EY – NextWave Insurance: life insurance and retirement
Executive summary :
A complex mix of economic, technological, competitive and societal trends have the global life insurance and retirement industry facing an inflection point.
Gaps need to be bridged
Interest rates have remained too low for too long for past strategies to be effective now. The product-driven business models of the past will not be sustainable in the future, primarily because they can’t adapt quickly enough to changing customer needs, not to mention broader social and economic trends. In the face of large and growing protection and savings gaps, society also needs something different from the industry; life insurers must (re)define their role if they want to help address these issues and opportunities.
Complexity and proliferation
Given the range of differences in product offerings, growth and penetration rates, regulatory landscape, technology maturity, demographics, cultural norms and public finances, there is no such thing as a single global life insurance and retirement market. Rather, there are many individual markets, presenting unique opportunities and risks.
There are significant similarities and parallels, however, including increasing investments in innovation, convergence with other sectors, intensifying competition and changing customer expectations. While the direction of travel is broadly consistent across some markets, each is starting from a different point and moving at its own speed.
Things must change
The US market first signalled that major strategic reassessments are in order. In the world’s largest life insurance market by gross written premium (GWP), premiums have remained flat during the last decade and the customer base has declined by 14% since 2011. Trillions of dollars of assets have migrated away from US life insurers.
Even where regulation creates opportunity (such as the 2019 SECURE Act), low interest rates make it hard for insurers and annuity providers to take advantage. In the UK, auto enrolment in workplace pensions has brought in 10 million new customers.
Pension freedoms have led to unprecedented change in the retirement market, but the growth in assets has been limited; workplace contributions are often small, and in many cases new business figures in retirement mask individuals consolidating assets from multiple providers.
Regulation is getting tighter
More stringent regulations for financial reporting, solvency and consumer protection in the US, UK, EU, Australia and other markets have sparked new or reinforced historical shifts to third-party, fee-based distribution models. They have also furthered the decline in traditional savings products, which appear to offer poor value compared to tax-wrapped investment products.
More regulatory activity is to be expected in the coming decade, with many markets moving toward more detailed reporting and stricter guidance on offering appropriate products to consumers. In many mature markets, the pressure to digitize distribution increases as the agent force ages and cost pressures mount. The recent experience of markets with established third-party distribution suggests that agents and advisors will over time seek to control a greater share of the value chain.
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