As the dust begins to settle following one of the biggest changes to the UK pensions regime in the 2014 Budget, PwC UK insurance leader, Jonathan Howe, comments on some of the likely impacts on the life insurance industry: |
"There is no doubt that the changes present very significant challenges to life insurers with a heavy reliance on annuity business, but many are already taking a glass half full approach. Yes, there will be losers, but opportunities exist for those who develop innovative new products and services for customers. Those who retire will still need investment options - they will need to make investment decisions, for an appropriate yield, for the rest of their lives. We believe despite short term pain life insurers can have long term gain. After all, there are thriving life insurance industries around the world without compulsory annuity purchases. Whereas an annuity is sold once, with a new range of products, potentially required at different stages during retirement, there are likely to be many more touch points with customers, increasing engagement. The increased flexibility of the rules should also increase the number of people saving in pensions, which will now provide a savings vehicle with few limits. With contributions also paid from pre-tax salary, this could effectively replace ISAs as the choice of saving vehicle for many.
All of the opportunities for innovative new products go hand in hand with a need for life insurers to focus on their customers and align their digital strategy with their customers needs. In our view the changes announced in the budget will accelerate the urgency of this need. At this stage, it remains a little too early to gauge the ultimate impact of restructuring and/or market consolidation. However, what is clear is that this announcement represents yet another key driver of likely M&A over the next 12 to 24 months within a European life market that already faces the challenge over optimal business models under Solvency II. It is clear that all firms will need to review and possibly reconsider their business strategy." |
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