Skip to Main Content
Access your saved content
The 2014 Budget announcement has put life and pensions providers under even more pressure to improve customer service.
The recent Budget announcement has accelerated the need for life and pensions providers in the UK to improve customer service because:
Consumers will become empowered to look after and take ownership of their own finances.
Greater flexibility drives the need for guidance and advice—not just at and through retirement but also during savings accumulation.
Consumers will be able to select from a wider choice of products that better suit their financial planning needs.
Consumers will need financial planning advice in a more varied product landscape – and across a longer time span.
Insurers should respond by:
Download the full brochure [PDF, 6 pp, 1.38MB]
As changes will apply from April 2015, key industry profit pools have already been disrupted
UK Life & Pensions has been in decline since 2008, with Net Premium Income (NPI) shrinking by 1.3% Compound Annual Growth Rate (CAGR).
But one of the highest growth areas has been Annuities, supported by the structural attractiveness of the market (eg compulsory annuity purchase). Growth and margins prevailed, despite an ongoing debate on suitability of internal vesting annuities and the customer value they provided.
This has now changed. The recent Budget announcement represents yet more regulation designed to deliver increased value to the customer. It comes on top of the Retail Distribution Review (RDR) and auto-enrolment.
Recent industry disruption could just be the start. Further regulation/regulator action may come into effect and disrupt the industry further. This will be driven by the ongoing customer protection agenda at a UK, European and global level.
This will continue to erode traditional profit pools by opening up the market to new entrants and business models.
Customers have very low levels of engagement and contact with Life & Pensions firms
The UK and Ireland Accenture Life & Pensions Customer Survey for 2014 found that:
Almost 40 percent of consumers think Life & Pensions products are too complicated and unnecessarily confusing.
Consumers have very low levels of contact with their Life & Pensions providers.
Consumers do not want to engage with the industry: 55 percent of Life & Pensions customers have never sought any professional advice or guidance on their long-term financial planning.
The Australian and US markets show that changes in customer behaviors drive product innovation.
Australia introduced ‘superannuation’ – a compulsory workplace saving vehicle – long before Britain introduced auto-enrolment, but it does not require people to buy an annuity on retirement. New annuity product development has been driven by the effect of tax-free earnings on superannuation funds taken out after age 60.
66% chose to keep some of their pension pots invested in a fund to provide an income during retirement.
33% of savers used their pension cash to buy a home, pay off an outstanding mortgage or make home improvements.
25% of those who received a lump sum invested some of the amount in an annuity or other super vehicle.
20% splashed out on a new car.
14% spent at least some of their pension on a holiday.
In the U.S., there is no compulsion to buy an immediate annuity (the equivalent of an individual annuity). Immediate annuities only represent 3.6% or US$8bn (£4.8bn) of total annuity sales. Variable annuities, producing variable returns, are more common
Annuity products exist, but do not dominate.
Greater empowerment reduced customer inertia and embedded ownership with the individual.
Around 35% do not purchase an annuity upon retirement1 (Financial Times, March 2013).
The conclusion: There will be a wider use of cash by consumers to finalize debts, and to purchase alternative savings vehicles and assets such as property that will be used to provide an income during retirement.
There are four key actions Life & Pensions firms need to take to enhance customer service.
Customer inertia will no longer be a key driver in the purchase of post-retirement products.
Trusted brands that engage with consumers and are recognized for delivering value will be key to attract empowered customers.
Providers with limited access to the customer (eg through undiversified distribution channels) will not realize the benefits presented by increased customer choice.
Firms that focus simply on being a product manufacturer, with a complex or limited product portfolio, will not be best placed to respond to increased customer choice at retirement.
With customers requiring broader financial planning, unclear propositions and limited customer insight will prevent firms from delivering to their requirements
With changes just a year away, a slow reaction will expose providers to competition – particularly from bancassurers, platforms, and industry disruptors.
April 2, 2014
Skip Footer Links