The life and pensions sector has many reasons to be upbeat about its future. A larger and longer living global population is increasing demand for retirement products. In turn, the increasing affluence of people within the high-growth markets of South America, Asia, Africa and the Middle East (SAAAME) is creating a growing need for wealth protection.
But this is also a time of massive and potentially disruptive change. As customers become accustomed to the ease, elegance and intuition of the Apple/Amazon experience, they want the same accessibility, transparency and responsiveness in their life insurance and pensions products. We’ve already seen the emergence of easy-to-access and manage products such as target date funds, which automatically adjust the asset mix to the policyholder’s selected retirement age.
Advances in processing capacity, customer profiling and risk analytics are now opening the way for a new generation of smart policies. While being as affordable and easy to understand/compare as today’s off-the-shelf products, these policies would be fully customised and able to adapt to the individual customer’s changing needs. Crucially, the technological developments that are making this new generation of policies possible are also making it easier for new entrants to break into the market at relatively little cost.
Looking outside-in There is always a tendency to focus on what peers are doing and ignore developments outside the industry orbit. But to stay in the game, your business needs to be thinking and acting at the same rate as technology and customer expectations are evolving.
This is especially true at a time when start-ups and new entrants are eyeing the potential within life and pensions. We’ve seen in other sectors how even market-leading companies can quickly slide into obsolescence once customers see that they can get what they want cheaper and easier.
Examples of this rapid decline include Kodak, which, having been America’s market-leading digital camera maker as recently as 2008, is now in Chapter 11. In the intervening period, smartphones took away Kodak’s market by becoming the most popular means of digital photography.
In this brief period, we’ve also seen music stores lose out to the iTunes store and film rental shops being swept aside by on-demand downloadable films. It’s therefore vital to make sure that your business is alert to emerging threats from both inside and outside the industry and that you’re ahead of the curve rather than playing catch-up.
While insurance is a highly regulated industry, this shouldn’t be an excuse for doing nothing. If regulatory constraints are standing in the way of developments that could benefit customers then it’s your job to make supervisors aware of this and work with them to bring controls up to date. Moreover, you can’t simply wait for changes in demographics and government policy to create new openings as more proactive competitors are going to get in ahead of you.
You have to be nurturing the new markets, designing the smart new products and forging the partnerships needed to capitalise on these opportunities now. You will also need to think about how to create the integrity and trust within the organisation that would allow you to respond to customers evolving needs faster and more effectively than your competitors.
Fresh thinking Many life and pensions companies are conscious of the need for fresh thinking and new strategies. Our latest global CEO survey found that insurers as a whole are just behind the technology, communications and entertainment sectors in their readiness to embrace business model innovation. Yet a survey of life and pensions executives carried out for this report raises questions about how far and how quickly they’re prepared to go to adapt to change and sustain competitive relevance.
The uncertainty over where growth is going to come from and how life and pensions companies are going to deal with the disruptive forces they face is reflected in the generally disappointing share prices in the sector.
In Life insurance 2020: Competing for a future, we examine the developments that are set to have the most decisive impact over the next five years and the main opportunities for innovation, growth and competitive differentiation.This includes how to deal with the shifting focus of growth (Two-speed global growth), changes in customer preferences (Distribution disruption and the customer revolution), sharper profiling (Information advantage through big data) and new competitive threats (Big and fast: Evolving business models’). The aim is to help life and pensions companies assess the implications of a marketplace in transformation for their particular organisation.
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