Innovative, profitable and successfully meeting a true social need, the Lloyd’s life insurance sector is rarely in the limelight which is a real pity. Worth less than £100m, not even a half-percent of the market’s overall premium volume, it is easy to see why the five syndicates dedicated to life business fall off the radar. Yet, these underwriters have led the way in developing insurance solutions for those infected with HIV; diagnosed with multiple sclerosis and living as diabetics. Offering tailored policies for individuals and groups who for one reason or another are largely ignored by the mainstream life insurance providers has proven to be mostly lucrative but limiting by its nature.
Lloyd’s has the products and capabilities but evolving a robust growth strategy for life business presents a significant challenge. Since its peak in 2007, the size of the UK long-term insurance market has shrunk back dramatically: by 13% per annum according to the ABI. Consumers’ declining disposable income has led to a collapse in the discretionary purchase of life and pension products. At the high-risk high-premium end where Lloyd’s underwriters generally play, the impact of the financial crisis and recession is even more acute. Major life insurers like Prudential are looking to the emerging economies, especially Asia, for their growth. With similar ambitions, Lloyd’s should be following this trend although its collection of international life licenses is much narrower than on the non-life side so this is a strategy not without its challenges.
Nevertheless there is some good news potentially. The implementation this year in UK of the FSA’s new rules following its review of retail distribution is expected to significantly reduce the numbers of independent financial advisors and deter many banks from selling life products. According to a Moody’s report released in March, mass market insurers like Standard Life and L&G are therefore developing simpler product offerings and investing heavily in on-line applications to reach the consumer directly. This shift to even more commoditized delivery of life products that cater only for standard lives falling within tight acceptance criteria should create a bigger opportunity for Lloyd’s life syndicates who have a wider risk appetite and strong medical underwriting capabilities.
A survey published last week by specialist firm Unusual Risks showed that 78% of people with HIV+ are now aware that they can get access to life insurance; a substantial increase on the figure a year ago suggesting that demand for specialist life cover is growing. Overlooked for far too long, one key to Lloyd’s success, mainly ignored in its Vision 2025, might be to promote more heavily what the market can offer to those under-served by traditional life companies. From tiny acorns it may be possible to build some sort of stake for the London Market in this vast and largely untapped industry.