Alun Beynon, head of sales and distribution at Aegon, said in a market where supply outstrips demand for products, providers are forced to compete for market share and relax provision standards - to their detriment.
He pointed to the fact that the number of IFAs selling protection was reducing and had been since 2003, meaning demand on the adviser side was diminishing.
Simultaneously, more providers are entering the market, meaning stiffer competition for protection business.
He warned that a potentially dangerous situation could be developing in the protection market, citing reductions in the commission earning period; relaxing standards on the need for a customer signature on applications; advisers not being required to disclose commissions to their clients; and shortening application forms. He believes these are symptoms of provider competition and give the potential for increased risk.
Beynon likened the situation to the mortgage market in pre-Northern Rock collapse days, where lenders relaxed criteria in an effort to grab market share.
Mortgages began to be sold on price, and Beynon says there is a danger that protection is being sold on rates.
He said the issue in this circumstance is that not all providers can be the cheapest, forcing them to attract adviser business by offering an "easier" application process.
The danger of this easier process is the corresponding risk increase, said Beynon.
Shorter commission earning periods offer advisers more income in the short term but can reduce the vested interest brokers have in the quality of the business they write.
The payment period at AEGON is four years, but Beynon says many providers have reduced it to two years in an effort to compete.
He said: "That period ensures that sales behaviour is as robust as it can be."
He added that there must be a change in attitude if advisers are to survive changes wrought by the Retail Distribution Review proposals, brokers must sell advice and embed value into the business they write for providers.
Advisers are also demanding shorter application forms with fewer questions, said Beynon.
He stressed that currently most providers gather sufficient information on the customer's risk profile, but said this may change if advisers gain ground with their demands.
"How far will providers go to take market share?” he said. “We don't want to get into a self-certification state as the mortgage industry did in 2007."
He also said some advisers were choosing to write business for providers which do not cancel policies if the customer fails to return the confirmation schedule with a signature included. AEGON currently does cancel a policy in this situation.
In spite of the potential presence of tele-recordings of conversations between the customer and provider during the application process, Beynon said the lack of a signature could prevent claims being paid out on in the future, pointing out that those recordings being used as evidence from years ago is relatively untested.
He said: “There is often no need for a customer signature on the application document. But that could be putting customers at risk of not having their claim paid. It's a grey area and it needs to be addressed."
Beynon said there was frustration among advisers that applications can often take a long time to process, but he said the length of time relates to the level of risk.
He said: "If advisers operate electronically on a real time basis, the application form can look quite straightforward. The reality is that many advisers use a data capture form when they see their client face to face, and it’s not real time. There's a growing frustration among advisers that the application process has got longer and longer. But the provider needs to get a good picture of risk."
