Sales of so-called industrial business - where premiums are collected from the home - fell by a quarter last year to pounds 6.4m of new annual premiums.
Tom Pyne, chief executive, said the 1,200 members of L&M's home service sales force had lost confidence in their ability to recommend industrial business policies because they were 'aware of the regulators' attitude towards good advice'.
Regulators are nervous that these policies, mostly used by poorer customers, offer poor value when compared with modern policies, where contractual payments are made through a bank.
Total new annual business in 1993, down pounds 10m at pounds 32m, also reflected the legacy of problems with L&M's 200 firms of tied agents.
Despite lower sales, L&M's pre- tax profits jumped by 42.5 per cent to pounds 33.4m last year thanks to a pounds 9m improvement from its non-insurance businesses. Estate agency losses were reduced by pounds 2.1m.
A final dividend of 10.56p increases the total payout by 10 per cent to 15.68p a share.