As mentioned in my previous post, UK L&P providers have lived with near-constant change for the past 30 years and 2014 was no different. In fact, change was more unexpected and fast-paced. Based on our analysis, our continuing discussions and in-depth experience of the L&P industry we’ve identified six key market disrupters that will transform the marketplace over the next ten years.
Disruptive trend 1: intensifying and unpredictable regulation
We’ve already seen the effect that regulatory change has had on the traditional LP&I business model. This trend is set to continue, or even intensify from now on. The impact of some of this legislation is predictable. Further pensions reform in the run-up to the 2015 general election cannot be ruled out and, looking further ahead, LP&I providers need to be prepared for more unexpected announcements.
Disruptive trend 2: digital is here and now
Already the norm in most other industries, digital is fast becoming a ‘hygiene factor’ for the LP&I industry. Customers increasingly expect and demand strong digital capabilities from their providers, and these demands must be met. However, it does present providers (and their emerging competitors) with new opportunities for forging richer customer relationships based on more regular contact and personalised services and offerings. Customers expect round-the-clock digital relationships. The priority (and challenge) for providers is to master the complexity of integrated multi-channel distribution spanning customers and distribution partners across all digital and physical touch-points.
Disruptive trend 3: the changing consumer
Empowered and emboldened by digital, a new breed of customer is emerging, driven by the belief that there are better deals on offer, and better ways of making savings and investment products work for them at different stages in their life journeys. Customers are becoming less brand loyal, more price savvy and increasingly comfortable buying products through digital and/or non-traditional players. Accenture research shows that 71 per cent of consumers are now willing to purchase insurance via digital channels. 67 per cent of them would be interested in being offered insurance via their mobile devices. And 48 per cent regard product advice on social media as ‘important’ or ‘very important’. The bottom line? Far from being an add-on option, digital is becoming integral to the entire customer journey.
Disruptive trend 4: re-emergence of the workplace
By 2025, expect to see the workplace re-established as a key marketplace – and employers recognised as key consumers in their own right. Until now, the retraction of defined benefit schemes has seen workplace pensions declining in significance. No longer. Due to auto-enrolment, as well as recent and ongoing pension reforms, and employers seeking to motivate/retain employees, the provision of pension schemes for employers is set to be a priority growth area. The onus will be on providers to offer a compelling workplace proposition above and beyond a workplace pension. Also expect to see employee benefits platforms having an essential role to play here.
Disruptive trend 5: fierce competition
Traditional LP&I providers are already under attack from non-core adjacent competitors as well as from non-standard customer-focused competitors such as the retailers and it will only become fiercer. Increasing disintermediation of providers by asset managers, distributors and new platforms will intensify pressure right across the LP&I value chain. Competitive positioning will fall to manufacturers with superior product design capabilities who can respond rapidly to changing market demands, as well as to product providers, distributors, platforms and new brands that do not even exist today!
Disruptive trend 6: aggregation
Customers currently expect to have a single view of their products with any given provider, regardless of the channel through which the product was sold. Soon, customers will demand a single holistic view of their holdings irrespective of channel or provider. The priority will be to obtain a consolidated view of total net value. Although technically relatively easy to achieve, this crosses boundaries that channel owners are not yet willing to break down. In the future, however, instead of seeing themselves as ‘owners’ of the customer, the mindset will need to change. Providers will have to shift from conducting transactional ‘conversations’ with customers to putting them at the centre of the ecosystem – and then deciding where they want to play within it.
In my next post, and my last of on my ‘What do you want to be famous for?’ series, I will set out the our vision of six customer-centric business models that L&P providers can select from to harness the opportunities from these trends.
Read our latest thinking on Digital Insurer