Re­tire­ment Mar­ket is the Growth En­gine of the Fu­ture for Life In­sur­ers

Life in­sur­ers face numer­ous chal­lenges in­clud­ing low sus­tained in­ter­est rates, in­creased reg­u­la­tion and cap­i­tal re­quire­ments, grow­ing cost pres­sures, a weak eco­nomic re­cov­ery and chang­ing con­sumer be­hav­iours and ex­pec­ta­tions. There is, how­ever, one el­e­men

Insurance - - FEATURE - by Jef­frey Lai

Our re­search – a sur­vey of more than 8,000 peo­ple from 15 coun­tries – in­di­cates that, around the world, more than four out of five peo­ple are wor­ried about their own re­tire­ment, and only about one in six is con­fi­dent their cur­rent level of sav­ings is suf­fi­cient to cover their fi­nan­cial needs af­ter re­tire­ment.

The sur­vey also re­veals that more than half of the re­spon­dents be­lieve they lack the nec­es­sary in­for­ma­tion to pre­pare for re­tire­ment and the fi­nan­cial ca­pac­ity to in­vest in pri­vate pen­sion. While a large ma­jor­ity (93 per­cent) recog­nise that they will need to rely partly or wholly on their per­sonal sav­ings to cover their post-re­tire­ment fi­nan­cial needs, more than two-thirds (67 per­cent) don’t know how much they would need to save to guar­an­tee their stan­dard of liv­ing in re­tire­ment.

In short, there is a huge, un­met de­mand for re­tire­ment plan­ning that the life in­surance in­dus­try can help ad­dress.

To ac­com­plish this, how­ever, life in­sur­ers will have to do a bet­ter job of cap­tur­ing as­set share in the re­tire­ment in­come mar­ket. Our sur­vey in­di­cates that peo­ple are more likely to ask in­de­pen­dent fi­nan­cial ad­vi­sors (men­tioned by 51 per­cent of re­spon­dents) and friends and fam­ily (44 per­cent) for ad­vice on the best re­tire­ment op­tions, than to rely on life in­sur­ers (41 per­cent).

Life in­sur­ers, how­ever, did out­rank their com­peti­tors for their wide range of re­tire­ment prod­ucts, the so­phis­ti­ca­tion and in­no­va­tive­ness of th­ese prod­ucts, and for hav­ing a solid brand rep­u­ta­tion in the re­tire­ment mar­ket. Brand rep­u­ta­tion is im­por­tant, as 82 per­cent of re­spon­dents who had pur­chased a re­tire­ment prod­uct said they were in­flu­enced by the brand strength of the fi­nan­cial in­sti­tu­tion.

Cap­tur­ing a big­ger share of re­tire­ment as­sets will re­quire life in­sur­ers to recog­nise that cus­tomers’ re­quire­ments, pref­er­ences and be­hav­iours have changed rad­i­cally over the past few years. Old, proven strate­gies and busi­ness models are rapidly be­com­ing ob­so­lete. In par­tic­u­lar, the no­tion that a sin­gle set of back-end op­er­a­tions is suf­fi­cient to ad­dress the en­tire mar­ket is a fal­lacy.

Life in­sur­ers will need to use dif­fer­ent sales chan­nels and pro­vide the prod­ucts, ser­vices and ad­vice ac­cord­ing to the com­plex­ity of cus­tomers’ needs to reach var­i­ous seg­ments of the re­tire­ment mar­ket.

Seg­men­ta­tion: The Key to Ef­fec­tive En­gage­ment

They must im­ple­ment a more so­phis­ti­cated seg­men­ta­tion strat­egy based on many cri­te­ria, in­clud­ing cus­tomers’ wealth, source of wealth, life­style and be­hav­iour, life stage, in­vest­ment style, etc. When all of the rel­e­vant at­tributes and their val­ues are fac­tored in, it is likely that well over 50 dis­tinct seg­ments will emerge, which will en­able in­sur­ers to gain a much bet­ter un­der­stand­ing of what each spe­cific cus­tomer seg­ment prefers. Then, they will have to treat th­ese mul­ti­ple cus­tomer seg­ments dif­fer­ently, mea­sure the ef­fec­tive­ness of each treat­ment, and con­tin­u­ously adapt them to build on past success.

While cus­tomer wealth de­fines two broad sec­tors (those who have am­ple means to pro­vide for their re­tire­ment, and to pay for ad­vice, and those for whom af­ford­abil­ity is a con­straint), when other fac­tors are con­sid­ered, it is use­ful to di­vide this anal­y­sis into three ba­sic mar­ket seg­ments:

Cap­tur­ing a big­ger share of re­tire­ment as­sets will re­quire life in­sur­ers to recog­nise that cus­tomers’ re­quire­ments, pref­er­ences and be­hav­iors have changed rad­i­cally over the past few years.

Those with com­plex needs who re­quire cus­tomised ad­vice: th­ese are af­flu­ent cus­tomers who need ad­vice on in­vest­ing and are will­ing to pay for it. They are look­ing for so­phis­ti­cated and per­son­alised prod­ucts.

Those with more com­mon needs who re­quire scaled ad­vice: th­ese are cus­tomers who can af­ford to in­vest and recog­nise the need to, but are re­strained by the “ad­vice gap.” They are gen­er­ally un­will­ing to pay for ad­vice, have weak re­la­tion­ships with in­surance agents and a poor un­der­stand­ing of re­tire­ment op­tions and in­sur­ers’ prod­ucts.

And those with sim­ple needs who re­quire ad­vice on how to save their money.

Sim­ple Needs, Ad­vice on Sav­ing

To ad­dress the needs of th­ese cus­tomers who are will­ing to save, but strug­gle to af­ford it, in­sur­ers will have to cre­ate sim­ple, cost-ef­fec­tive prod­ucts which are easy to ex­plain and sell. Ide­ally, th­ese prod­ucts should in­clude some form of pro­tec­tion against mar­ket volatil­ity and “no-re­grets” features (i.e. the abil­ity to switch with­out be­ing pe­nalised should their cir­cum­stances change or they dis­cover they have bought the wrong prod­uct). Ba­sic se­lec­tion ad­vice must be built into the prod­uct op­tions, sim­pli­fy­ing choice and en­abling mass­cus­tomi­sa­tion on the ba­sis of a few key pa­ram­e­ters. Ad­vice should be on what this mar­ket seg­ment ul­ti­mately needs: how to ar­range their fi­nances to make th­ese prod­ucts af­ford­able. One pos­si­ble so­lu­tion could be to cre­ate an ecosys­tem of non­com­pet­ing re­tail­ers and other providers, all of whom would of­fer the cus­tomer dis­counts for sales

vol­umes or share of wal­let. In­stead of be­ing re­im­bursed, th­ese dis­counts – to­gether with, po­ten­tially, the rounded-up bal­ance on all pur­chases – would be con­sol­i­dated in a re­tire­ment ac­count which would re­ward cus­tomer loy­alty, and would ben­e­fit from the en­hanced re­turns of a group in­vest­ment.

Com­plex Needs, Cus­tomised Ad­vice

For com­plex needs, in­sur­ers will have to pro­vide cus­tomised ad­vice. This is for af­flu­ent cus­tomers who need ad­vice on in­vest­ing and are will­ing to pay for it. They are look­ing for so­phis­ti­cated and per­son­alised prod­ucts. This mar­ket seg­ment is pretty ma­ture and in­tensely com­pet­i­tive, so in­surance agents will have to strive to strengthen cus­tomer re­la­tion­ships to be­come favoured ad­vi­sors. In­no­va­tion will play a key role in em­pow­er­ing ad­vi­sors, thereby rais­ing both the ef­fi­ciency and ef­fec­tive­ness of ad­vice-led distri­bu­tion in this mar­ket seg­ment:

We be­lieve that face-to-face sales models will in­creas­ingly be re­placed or com­ple­mented by the lat­est col­lab­o­ra­tive and other tech­nolo­gies such as on­line, mo­bile, so­cial, chat, tablets and call cen­tre video, all de­signed to help the ad­vi­sor be where the cus­tomer is.

Tools such as “find the ex­pert” lo­ca­tor can help ad­vi­sors find and com­mu­ni­cate with the ap­pro­pri­ate spe­cial­ists, ir­re­spec­tive of where they are based.

A va­ri­ety of other tech­nolo­gies can be used to bring spe­cific ex­per­tise to the sales sit­u­a­tion ear­lier, pro­vide in­stant an­swers to cus­tomer con­cerns, over­come ob­jec­tions on the spot, and ad­vance the op­por­tu­nity to a quicker de­ci­sion.

In­sur­ers’ mar­ket­ing teams will need to be re­in­forced with an­a­lyt­ics spe­cial­ists who can an­a­lyse the seg­men­ta­tion and treat­ment data, rec­om­mend re­fine­ments and track their im­pact.

Di­verse Needs, Scaled Ad­vice

For di­verse needs, in­sur­ers will have to pro­vide scaled ad­vice. This is for cus­tomers who can af­ford to in­vest and recog­nise the need to, but are re­strained by the “ad­vice gap.” They are gen­er­ally un­will­ing to pay for ad­vice, have weak re­la­tion­ships with in­surance agents and a poor un­der­stand­ing of re­tire­ment op­tions and in­sur­ers’ prod­ucts. The chal­lenge for in­sur­ers is to find cost-ef­fec­tive ways of clos­ing this “ad­vice gap.” In­sur­ers will need to col­lect and lever­age the ad­e­quate cus­tomer data that will give them the in­sights into in­di­vid­ual cus­tomers, en­abling them to de­velop mean­ing­ful rec­om­men­da­tions. New ap­proaches to prod­uct devel­op­ment should also help un­lock the po­ten­tial in this mar­ket seg­ment: for in­stance, by im­prov­ing their un­der­stand­ing of risk, in­sur­ers can in­tro­duce prod­ucts such as im­paired life an­nu­ities for cus­tomers with chronic ill­ness or dis­abil­i­ties. They should also pay in­creased at­ten­tion to so­cial me­dia, as it can have a pow­er­ful in­flu­ence on their brand rep­u­ta­tions and cus­tomer se­lec­tions. They ur­gently need to de­velop the abil­ity to track and man­age ex­changes which af­fect their brand, and ex­plore new ways of en­gag­ing con­sumers in a dis­cus­sion about the im­pact of the pen­sion cri­sis on the in­di­vid­ual. Their abil­ity to package and present ad­vice which in­cor­po­rates both the wis­dom of their ex­perts and the wis­dom of the crowd will be key to the reach, the on-go­ing cred­i­bil­ity, and ul­ti­mately the success of their agents. Af­ter so­cial net­work­ing, gam­ing is the most pop­u­lar on­line ac­tiv­ity. By lev­er­ag­ing gam­ing to al­low cus­tomers to cre­ate and de­velop needs sce­nar­ios is a pow­er­ful ed­u­ca­tional tool, and an ef­fec­tive way to es­tab­lish strong cus­tomer bonds which are both ra­tio­nal and emo­tional. Games or life sim­u­la­tions can cap­ture the imag­i­na­tion of con­sumers, al­low­ing them to en­act highly per­son­alised sce­nar­ios that pro­vide fun over an ex­tended pe­riod, and at the same time com­pile the data needed to cal­cu­late their re­tire­ment needs and to ex­plore op­tions for ad­dress­ing them.

A great bur­den of re­spon­si­bil­ity lies with the life in­surance in­dus­try to step up and fill this ad­vice gap as it has the ex­pe­ri­ence, size and scale to make a real im­pact on the re­tire­ment prob­lem. In­dus­try lead­er­ship needs to con­front this crit­i­cal is­sue and take ac­tion to ad­dress it. It is an op­por­tu­nity not only for life in­sur­ers to grow their busi­ness but also to help avert what could po­ten­tially be­come a ma­jor so­cial is­sue on a global scale in the next 10 to 20 years.

A great bur­den of re­spon­si­bil­ity lies with the life in­surance in­dus­try to step up and fill this ad­vice gap as it has the ex­pe­ri­ence, size and scale to make a real im­pact on the re­tire­ment prob­lem.

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