Beyond 2020: The future of Life, Pensions and Health
If the influences we’ve described on the previous page play out, then the consequences will be profoundly felt in the industry. Here, we bring together a view looking back from 2020. This is what successful insurers would need to have achieved.
A. A more sophisticated way of thinking about and targeting near or post retirees - this market will be the main revenue opportunity in 2020. However, the opportunity will slowly reduce as the wealth in the retiring population erodes over time.
Near and post retirees are going through a number of different phases of later life with resultant divergent needs. Complex pension arrangements from a variety of sources, legislative backgrounds and poor investment returns require carefully crafted solutions.
B. Retail distribution models that have reorganised around pockets of wealth.
Advisor firms organise themselves around specialist propositions, and sales forces are recruited to also focus on the diverse characteristics of the pockets of the wealth. More joint ventures are established with ethnic banking institutions / associations and advisor firms. The industry now offers more niche products and services tailored to the diverse range of needs presented by affluent consumers. Sales models are increasingly running in small pockets to appeal to different nationalities, behaviours, locations, ages and so on.
C. Leaner operating models that can respond to lower volumes and margin compression.
A variety of significant pressures on revenues, means that model re-structuring will be required to maintain profitability – to write new business, firms need to strip out successive layers of cost without sacrificing customer engagement in order to maintain the returns that shareholders demand. But by now many assurers are depending on outsourcers and business partners. This trend will not be reversed, more likely the search for better operating models will lead to further specialisation and new external partnerships. But the end customer is not interested – they will expect responsibility to be taken for the result and companies will therefore need to become adept at assembling providers to deliver customer solutions. In addition, the cost of regulatory reporting has ballooned.
D. Effective capital management that is used as a critical way of competing.
If this market is going to be seen as a place investors want to be, regulators will need to be continually sensitive about strengthening buffers. Given that insurers will move towards more protection and investments offering varying types of guarantees. Conserving and managing capital becomes a critical weapon. The financial results of life companies will not inspire investor confidence.
E. Shaping the political debate around equity release and having been patient enough to remain in the market while this plays out.
The debate over new regulation will be complex, with government reluctant to act. However, the poor returns offered by the annuity markets combined with the need to access further capital to fund active retirement, stimulates public pressure (annuity rates not giving enough to fund retirements). In addition, the state’s standard of care offering will not be considered adequate by many families. Increasingly, customers realise that the deals are poor and, eventually, the debate leads to patchwork re-regulation of care financing. The regulations, piece by piece, will eventually lead to a more coherent, attractive sales environment for client and company.
F. A focus on protection and health.
Advisors and providers have been focussing on promoting protection products through a variety of channels, and so demand for these products has increased. The value these products offer to the consumer will be improved beyond 2020, partially due to economies of scale resulting from increased take up. There is a positive feeling about going back to the industry’s heritage.
G. Underwriting has improved to be much more data rich and rating factors have been optimised.
Ever increasing depth and availability of personal information has allowed the market to respond. Life companies focus on protection given the poor investment market and some see an opportunity to provide more products that dovetail in with morbidity cover and the NHS. Product innovation will be led by those that can use the data. Underwriting pools become much smaller, and promotion and pricing is increasingly used to lure consumers with the lowest risk factors.
H. Promoted (and demonstrably lived) the brand values at a much lower cost.
Being able to prosper in the future means recovering at least part of the industry’s reputation. In the past, providers have too often promoted brand values but not lived them. Those brand values will need to become guiding paths where all planned actions are tested against them. Like all other costs, communication costs will be under pressure and so providers will need to spend less on advertising and rely on PR thorough social media instead.
I. Have training, hiring and offshoring policies that reflect government stimulus.
A generation of graduates and school leavers become increasingly dis-satisfied about the opportunities presented in the low growth economy. These young people are not an underclass but the children of an articulate voting public. Older people are more reluctant to retire due to economic pressure. Electoral Pressure builds up sufficiently that something has be to be done. A new deal is created which involves apprenticeships and incentives to re-onshore jobs. Legislation is also passed to make internships payable at a minimum wage level. However, many industry skill gaps will remain, and industry bodies will become an integral part of closing these gaps.
J. Found a way of working in a more aggregator-led market and the increased transparency and price pressure it brings.
The amount of business going through aggregators will increase dramatically in the protection and annuity space where comparisons are easier. At the detailed coverage level, products are still difficult to compare. Aggregators will put pressure over time on the industry to provide more transparency and therefore comparability.
K. Digitisation is an integral part of everything a company does.
The digital personality of a company must be understood by all. Product releases or enhancements are digitised from day 1. PR and social media should often be used to promote the company and its brand while senior execs must be more electronically available to customers and intermediaries. Digital response time must be in moments, not hours or days. Overall thrust of digitisation is under guidance of marketing not IT.