Consumer Targeting in Life and Pensions

Published by: Datamonitor

Published: Mar. 4, 2009 - 13 Pages

Table of Contents

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Traditional advice channels have become an outdated model as consumers seek advice online and from family and friends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

Abstract

• 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.

• 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.

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