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PERSONAL FINANCE
Insurance Price War
If your household budget is stretched, don't drop your life and protection insurance.
Instead, shop around for a bargain, writes EUNAN O'CARROLL of Friends First
A
t a time of unprecedented economic
uncertainty and continuing deterioration in consumer spending, it is
interesting to assess the impact of
these events on today's typical household
budget. There can be no doubt that purchases one might have seen as a necessity
in a normal economic environment are
rapidly becoming luxuries. The conditions that we are living in have put many
of these purchases beyond the reach of a
growing number of ordinary families and
households throughout Ireland. While
this may be understandable in the context of consumption of white goods, luxury food products and lifestyle spending,
it is a very different story when the extent and impact of these significant cutbacks on health insurance, life assurance
and other essential financial products is
evaluated.
The recently published Quarterly
National Household Survey from the
Central Statistics Office has thrown up
some alarming statistics. These should
herald a signal for a root-and-branch
review of how the financial services
industry in general is remaining relevant
and connected to the ordinary man in the
street. Overall, four-fifths of households
have cut back their spending on at least
one out of a list of typical everyday items.
The list includes groceries, clothing and
footwear, health insurance, pension
contributions, holidays and going out,
club membership and extracurricular
classes, for both adults and children.
Downward Spiral
When it comes to insurance, health
insurance spending has been cut in 15%
of households while 11% have scaled
back their pension contributions.
Contrast this new consumer dynamic
with the current activity in the financial
services industry. Life companies are
engaged in a price war, with a downwardspiralling momentum in the cost of life
assurance insurance. Allocation rates –
38
Business Plus March 2012
financial products that most households
would have considered necessities in the
Celtic Tiger era.
While shopping around for travel
insurance, groceries and utilities is
commonplace, there still appears to be a
certain degree of apathy when it comes
to the restructuring of the typical
household insurance portfolio. It seems
that those households that do experience
financial difficulties make the decision to
cancel valuable cover and protection.
This is instead of searching for discounts,
offers and bargains and taking advantage
of the price war at play in today's
marketplace.
Pricing Gimmicks
Eunan O'Carroll: 'Shop around for
cheaper premiums'
i.e. the percentage of the premium that
actually goes into the retirement fund –
are now at levels never seen before. Some
companies are even offering as much as a
107% allocation to attract new business
from consumers.
This style of irrational behaviour from
life companies presents exceptional
opportunities for customers to benefit
from real value on the cost of protecting
their family and income and, indeed, in
providing for their retirement. Never
before has there been such a compelling
argument for consumers to engage with
an independent financial adviser for
assistance. The opportunity is wide open
to shop around for cheaper premiums for
It appears that some life companies are
more focused on pricing gimmicks and
artificially inflating market share than
remaining relevant to consumers.
Instead, firms should invest in educating
consumers on the benefits and risks of
providing (or not, as the case may be)
adequate protection for one's family and
income, and ensuring that retirement
provision is in place, which would mean
greater rewards for both sides.
Life assurance has never been more
affordable. Households and consumers
should be made aware of this, before the
business model that is supporting such
irrational pricing collapses. This will
inevitably leave consumers at the mercy
of a smaller handful of providers, in an
environment where the lack of
competition will see prices spiralling
upwards as life companies strive to reestablish profitability and take advantage
of their dominant market position.
Financial protection for the family is a
necessity and should not fall victim to
recession or the unsustainable commercial battle raging amongst Ireland's
life assurance companies.
Eunan O'Carroll is Sales & Marketing
Director with Friends First Life Assurance