“With more clarity on both transition and the UK’s post-Brexit EU relationship expected in the New Year, firms’ Brexit preparations are likely to accelerate as far as the capacity of the relevant authorities allows. 2017’s M&A trend is likely to continue, with further consolidation expected, especially in the Pensions Master Trust sector, and the continued rationalisation of businesses as they clarify their core focus segments. Robo-advice is also set to gain impetus and is likely to enter the mainstream in 2018.”
Transformation: key theme for 2018
“In an environment of low growth, low fees and pressure to improve service to longstanding customers, several insurers have already opted to start major transformation programmes. They are looking to simplify and modernise legacy IT estates while developing innovative digital experiences to engage their customers. This scale of change across the industry will create opportunities for new software solutions and FinTech partners to enter the market to work in conjunction with the traditional insurers. But more importantly it should mean that customers are offered better products services and experiences.”
M&A trend expected to continue
“2017 saw the announcement of two major industry deals. One crossed the increasingly blurry line between Life & Pensions and Asset Management, and the other was an example of a specific book being traded in a market that has historically preferred whole company deals. There may be more to come: there looks to be excess capacity in the asset management market and the UK platforms market is fragmented and facing high modernisation costs. The Pensions Master Trust market may also see consolidation as the initial wave of auto-enrolment growth subsides and The Pensions Regulator introduces stronger regulation of the sector.”
Robo-advice to gain impetus
“There is now real momentum around Robo-advice and 2018 looks like the year when it will truly enter the mainstream. Several high street banks have now announced their intention to launch online advice processes and we are also aware of a number of long term savings institutions that see Robo as a key enabler to their future digital ambitions. Most of these models focus on a hybrid approach, recognising that many customers will still want to speak with a human during the process of making significant financial decisions. Providers hope that by using this multi-channel approach they can help customers while providing an affordable advice process.
“There is also considerable interest around the use of robo-paraplanning to automate elements of the adviser back-office and to increase productivity, which has been flat or declining for a number of years. This innovation could be key to reducing the cost-to-serve of advice models and increasing the availability of advice to retail customers.”
Heavy reg agenda, with firms’ focus to shift from compliance to consequences
“The standing wave of regulatory change rolls on, and most providers will begin the year with a number of major mandatory change programmes still in progress. The EU Packaged Retail Investment and Insurance-based Products (PRIIPs) regulations go live on 1 January, with MiFID II hot on their heels. The General Data Protection Regulations (GDPR) take effect in May, and many players will be starting work on IFRS 17. We may also see further change from the FCA’s Retirement Outcomes Review and Investment Platform Market Study, and The Pensions Regulator’s new regulations for Master Trusts. While there will be a lot of ongoing effort devoted just to achieving compliance, we also expect players to begin tackling the strategic consequences of some of these changes. GDPR could change the relationship with customers: earning trust and showing value could see providers forging deeper relationships. But one major breach could potentially set the industry back a long way.”
Guidance versus advice debate set to intensify
“The question of how to help customers with complex retirement decisions remains unsolved. Many firms and customers feel that guidance has to stop before it is really useful, and cheap, low risk advice remains a pipedream. 2018 may be the year when the industry grasps the nettle. We expect some players to launch automated advice options, and others to push the FCA for specific extensions to the boundaries of guidance. Will anyone find a successful model? One thing is clear: until we have one, customer outcomes could be at risk.”
Further clarity on post-Brexit environment likely to drive activity
“Brexit activity has been low-key for life and pensions players compared to some other sectors. Some UK providers with business in the EU, and EU providers with business in the UK, have started to ensure they have a full subsidiary in the relevant jurisdiction, and are moving their remaining cross-border business and branches under them. There is also quiet confidence that a solution will be found for older policies written cross-border; no-one wants a situation where customers’ contracts can’t be honoured through no fault of their own.
“Providers will review their strategies as details of the UK’s post-Brexit EU relationship and transitional deal emerge early next year. Of particular interest will be how closely UK regulation will need to shadow future EU regulation, and whether the UK can retain easy access to EU markets and initiatives like the Pan European Personal Pension.”
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