Over the past few months I have seen industry developments at a pace many of us might be unfamiliar within. The reforms announced in the Budget are a case in point, but more on that later! I wanted to share a few observations from my discussions and work in the past month. I can summarise what I have seen in three words: Realisation, Reflection and Response.
Realisation. Much of the industry is now coming to terms with recent industry disruption – the future will be much different from the past. The discussion is moving on from just ‘Annuities’ to a broader consideration of where in the Life & Pensions market firms want to play and what do they need to excel at to thrive. This has been prompted in part by news reports that the UK interest rate could settle at 3%, below the 5% average bank rate in the decade or so before the crisis. This will alter the economics of the industry and the value customers will perceive to receive from ‘traditional’ products. It is also fuelled by the acceptance that more disruption will come and the impacts will be complex and uncertain. Commentary surrounding the announcement of the introduction of Collective Defined Contribution schemes emphasised this. A case can be made that they appear to be taking the Industry in a different direction from the prior focus on promoting individual choice which ran so strongly through the Budget announcements in March.
Reflection. In conversations I have had with industry leaders, it seems now is a time many are pausing to think through the consequences for their organisations. The tone has been measured, not knee-jerk which we saw from some banks in the face of new legislation post crisis. The topics of conversation have, by in large been grouped around 3 themes; how to sense-check current strategies are still valid; re-focusing on which customers to serve and how, and; how to accelerate investment in new systems and organisational structures to facilitate required change.
Response. From within industry there have been few public statements of intent. But from outside the industry evidence has increased that new entrants see opportunity in Life & Pensions, and insurance more broadly and want a piece of the action. Fund managers have made their intentions to play in L&P clear and even Walmart now provide personal lines insurance. This last example highlights to me that not even insurance is immune from the continued blurring of traditional industry boundaries. Outside of Life and Pensions I am seeing an increasing realisation that technology will be key to unlocking the future value in financial services. I have seen first-hand the power FinTech start-ups can wield to disrupt the industry through Accenture’s FinTech Innovation Lab at Level39 in Canary Wharf. It looks like other big financial services players have to: HSBC are just one bank committing millions to invest in FinTech start-ups in the hopes of improving the bank’s financial technology. This is happening in Life & Pensions too. A great example that springs to mind is from a European player that showcases innovation for the industry. CosmosDirekt from Germany targets their customers and modernises the customer experience through their online pension product that gives their customers the option to ‘build’ their policy through modular components – a great way to actively engage end customers to controlling their own premium levels and their future pension!
I look forward to continuing the conversation with many of you over the coming months, and would welcome the opportunity to hear your thoughts on the above and help you think through some of these challenging topics.