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Fitch Ratings : the Retail Distribution Review will reduce IFA dominance in UK Life insurance sector

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According to a new report from Fitch Ratings, the UK Financial Services Authority’s Retail Distribution Review (RDR) will cause some short-term market disruption as advisers and consumers adapt to the new rules, but expects no impact on ratings in the near term. However, insurers that are highly reliant on independent financial adviser (IFA) distribution may lose market share to competitors selling through channels with restricted or no advice, which could have rating implications in the longer term.

In general, Fitch believes that insurance companies and financial advice firms are well prepared for the RDR as the implementation date of 1 January 2013 looms nearer.

“Insurance groups have undertaken thorough reviews of their distribution models in light of the reforms and many financial advisers have already made the transition to fee-based charging for advice in anticipation of the scrapping of sales-based commission,” says Ella Spencer, Analyst in Fitch’s Insurance team.

The market for non-intermediated sales of relatively simple products is likely to develop and the agency believes that bancassurers will have the opportunity to gain market share.

Fitch expects platforms to grow as a sales channel, reflecting their user-friendly nature. Well-designed platforms allow IFAs to better service their clients and may also encourage more sophisticated consumers from the mass market to manage their own portfolios without financial advice.

Source : Fitch Ratings