to de Castrier: The vicious circle of mis-selling scandals, which was followed by excessive oversight measures, has led to a situation in which margins in the United Kingdom are structurally lower than the rest of the world. But with the life insurance companies fighting to save their reputation and adapt to the reactions of the supervisory bodies, there were other changes that appeared in their heads, as the developments that took place in the markets of the United Kingdom and Australia imposed regulations that currently enable savers to invest in the long term, to save for retirement. Without resorting to the life insurance departments. Through these so-called "platforms", individuals or their enterprises can put money in thousands of investment funds in ways that ensure tax efficiency. This represents a challenge to the traditional role of life insurers, which revolves around packing items in the form of long-term savings or a retirement product. And when it comes to saving investment money through these schemes, there is little to differentiate life insurance companies from other savings subject managers. If life insurers think they are entitled to the business because of some historical reason, they are wrong, says Nir Caslett, an independent life insurance analyst. There is one option, which is for life insurance companies to run their own platforms, and at the forefront of this system is "StandardDrive", the former cooperative insurance company, and Trevor Matthews, head of British retail division at Standard Life, says I think these platforms are the solution. And others can stick to one area that is consistently good business for life insurance companies, and that is death.

Of course, its business is called life insurance, because the living are undoubtedly going to die. And insurers still have a competitive advantage when it comes to managing the known mortality risk of death. This means that it is in a good position to provide policies that pay money, in the event of the death of an individual within a specified period of time. And other similar financial services institutions still have to catch up with insurers, when it comes to managing seniority - the risk that people will live longer. This is a mandatory issue when providing annual premiums - contracts that commit to pay policyholders, income until their death. And as life expectancy increases, this experience will become entirely precious. Another option is to bypass the UK entirely and focus on overseas life insurance markets, some of which have faster growth rates, tax systems, and stable legal and regulatory environments. Prudential is facing pressure from some investors to sell or reintegrate its British life insurance arm, and thus the group left the door open to the division's future separation. One of the ways UK life insurance companies compete is by offering huge pre-paid commissions to brokers in exchange for marketing their products. However, this practice is the subject of attack by the supervisory authorities, on the pretext that it leads to erosion of the capital vessels of insurance companies, and may harm customers. The FSA conducts audits of the way retail investments are distributed, including long-term savings and pensions. Her proposal could result in the industry turning away from prepaid commissions, which would lead to more frenzy. But at a time when MAN FROM THE PRU and his family may be in decline, British life insurers - whether thanks to size or because of autism - are unlikely to disappear anytime soon. Neil Bendouf, partner at LEK Consulting, believes that the income UK life insurers have derived in the past means they are facing a "gradual demise". Roman Sezden, an analyst at Uriel Scutis, said he remembers talking to an investor around 1980. He was so excited that a stock broker, an insurance expert, told him that the life insurance market in the United Kingdom would be like the US market in which all the mutual funds and the life insurance industry had perished. It was the beginning of the eighties, and nothing of the sort has happened until now.

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