James Tufts, UK Head of Life & Pensions at EY, comments: “Regulatory reform will continue to dominate the life and pensions market throughout 2017. Players in the sector are still adapting their business models and bringing new products and services to market to address the major reforms of the last few years, in particular Pensions Freedoms.
But in 2017, the workload will also be impacted by the changes needed to respond to the FCA’s thematic review of how longstanding customers are treated. The regulator has made it clear that it expects big improvements in customer communications and action to address legacy terms and conditions that have become unfair in the light of the current market.”
Will robotics help bring affordable financial advice to the market?
“Although a challenging change agenda, it is also an opportunity for insurers to re-engage with their customers. All the evidence suggests people are struggling to make savings and retirement decisions that make the most of their pension pots, so the hope is that 2017 brings more affordable financial advice to the market. One factor that may help is the European General Data Protection Regulations, which will take effect in 2018 and will introduce a right to data portability, opening the way for customers to share and consolidate data that has historically been scattered across their financial services providers. Before this can happen however, providers need to find a way of assessing and managing advice risk in the current regulatory environment. For providers with a legacy IT estate, we see increased usage of software robotics and process automation coming in to deliver these projects, as the ‘rise of the robots’ continues unabated. Overall 2017 is set to be the year when so-called “Robo-Advice” will make a real break-through in the UK, and we expect several large providers to launch propositions in this space, which will create yet further momentum.”
Brexit indirectly impacts pension providers – a halt to the reforms agenda
“Of course, Brexit will be the other major impact on the market next year. Uncertainty is always a challenge for businesses, and for the life, pensions and investment sector particularly, the elongated period of low interest rates will intensify the pressure to find returns and drive down fees and costs – further intensified by the FCA’s thematic review of investment costs. But for pensions providers, the impact is mainly indirect. The EU Referendum vote brought with it a change in Chancellor, which has seen the programme of pensions reforms come to a halt for the time being. And, the sense is that the new Government is in no hurry to complete the agenda at the pace or necessarily in the direction as it was set out, at least in the short term.”
Gamification in the insurance sector to help increase customer engagement
“Technology as ever has a role to play, and 2017 will continue the trend of ‘gamification’ in the insurance sector, as gaming elements are increasingly factored into products to engage customers. Adding simple gaming elements to an online insurance application or digital fact-finding process can decrease customer abandonment rates by up to 50%. Companies will further ramp up their digital customer engagement innovations, as well as explore new capabilities, such as the use of blockchain. Further innovation in this area is exciting and should help to ensure people are taking out insurance products to protect themselves where necessary.”
Solvency II still front of mind for insurers
Simon Woods, Insurance Partner at EY, comments: “Solvency II finally came into force in 2016 after many years of preparation. It will remain front of mind for the industry throughout 2017, and we expect it will be brought into ever sharper focus as the headwinds of continued low economic growth and interest rates persist. While in theory the regime was meant to be neutral to the industry in terms of capital, in practice insurers have seen steep rises in capital requirements for certain business lines, for example, annuities in the UK.
“In 2017, insurers will be focusing on continued capital efficiency and stability to maintain acceptable return on equity and dividend pay-outs. There will also be close attention paid to enhanced disclosures from Solvency II Pillar 3 reporting, and an expansion of investment approaches to boost returns and provide long-term finance, for example, to new infrastructure projects.
“However, it’s not all doom and gloom. We are seeing new capital enter the market, and insurers’ business models are becoming more divergent around particular customers, products and geographies as a result. As we enter the new year, it will be key that insurers analyse their options carefully as there are no ‘free wins’. However, there will be many opportunities to improve returns, and it will be the insurers that adopt strategic capital management approaches who will ultimately fare best.”
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