By Mike Preston Business Development Director at Compare Cover
So, what are these changes that are on the horizon and what will they mean for insurers in 2017 and beyond?
Pension Changes to Benefit Life Insurance
People are living and working longer in the modern era. As recent reports suggest, the retirement age could be set to increase to 70. This number could keep rising as those currently under the age of 30 are expected to spend 32% of their adult lives in retirement. Which, if you conclude that adult life begins at 18, would be sixteen and a half years in retirement.
This later-life market is, as of yet, still a relatively untapped source, especially as younger individuals expect to see an extended lifespan. As well as this, they could potentially have dependents and may be buying property at much later stages in life - perhaps leading to people putting off buying life insurance as a result.
An unsure cloud of change is also hanging over this demographic in terms of pensions. For now, Brexit has led to a pause to the government’s pension reforms as all talks on the matter were brought to a halt by the Leave Vote. This may change in the future and is something that the industry needs to be aware of, as reforms to pensions may have several benefits or setbacks for the insurance industry as a whole. The possible effect of future reforms, particularly on those under 30 may make life insurance a necessity for later life security.
Direct to Consumer Interface
There is a growing call for more direct human-to-human discussion between the insurance industry and customers. A report by Swiss Re – the Term and Health Watch 2016 – revealed that direct to consumer sales had increased from 36,586 in 2014 to 115,633 in 2015. A rise which indicates that a more direct sales approach may be more appealing to consumers in the current market, as opposed to policies offered, for example, by banks. Sales of those policies actually saw a decrease of 48% throughout 2015.
This growing trend may mean that insurers need to be more willing to speak to consumers in a more straightforward manner and more importantly, ‘jargon-free’. It is apparent that consumers appreciate this approach more and the opposite could lead to them being less likely to insure with companies that don’t employ this style, especially as comparing life insurance policies is easier than ever before.
Challenges to the Industry
Of course, there will also be a number of challenges in the near future which will have a direct impact on the life insurance market, such as peer-to-peer insurers, robotic financial advisors and emerging telematics. There are a number of specific, individual, threats on the horizon for the insurance industry which are exclusively factors of technological advances.
Some of this may sound a little far-fetched. Robotic financial advisors sound more at home in the twenty-second century than our own. However, such advisors could be the norm as early as 2025 according to some suggestions. This is a process where consumers input their individual financial data and from this a programme generates potential investment routes. Cynics of this technological growth claim it is not a cure-all for financial advice, rather something which can be used in the most basic way. Whether it will ever rise to being the best solution or most accurate advice on the market is a huge question, that many would give an early answer of ‘no.’
On the other hand, many in the industry may consider growing technological advances an opportunity rather than a challenge thanks to the potential for seamless interaction with consumers, more easily accessible information and even a method of building consumer loyalty.
The Brexit Factor
One of the more uncertain aspects of the coming years is how Brexit will affect the insurance industry. Article 50 – the formal beginning of negotiations for a country to leave the European Union – is to be enacted on 29th March, carried forward by the ‘clear aims’ of the government for what Brexit will be. However, despite government assurances, there will undoubtedly be an air of uncertainty in British business as a result of the move. This could be particularly felt in the insurance sector.
Low-interest rates will mean added pressure to drive returns and cut fees and costs. But, the business model of the insurance industry means that it is capable of evolving rapidly in the face of such challenges. A fact which will serve it well in the uncertain aftermath of Britain’s exit from the EU.
With such an air of change in the market, it seems that life insurance may become more important than ever. Those that seek out opportunities in somewhat uncertain times ahead could be more likely to find a return.
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