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Consumer Targeting in Life and Pensions

Datamonitor
March 4, 2009
13 Pages - SKU: DFMN2177130

Attention: There is an updated edition available for this report.

Abstract Table of Contents Search inside this report Related Reports

Countries covered: United Kingdom

Introduction

The UK life and pension providers have realized he necessity of engaging with consumers and not just developing relationships with intermediaries.

Scope

Examines the current shape of the life and pensions industry and explore factors that are currently limiting new business.
Assesses strategies to combat barriers to save for pensions, take up of protection and investment policies, & identifies consumer segments to target.
Provides actionable points to help life and pension companies find innovative methods of customer retention and acquisition.

Highlights

The life and pensions industry has recognized the need to engage with consumers. Consumer attitudes are reflected in their purchasing decisions of life and pension products and their behaviors have been affected by the instability in the financial markets.

Consumers desire to have some level of control over the way their underlying assets are handled and through which channels they are invested in as they lose trust in financial institutions' ability to keep their assets safe. Consumers are also less willing and able to spend money and sacrificing their life and pension policies as a result.

The potential for government policies to induce people to consider investment, retirement and protection plans is in question and the life and pensions industry has continued to lose its relationship with consumers. Providers can seize the opportunity both 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' recessionary attitudes and behaviors.
Provides action points to aid strategic decision making based on the insights analyzed.

Overview: Catalyst; Summary; Executive Summary; Executive Summary; Table of Contents; Table of figures; Table of tables
CONSUMERS LACK EDUCATION ABOUT THE IMPORTANCE OF LONG-TERM SAVING: Key takeouts and implications; Trend: Consumers do not take responsibility for their own future; Personal debt levels have been increasing due to a credit-dominated society; Young people have embraced credit as a way of life and are most in debt; Young people lack adequate financial education and skills; Consumers have a short-term outlook when making saving and investment decisions; Consumers are sacrificing savings to clear their debts during the financial crisis; Consumers may have the intention to save but their financial position makes it an unfeasible option; Trend: Market volatility and poor performance makes savings an unattractive option; Declining interest rates have offset the desire to save in deposit accounts; Consumers are very concerned about the eroded value of their savings; Poorly performing housing markets have created new uncertainty and consumer caution; Consumer confidence in financial institutions have plummeted during the financial crisis; Insight: Consumers' confusion makes their need for financial planning greater than ever; Consumers are uncertain and confused towards financial planning, acting as an implicit barriers to savings; Insight: Financial establishments have evolved to meet the needs of the old but are failing to engage the young; Consumers have been priced out of the savings market and unable to afford advice; Traditional advice channels have become an outdated model as consumers seek advice online and from family and friends; Insight: Attempts by the government and industry to educate consumers about their finances have been unstructured; 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; RBS has started to integrate Money Guidance principles into their delivery
TARGETING OF EXISTING CUSTOMERS IS AN IMPORTANT STRATEGY FOR PROVIDERS: Key takeouts and implications; Trend: The economic downturn is encouraging consumers to switch providers; Customers are sacrificing policies as lack of affordability becomes an issue during the financial crisis; Customers lack confidence in poorly performing equity-based products; Trend: Technology is helping consumers in their search for transparent and competitive policies; Consumers are becoming tech-savvy at managing their finances; Online price comparison sites are the most trusted financial services company in the current climate; Technology is affecting the way the life and pensions business is being conducted; Aggregator sites play a significant role in the distribution of simple protection products such as term assurance; Consumers have embraced the online sales channel; New entrants with strong brands and consumer access are intensifying competition; Insight: Existing customers can be placed in four key groups, and understanding their motivations for defection is vital for a retention strategy; Budget customers are motivated to defect by a change in circumstances; 'Lost' customers are motivated into defection by some failing of the provider; 'Stolen' customers are attracted away by an offer launched by a rival provider; 'Bought' customers switches providers on the basis of price; Insight: Retention efforts should be focused on customers with high lifetime profitability; Highlighting the most profitable customers can improve retention and efficiency; Providers can segment existing customers into four key groups; 'High maintenance' or 'value creator' customers come with high lifetime profitability and should be targeted by providers
DEMOGRAPHIC TRENDS ARE MAKING PENSION SAVINGS A NECESSITY: Key takeouts and implications; Trend: An ageing workforce will put pressure on people to support retirees; Trend: People need to save for their retirement but they are hindered by the perception of affordability; People are not prepared to take on higher pension savings during a market downturn; Affordability combined with short-term views act as further barriers to pension savings; 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; Insight: Government reforms will not do enough to help individuals save for retirement; It is hoped that personal accounts will address the problem of long-term retirement savings; The government is continually showing a lack of continuity on pension policy, undermining its importance; Leveling down employers' contributions will make pension provisions worse; The government should still ensure that it pays to save against the impact of means-testing; Employers may be tempted to minimize the costs of personal accounts through lower employee salaries; However, a contributions ceiling has been set to prevent the weakening of existing pensions provision; The state pension age is set to increase for men and women from 65 to 68 by 2046; Insight: Providers are not targeting those approaching retirement who want to secure their retirement ambitions; Accumulators are aged between 50 and 59 years, but have lifestage complexity; Accumulators want their individual needs recognized with a personal service; Accumulators are also attracted to convenience; Innovative example: Lincoln Financial Group has highlighted individual needs of consumers when thinking about retirement planning; Insight: Providers are not targeting those with aspirations of accumulating wealth; The financial services industry is missing the opportunity to harness the aspirer market; Banks are targeting aspirers in other market areas but are failing to offer long-term products; Connecting to the world and having a sense of belonging appeals to aspirers; Aspirers are increasingly seeking a purchasing experience that is efficient and convenient
A SIGNIFICANT PROTECTION GAP REMAINS IN THE UK: Key takeouts and implications; Trend: Consumers have under provision of protection; Consumers believe they do not need protection; Consumers are sacrificing adequate financial protection with rising personal debt; Young Britons seem to be more concerned by price rather than product suitability; Higher premiums for older applicants may push down cover levels; Consumers are over estimating life insurance costs; Trend: Consumers take out protection policies after 'trigger' events; Trigger events are moments in people's lives that can induce significant changes in protection behavior; There is a wide range of trigger events in the UK each year and consumers typically have a number of 'bankable' trigger events in their own lives; Insight: Providers are not impressing consumers enough about the need for protection; Providers need to focus on customers rather than price; Advisors have a chance to change the perception of the protection insurance; The protection gap still persists at £2.3 trillion in the UK; The price war is not impacting on the protection gap; Consumers' mixed feelings about life insurance is also fuelled by negative press; Innovative example: PruHealth rewards customers who make an effort to lead healthier lifestyles; Insight: Providers are not targeting individuals who have been affected by life events; Milestoners feel that trigger events make them stand apart from the crowd; Milestoners want to be recognized in their new roles and new needs; Milestoners need reassurance and security after a life event
LIFE-BASED INVESTMENTS FAIL TO ENGAGE CONSUMERS: Key takeouts and implications; Trend: Consumers are risk-averse and shunning equity-based investments; Consumers are risk-averse and prefer safer or guaranteed returns; Consumers lack confidence in equity-based products and are seeking safe haven in cash accounts; Insight: Economic turmoil is the most challenging issue faced by the investment bond market; Insight: Investment bonds need to attract to the cautious and less affluent consumer
ACTION POINTS: Action: Education and improved communication strategies will help providers engage with consumers; Consumers need effective and regular communication; Action: Relationships with existing customers must be deepened to retain business; Providers must improve affiliation with 'lost' customers to retain this segment; Communicating product and service advantages is needed to retain 'stolen' customers; Providers must make sure that prices remain competitive to keep the 'bought' customer segment; Providers need to move their existing customer base towards the 'Value Creator' status; Cross-selling strategies must offer value to the customer and not simply convenience; Life and pensions companies must take action to build relationships with online aggregator sites and build online communities with consumers; Action: Providers must aid consumers in exercising responsibility for retirement planning; The government and industry must put more personal responsibility on consumers about retirement planning; Providers should reward 'accumulators' to incentivize this segment to save; Providers should establish early relationships with 'aspirers' to gain business when they accumulate wealth; Action: Providers need to impress upon consumers the need for protection; Action: Providers need to innovate life-based investments to suit the risk-profile of today's consumers; Product development must focus on flexibility
APPENDIX: Data; 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; Further reading; Ask the analyst; Datamonitor consulting; Disclaimer
List of Tables: Table 1: Changes in population segments between 1981 and 2007 ('000s); Table 2: Projected life expectancies at State Pension Age (SPA) of 65, by sex, 1981-2051
List of Figures: Figure 1: Consumer credit gross lending in the UK market has continued to fall in 2007 whereas balances outstanding have continued to grow steadily; Figure 2: The value of savings is of great concern to consumers; Figure 3: UK house prices are sharply down; Figure 4: Consumers are utilizing informal sources to obtain financial advice; Figure 5: The FSA's 'Moneymadeclear' website aims to simplify financial products and services; Figure 6: The FSA's 'What about money?' website aims to get 16-24 years old financially capable; Figure 7: NatWest's MoneySense program aims to increase the bank's provision of practical financial guidance; Figure 8: People are considering contributing less or stopping contributions into a pension during the financial crisis; Figure 9: Transparency of product features and price are important to a consumers' choice of insurer; Figure 10: Online price comparison sites and banks are the most trusted financial institutions; Figure 11: The internet has become a key source of advice to consumers; Figure 12: Most IFAs perceive the term assurance market to see increased sales through aggregator sites; Figure 13: The lifetime valuation of the customer will affect the strategy approach; Figure 14: Pressure on the working age population is increasing as more people begin to retire; Figure 15: Longer life expectancies are producing a growth in the number of older people in the UK; Figure 16: Affordability is a strong barrier against saving for a pension; Figure 17: The accumulators are a significant part of the population in the UK; Figure 18: Lincoln Financial Group offers a gentle reminder to consumers of the future challenges they may face in their lifetime; Figure 19: Consumers perceive protection insurance as either unnecessary or unaffordable; Figure 20: Customers take out term assurance once they have had their first child; Figure 21: PruHealth makes health insurance more tangible by rewarding customers who lead healthier lives

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