As of 1 August, protection specialists Scottish Provident and Scottish Mutual Pegasus are merged, under the stewardship of new chief executive Graham Pottinger.
The parent company of both insurers, Abbey National, has decided to make Scottish Provident the enlarged company’s protection brand in the independent financial adviser (IFA) sector. And, to do this, it has adjusted its product range, focusing on the individual “strengths” of the brands.
By the end of last year Pegasus had a 23 per cent share of the IFA “whole-of-life” market and Scottish Provident had a 31 per cent share of the IFA “term” market. Combining both gives the business in excess of 30 per cent of the entire IFA market for protection contracts, according to Christine McAllister, Scottish Mutual’s public relations manager.
The main adjustments to the products are:
l The Pegasus whole-of-life plans will become part of the Scottish Provident protection range, replacing Scottish Provident’s “Lifetime Plan”. They are now available alongside the menu of benefits from the Self Assurance term products l The Pegasus Personal Term Plan is no longer available l Pegasus’ long term care (LTC) Option in the whole-of-life plan will replace Scottish Provident’s now withdrawn LTC Bond l Scottish Provident’s protection team will administer the whole range of protection plans, including the Pegasus whole of life plans l Critical illness (CI) definitions for the two product ranges are now harmonised to offer wide-ranging CI cover l The Pegasus name will appear only on the whole of life contract.
However, some intermediaries are not enamoured of the merger. IFA Brian Lentz, the principal of Portfolio Insurance Consultancy, says: “I am surprised to hear the Pegasus name will go unless used as the name on the new Scottish Provident whole-of-life contract.
“And I was astounded to learn that the stand-alone LTC bond from Scottish Provident is to be axed in favour of the old Pegasus LTC conversion option – which is a completely different animal. Dependent on investment returns, the LTC bond was uniquely designed to return the client’s premium at the age of 85. It was also available before treatment for LTC. Now clients will have to buy cover when they need it.”
Abbey National Life is a multi-channel distribution strategy targeting two types of investors: the IFA clients, who are the more sophisticated investor; and the bank’s retail clients, who want simple, straight-forward products.
Bringing Scottish Provident to the Abbey National equation is part of the bank’s strategic aim to continue with mortgage banking and diversify by selling protection products.
Abbey National’s diversification strategy began with the acquisition of Scottish Mutual back in 1992 at a time when Abbey National achieved just seven per cent of its business from non-core activities.
McAllister says: “Back then, Scottish Mutual was a small, sleepy, mutual company writing some life and pension business. Once Abbey National bought it, Scottish Mutual changed overnight to become a player in a very competitive market.
“Our decision to acquire Pegasus in 1995 allowed us to move into the new area of CI and offer a wider choice of contracts to IFAs and their clients.”
McAllister adds that by the end of last year, Abbey National’s non-core business activities had risen to 53 per cent, demonstrating that the protection business is a growth market.
“We have found new earnings streams in the life and pensions market,” she says. “Within this market IFAs are a growing distribution channel and the Scottish Mutual brand has already achieved significant results.
“Scottish Provident’s products complement the areas where we are active with Pegasus, so the merger means we will be very powerful in a growing segment of the market.”
Roger Edwards, Scottish Provident’s sales and marketing director, explains that the two insurers had never competed with each other because they catered for different markets. Scottish Provident is strong in term assurance and CI policies and Scottish Mutual Pegasus’s strength lies in whole of life business.
But will the merger affect jobs? McAllister is quick to dispel any such worries. “In buying Scottish Provident we recognised that a major part of that company’s success stemmed from the people who built the brand and made it a market leader,” she says.
“We do not envisage significant job losses as a result of the acquisition and any reductions are expected to be achieved by natural turnover. We want to see it become even stronger and we are both working to minimise disruption to employees and customers of both companies during the integration.”
But Edwards is unsure of what the future holds in terms of his role within the company. He says: “There have been no discussions at the moment. Everything will carry on as normal. The infrastructure still belongs to the two separate companies. Integrating the businesses and teams will be an on-going process. I don’t know what’s going to happen.”