Consumer Targeting in Life and Pensions 2010

Introduction

There has been a multitude of changes affecting the UK life and pensions industry in the last 12 months. The UK life and pensions providers have realized the necessity to adapt to the new consumer environment

Scope

- Examines the current shape of the life and pensions industry and explores factors that are currently limiting new business
- Highlights key findings from Datamonitor’s FS Consumer Insight Survey for the life and pensions markets in the UK
- Provides strategies to help life and pension companies find innovative methods of customer retention and acquisition

Highlights

Alongside the visible impact of the recession, the L&P industry and its consumers continue to face longer-term issues associated with prevailing demographic trends, socio-cultural developments and the wider economy. Consumers have a shortfall in savings and protection with some facing an uncertain prospect towards a comfortable retirement

The potential for government policies to induce people to consider investment, retirement and protection plans is also in question and the life and pensions industry has continued to lose its relationship with consumers. Providers can seize the opportunity to target new customers and retain their existing customers efficiently to win new business

Reasons to Purchase
- Identify key consumer segments to target for life, pensions and protection products
- Access analysis documenting the trends behind consumers' attitudes and behaviors
- Provides action points to aid strategic decision making based on the insights analyzed

Overview
Catalyst
Summary

EXECUTIVE SUMMARY
Table of Contents
list of figures
List of tables

INTRODUCTION

PRODUCT OWNERSHIP
A third of UK consumers do not hold a savings product
Nearly a third of consumers do not hold a savings account and UK personal debt continues to take over the nation's GDP
Affordability is a driving factor behind UK consumers stalling their savings
Over a tenth of non-savers have no interest in saving at all
Consumers are also sacrificing savings to clear their debts
Low interest rates have offset the desire to save in deposit accounts
Young people are least likely to hold a savings account and have embraced credit as a way of life
Pension ownership among UK consumers is stalled by lack of affordability
Over 60% of UK consumers do not have a pension
People need to save for their retirement but they are hindered by the perception of affordability
People are not saving for the future, assuming that they will be looked after by the buckling state system
Young people are discounting the value of importance in building up retirement savings
However, an ageing workforce will put pressure on people to support retirees
It is hoped that NESTs will address the problem of long-term retirement savings
UK consumers have under provision of protection insurance
Young people do not see protection insurance as the answer to unforeseen events
Consumers perceive that they simply do not need protection insurance
Consumers are sacrificing adequate financial protection with rising personal debt
Consumers are over estimating life insurance costs

PROFITING THROUGH RETENTION
Existing customers must be retained and understanding their motivations for defection is vital for a retention strategy
Customer retention is not cheap, but it is cheaper than losing customers
Retention of profitable customers is a major focus area
Employers are key facilitators and providers of pensions business to consumers
Consumers' inertia causes the majority to take out a pension through an employer where no choice is given
Automatic enrollment will help overcome the inertia preventing many people from saving
Employees aged over 22 are eligible for automatic enrollment, but policy should encourage people to start saving early
Policy must also place emphasis on financial education among young people to increase financial responsibility
NESTs aim to target those who are currently not saving enough to give them the retirement income they expect
However, the effectiveness of NESTs are in question
For some, leveling down employers' contribution through the Personal Accounts scheme will make pension provision worse
Employers may be tempted to minimize costs of NESTs through lower employee salaries
Price is a bigger motivation factor for UK consumers across all protection products
Attracting new customers to protection will be challenging
Young Britons seem to be more concerned by price rather than product suitability
The price war is not impacting on the protection gap which has increased to £2.4 trillion in the UK
The economic downturn has encouraged consumers to switch providers
Customers are sacrificing policies as lack of affordability becomes an issue during the financial crisis
Technology is aiding consumers in their switching behavior
Technology is affecting the way protection business is being conducted
However, concerns and criticisms are being leveled at non-advised sales
New entrants with strong brands and consumer access are intensifying competition

CONSUMER ENGAGEMENT
Consumers place the low levels of trust in financial advisors and insurers
Trust in financial advisors are very low compared to other financial services institutions
Aggregator sites have become a trusted source of financial service in the current climate
Non-traditional financial service institutions can try to take advantage of higher levels of consumer trust
Consumers desire trustworthiness as an attribute in their life and pensions providers
UK consumers are more concerned that their life and pensions provider is trustworthy and honest
An improved level of trust can directly benefit customer acquisition, retention and overall performance
Trust also drives the take-up of financial advice
Attempts by the government to engage consumers about their finances have been unstructured paving the way for others
The FSA has attempted to make consumers understand financial products easier with online tools
The Retail Distribution Review aims to increase consumer access to and confidence in financial services
However, the effectiveness of the proposals to alleviate consumer confusion is doubtful
The Money Guidance service is well placed to fit into existing advice services to offer guidance on money matters
Money Guidance principles presents a potent opportunity for banks to educate consumers about finances

DISTRIBUTION DYNAMICS
Traditional advice channels are becoming an outdated model
The majority of pensions are taken out through a consumers' employer indicating the importance of worksite marketing as distribution channel
The employer can be seen a source of reassurance for consumers who are looking to find out if their benefit selection has been prudent
The use of online channels is more pertinent in consumers taking out life insurance
The FSA's Retail Distribution Review will change dynamics of the market for advice
The latest proposals suggest that the financial services industry be split into three categories of advice and non-advised sales
The RDR produces three key impacts on the market structure and competition for IFAs
However, consumers are unlikely to be part with their money to pay for advice

ACTION POINTS
Action: Effective and regular communication and education will help providers engage consumers with long-term savings
Improving the knowledge and understanding of consumers
Consumers need effective and regular communication
Strategic direction from Government is also needed for a concerted effort to tackle long-term savings behavior
Action: Providers must deepen existing relationships to maximize the potential business it can bring
Cross-selling strategies must offer value to the customer and not simply convenience
Relevant and timely communication must occur to strengthen existing customer relationships
Life and pensions companies must take action to build relationships with online aggregator sites and build online communities with consumers
Action: Providers can seize opportunities to educate consumers on pensions where the government has failed
Providers and advisors should support people to exercise personal responsibility
The government and industry must put more personal responsibility on consumers about retirement planning
Action: Providers need to focus on making protection more tangible and meaningful to consumers
Action point: Advisors need to renew their efforts to improve their standing and reputation among the public
Financial advice should be widened in scope to address consumers' lifestyles in the whole
Providers should consider tie-ups with aggregator sites

APPENDIX
Definitions
Life-based savings products
Life assurance
Term assurance
Income protection
Critical illness
Collective life
ISAs
Personal pensions
Stakeholder pensions
Group personal pensions (GPPs)
SIPPs (Self Invested Personal Pensions)
ABI definitions of distribution channels
Independent financial advisors (IFAs)
Direct sales forces
Tied agents
Multi-tied agents
Bancassurance
Direct marketing
Telesales
Other
Methodology
Further reading
Ask the analyst
Datamonitor consulting
Disclaimer

List of Tables
Table 1: Reasons for UK consumers not holding a pension, by age segment
Table 2: Life insurance product holding by age
Table 3: Life insurance, motivation for choosing the product
Table 4: Level of trust in financial services providers
Table 5: Life insurance by channel of opening

List of Figures
Figure 1: A third of UK consumers do not hold a savings account
Figure 2: Affordability is key factor stalling UK consumers from saving
Figure 3: Savings product penetration is lowest among young people in the UK
Figure 4: Over 60% of UK consumers do not hold a pension product
Figure 5: Affordability is a key barrier to pension savings for UK consumers
Figure 6: Pension holding increases with age
Figure 7: Young people are discounting the importance of starting pension savings early in life
Figure 8: Longer life expectancies are producing a growth in the number of older people in the UK
Figure 9: Not even a third of the population hold a protection insurance product
Figure 10: Protection insurance holding is lowest among young consumers
Figure 11: Consumers do not believe they need protection insurance
Figure 12: Most pension holders are motivated to take out the pension offered by their employer
Figure 13: Ten million people are expected to participate in the Personal Accounts scheme in 2012
Figure 14: Consumers look towards price when taking out protection insurance
Figure 15: Consumers trust insurers and financial advisors or brokers the least
Figure 16: Consumers desire their pensions provider to be trustworthy
Figure 17: Trustworthiness is an important attribute for consumers in their life insurance providers
Figure 18: Most pensions are opened through employers
Figure 19: The use of online channels is more pertinent in the purchase of life products than pensions
Figure 20: The RDR proposes a three way split for advice
Figure 21: The future pensions market is one of helping individuals exercise personal responsibility

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