General Insurance Article - Insurance playing catch up with more disruptive industries

 Compared with areas such as hospitality, airlines, transport and home entertainment, the financial services industry is yet to see a new entrant capture significant market share, according to PwC.
 
 While there have been new entrants to FS sectors, incumbents have generally been able to withstand these challenges and avoid any loss of their customer base.
 
 In comparison to other industries, most consumers still take a relatively low interest in financial services products and rarely scan the market for new offerings.
 
 PwC analysis of the consumer-financial services provider relationship reveals some key factors:
 
 • 48% of British consumers would not consider purchasing any financial product from a FinTech.
 
 • Additionally only 19% of British consumers participating in a recent survey said they would consider switching their main current account provider in the next two years.
 
 Are there opportunities with an environmentally conscious, more tech- savvy consumer base?
 
 Across Asset and Wealth Management (AWM) subsectors. the degree of expected technological advance - or disruption - varies widely.
 
 The key areas where technological step changes could materialise are:
 • Wealth transfer to millennials
 • Purpose-driven investing
 • Growing customer appetite for digital offerings
 
 The mass, and mass affluent segment is currently evolving as regulatory changes lead to an advice gap and an ongoing opportunity for market participants. Conversely, there is less appetite for new propositions in the high-net worth segment, but wealth transfer could lead to increased demand for impact investing and digitally enabled prototypes:
 
 Younger inheritors place a higher emphasis on broader purpose and impact than the older generation. 93% of millennials believe social or environmental impact is key to their investment decisions, the report finds. This is likely to see the profile and emphasis on impact investing and Environmental, Social and Corporate Governance (ESG) grow in the future.
 
 According to PwC Strategy& analysis, 66% of 18-24 year olds would pay more for an ESG ETF alongside 62% of 25-34 year olds vs 30% of 55-64 year olds and 26% of the 65+ community.
 
 Also 44% of those sampled would be willing to pay a premium of between 20% and 100% extra for an ESG ETF.
 
 Signs of this shift are beginning to emerge and there is evidence that the appetite for sustainable impact investing is growing among the HNW sector, albeit from a small base. For example, analysis found that 16% of UBS wealth advisers expected their clients to increase sustainable investing in the next 12 months**, up from 7% in the previous year.
 
 Institutional Investments
 Technological advancements and customer demand for superior returns continue to increase pressure on institutional investments market players, but have not led to major disruption.
 
 However, institutional customers are also pushing market participants to focus more on purpose-driven investing across asset classes, including sustainable smart buildings in real estate. ESG mutual fund assets are predicted to grow 8.5% year on year between 2017 and 2025, reaching US$2.08tn, which is a stronger growth rate than the overall industry, the report states.
 
 Projected decline in fund management fees to 2025
 The mass and mass-affluent savings and investments sector have been undergoing disruption, driven by unmet customer demand and a mature set of enablers. Regulatory interventions aimed at providing fairer outcomes for customers, such as RDR and MiFID II, made it challenging to serve customers profitably. As a result, many incumbents refocused their business models onto higher margin segments, leading to an advice gap. This has led to a rise of underserved customers in need of affordable investment solutions.
 
 Compound Annual Growth Rates in fund management fees are now set to decline by 19% and 20% in active and passive markets respectively.
 
 Who wins, who loses across the financial services sector?
 Incumbents are most likely to reap the benefits of disruption due to three key challenges for new entrants: 1) importance of a trusted brand, 2) high levels of customer inertia, 3) high acquisition costs.
 
 However, incumbents are unlikely to enjoy the benefits of disruption if they do not work with newer market players.
 
 Andrew Kail, head of financial services at PwC, said: “To become more agile and responsive to a changing market, incumbents may well seek to address their technology and innovation gaps through acquisitions and partnerships. “However, delivering value from these arrangements has proven notoriously difficult for the traditional players."

  

 Alan Gemes, senior partner PwC Strategy & added: "Any acquisition needs to be managed carefully within the organisation in order to sustain the innovation it brings. “Nonetheless, making any acquisition or partnership work effectively for both sides is challenging. Many companies may not be fully prepared for the process.”