Emerging markets and internet will dominate risk insurance distribution
Professional services firm PwC’s Life Insurance 2020: Competing for a Future encapsulates the views of 150 life and pensions executives worldwide. These executives were asked to comment on the effect that a series of social, technological, environmental,
Responses to the survey enabled PwC to examine the developments that will have the greatest impact on the industry over the next decade as well as isolate opportunities for innovation, growth and competitive differentiation. “The life and pensions sector has many reasons to be upbeat about its future,” begins the report. “A larger and longer-living global population is increasing demand for retirement products”. This factor, coupled with the increasing affluence of people within the high-growth emerging markets will create a growing need for wealth protection! The difficulty that insurers face is to ensure that their clients’ experience live up to what PwC calls the “Apple / Amazon experience”. Tomorrow’s insurance customer wants the same “accessibility, transparency and responsiveness in their life insurance and pensions products”.
Massive growth opportunities in emerging markets
The report shows that almost half of global insurance industry leaders believe that emerging markets (Africa, Asia, the Middle East and South America) will play a greater role in their companies’ futures than traditional developed-world markets. Most life and pensions executives believe that the internet will influence the types of products that consumers choose going forward. How does the PwC report assist in preparing insurers for the evolving environment?
PwC believes that insurers will excel if they successfully deal with the shifting focus of global growth as well as changes in customer preferences. Insurers will also have to make better use of ‘big data’ when profiling existing and potential clients and stay abreast of new competitive threats. Aside from recognising the influence of emerging markets and internet, the PwC report found the following:
· 70% of insurance leaders said they expected public health provision to worsen, while 40% believed that social security systems would be drastically cut back over the next decade. State support for ageing populations in many markets is being eroded by a combination of government debt and a decline in the ratio of working people to retirees, with the result governments are looking to insurers to fill in the gaps.
· 50% of insurance leaders believe that they will achieve a competitive advantage and increased market share by harnessing ‘big data’ developments.
· 34% of insurance leaders expect that consumers will turn to their social networks to obtain advice and share information about financial services products, reinforcing the demand for greater industry transparency.
On ‘big data’ and the value of ‘sensors’
“The old adage that insurance is sold, not bought is being challenged,” says Victor Muguto, PwC Long-term Insurance Leader for Southern Africa. “As customers use the internet and their own social networks to gain knowledge about the kind of products they need – and use technology to determine the affordability and worth of these products – life insurers will have to adapt accordingly”.
Recent technology improvements have changed how providers, advisers and consumers view insurance. A major trend is the advent of what financial services firms refer to as ‘big data’. “The amount of data flowing around the internet will reach 1.3 billion terabytes by 2016,” notes the report. “Advanced analytical techniques would allow [insurers] to turn this goldmine of digital information into a complete picture of how individual customers behave, what they expect and the risks they present”.
Local consumers are already familiar with the feedback devices (telematics) being leveraged in the short-term motor space. Going forward similar devices will play an increasing role in the health space too. The bottom line is that “sensors that track behaviour allow customers to be more proactive about their safety, health and wellbeing, thereby providing insurers with invaluable insights about their policyholders,” notes PwC.
The evolution of insurance distribution
Life insurers are likely to make significant changes to their business models over the next decade. The cap on financial advisers’ fees in many countries and the planned elimination of commission for advisers in the UK will bring the value policyholders receive into the spotlight. The traditional life and pensions model in which policies are sold through intermediaries receiving a commission from the provider still prevails in China, India and many countries in South America, Africa, Asia and the Middle-East. This situation holds in South Africa too, where the remuneration of intermediaries will be thrashed out through 2013. Financial intermediaries and product providers are waiting with interest for the latest Financial Services Board (FSB) and Treasury comment on the topic.
More than 80% of the executives in the study believe that intermediaries in the future will become less tied to insurers as adviser commissions are withdrawn in some markets and customers seek greater impartiality. This could leave life companies with little direct contact with the customer and put further pressure on margins. It is not clear whether intermediation in the domestic market will follow a similar path. There are some who believe that the increasing cost of compliance and growing administrative burden will have the exact opposite effect, forcing independent advisers to close shop and resulting in sharp increases in the number of so-called tied agents.
Ensuring future viability
Insurers that maximise technology to meet their clients’ rising expectations will prosper over the next decade. Consumers have become accustomed to the ease, intuition and elegance of digital retail interaction and want the same experience from life insurers. “There is no certainty that existing players will be in the best position in five years’ time; indeed, with technology set to have such an impact, unwieldy legacy systems in many life companies could put them at a competitive disadvantage,” concludes Muguto.
Editor’s thoughts: The PwC Life Insurance 2020: Competing for a Future touches on regulatory developments too. It observes that life and pension companies face both media and regulatory pressure with regards how investment products are priced, marketed and sold – with the ever present threat of reduced inducements (commissions) to advisers... Would you agree that the future of the life and pensions industry hinges on emerging markets and the internet – or do you think changes in distribution and commission will prove more telling? Please add your comment or send it to [email protected]
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