The insurance industry is going through a challenging period at the moment which is providing many new opportunities as well as threats to its development. There have been signs that opportunities may arise from government action regarding personal provision for health care and mortgage payment protection products; and alternatively, there is concern about further regulation and commission disclosure, which has proved expensive in the life and pensions industry.

The industry suffered in recent times from poor claims experience and in some cases falling premium income, but now most companies appear to be rising to the challenge of developing new products and marketing techniques to cope with changing environments.

No report on insurance can ignore the impact that the direct writers have made in recent times, most notably in the motor and household sectors, but now they are branching out into health, travel and other products in order to provide a complete portfolio of products to their customers. There is no doubt that this marketing method enables companies to provide fast and efficient service at a cheaper price which is ideal for some of these products. However, it remains to be seen whether this method can adequately cope with products such as health insurance which are complex and difficult to understand, and of which there is little public understanding.

There will also be new providers who are traditionally non-insurance businesses such as Virgin who are joining the more traditional direct sellers to cash in on their reputation for customer service and reliability. This may well bring some products to the attention of people who have not been reached by other selling methods. It has been suggested that Marks & Spencer, Kwik-Fit and Tesco are all considering joining the travel insurance market.

Insurance is also entering the world of technology, with web sites being produced on the Internet which provide product information, company backgrounds and from which the individual can all but purchase hisher cover. Whilst it is early days yet, this is bound to be an area of rapid development, enabling companies to reach new potential customers not previously contacted.

Travel insurance is currently dominated by the large insurers such as General Accident or specialist arms such as Home & Overseas, a subsidiary of Eagle Star. These companies sell policies wholesale to travel operators such as Thomson or Thomas Cook or to retailers such as Lunn Poly or Going Places. These policies are then priced by the retailer. There has recently been a growing concern that these products are then used to subsidise holiday bargains and that often a holidaymaker could get a better deal in terms of price or cover from another source. The report of the Office of Fair Trading which has just been released at the time of writing, will further publicise this and it is very likely that changes will result.

Two other developments in the travel insurance market are the entry of new providers such as British United Provident Association (BUPA) and OHRA, whose main area of business is health. In order to offer a service to their clients they are offering new products which build on a risk already with the company i.e. the insurer is already covering the individual for medical expenses in this country so this extends the cover to overseas. OHRA look at the other insurance cover, for example existing household policies which may well provide cover in another areas thus preventing double insurance. In this way costs can be cut.

The meteoric rise of the annual travel policy will also change the insurance buying habits of the traveller. These policies provide year round cover for trips of up to usually 90 days. They are ideal for those who take mini-breaks as well as longer trips abroad and for independent travellers. With a predicted increase in the number of short breaks taken, it is likely that this product, which now accounts for 10 percent of the market, will increase further.

Health insurance is a market split between the old established private medical and permanent health insurances and the new critical illness cover and long term care products. Whilst many life assurance companies offered Permanent Health Insurance (PHI), these policies were not often high profile and they tended to be just available to allow the sales man access to a complete range of products. Some companies became specialists in this area in both group and individual plans. The Private Medical Insurance (PMI) market was dominated by the big provident associations most notably BUPA and Private Patients Plan (PPP), which between them accounted for over 70 percent of the market. Now with Norwich Union Healthcare, Prime Health and others entering the market, the traditional PMI providers look set to lose market share. They are however, meeting this challenge with new products and services and in the case of Private Patients Plan a new structure and image as PPP healthcare. These companies have launched high profile name awareness advertising, using bill-board, magazine and television advertising.

Critical illness or dread disease, and long term care are new products which are not yet well established and sales are still small. However, long term care is receiving a great deal of press coverage and looks set to be a product for the future. This is a vulnerable market and there are several concerns relating to the sale of such products and many industry sources as well as the OFT would favour regulation of this product.

Critical illness cover is becoming popular as an option on other policies, both life assurances and PHI creating new wider ranging protection products. Again the OFT strikes a note of caution in the report, policies pay out only once and if a person survives after a Critical Illness Cover (CIC) payout they may find themselves without life cover and with scant chance of being accepted to buy any more. To be a really useful product, this problem needs to be addressed.

Health insurance has some perception problems, it is a complex product and is also a luxury product. However, if the market can raise public awareness of the benefits and produce products to fit different parts of the market, it still has a long way to grow before the market is saturated. This will require education of those selling the products as well as a raising of public awareness.

Mortgage protection policies cover risks associated with taking a loan. Mortgage protection insurance is required by the lender to insure payment of the loan on the death of the borrower(s). Mortgage payment protection buys the borrower the peace of mind that the payment will be made even if they are made redundant, fall sick or have an accident. As with health insurance, this peace of mind is a luxury which not all new borrowers can afford and the market is limited by how much an individual is prepared to take on this risk themselves or if they have other savings which they feel could cushion should these events arise.

Mortgage indemnity insurance is not a personal insurance. It covers the building society or other lender for extra risk taken on i.e. a high loan to value ratio on a property. The contract is between the insurer and the lender, although the borrower pays for it in the form of an extra fee. Some lenders chose to retain this risk, or self-insure.

Commercial lines insurance is that which covers businesses for damage, business interruption, liability or any other eventuality. Large risks are usually placed with Lloyds or will have particular arrangements with the insurer who will produced tailor-made product for the client. Small businesses, however will purchase policies or portfolios of policies off-the-shelf or will, along with a broker or specialist, devise their own cover from those available.

Facts and figures are not so easily obtained for this sector of the market as the business is so varied. In many cases, for example, property and company car insurance, figures cannot be divided from other categories i.e. domestic property and fleet motor policies cover haulage fleets as well as a few company cars.

The sector is dominated by a few large companies including Commercial Union, Eagle Star, Sun Alliance, Royal and General Accident, The merger of the Royal with Sun Alliance will therefore have a considerable impact. At the time of writing, the merger is still going through and restructuring has not yet taken place.

Commercial lines insurance is a very 'soft' market, at the moment improved underwriting results has led to price competition and there is concern that premiums may have become too low for the market to sustain. As with all insurance when business becomes unprofitable, either premiums will begin to rise or underwriting will become tougher and policyholders may find that they are not as well covered as they thought.

The commercial sector has taken a lead from personal lines insurance, it is looking to provide improved service, in the form of helplines and risk control reviews along with discounts. An example of this being the premium reductions available from some companies for those who have driving skills tuition. Some companies like Cornhill are also trying to move the focus away from price and towards company strengths as well as service. In the future, this market needs to become less price driven if it is to firm up and become stable.