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

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Overview 1
Catalyst 1
Summary 1
EXECUTIVE SUMMARY 2
Table of Contents 3
list of figures 4
List of tables 5
INTRODUCTION 6
PRODUCT OWNERSHIP 7
A third of UK consumers do not hold a savings product 7
Nearly a third of consumers do not hold a savings account and UK personal debt continues to take over the nation's GDP 7
Affordability is a driving factor behind UK consumers stalling their savings 8
Over a tenth of non-savers have no interest in saving at all 9
Consumers are also sacrificing savings to clear their debts 10
Low interest rates have offset the desire to save in deposit accounts 10
Young people are least likely to hold a savings account and have embraced credit as a way of life 10
Pension ownership among UK consumers is stalled by lack of affordability 12
Over 60% of UK consumers do not have a pension 12
People need to save for their retirement but they are hindered by the perception of affordability 13
People are not saving for the future, assuming that they will be looked after by the buckling state system 14
Young people are discounting the value of importance in building up retirement savings 14
However, an ageing workforce will put pressure on people to support retirees 17
It is hoped that NESTs will address the problem of long-term retirement savings 19
UK consumers have under provision of protection insurance 20
Young people do not see protection insurance as the answer to unforeseen events 21
Consumers perceive that they simply do not need protection insurance 23
Consumers are sacrificing adequate financial protection with rising personal debt 25
Consumers are over estimating life insurance costs 25
PROFITING THROUGH RETENTION 26
Existing customers must be retained and understanding their motivations for defection is vital for a retention strategy 26
Customer retention is not cheap, but it is cheaper than losing customers 26
Retention of profitable customers is a major focus area 27
Employers are key facilitators and providers of pensions business to consumers 27
Consumers' inertia causes the majority to take out a pension through an employer where no choice is given 27
Automatic enrollment will help overcome the inertia preventing many people from saving 28
Employees aged over 22 are eligible for automatic enrollment, but policy should encourage people to start saving early 29
Policy must also place emphasis on financial education among young people to increase financial responsibility 30
NESTs aim to target those who are currently not saving enough to give them the retirement income they expect 31
However, the effectiveness of NESTs are in question 32
For some, leveling down employers' contribution through the Personal Accounts scheme will make pension provision worse 33
Employers may be tempted to minimize costs of NESTs through lower employee salaries 33
Price is a bigger motivation factor for UK consumers across all protection products 34
Attracting new customers to protection will be challenging 34
Young Britons seem to be more concerned by price rather than product suitability 36
The price war is not impacting on the protection gap which has increased to £2.4 trillion in the UK 36
The economic downturn has encouraged consumers to switch providers 37
Customers are sacrificing policies as lack of affordability becomes an issue during the financial crisis 37
Technology is aiding consumers in their switching behavior 38
Technology is affecting the way protection business is being conducted 38
However, concerns and criticisms are being leveled at non-advised sales 39
New entrants with strong brands and consumer access are intensifying competition 40
CONSUMER ENGAGEMENT 41
Consumers place the low levels of trust in financial advisors and insurers 41
Trust in financial advisors are very low compared to other financial services institutions 42
Aggregator sites have become a trusted source of financial service in the current climate 43
Non-traditional financial service institutions can try to take advantage of higher levels of consumer trust 43
Consumers desire trustworthiness as an attribute in their life and pensions providers 44
UK consumers are more concerned that their life and pensions provider is trustworthy and honest 44
An improved level of trust can directly benefit customer acquisition, retention and overall performance 45
Trust also drives the take-up of financial advice 47
Attempts by the government to engage consumers about their finances have been unstructured paving the way for others 47
The FSA has attempted to make consumers understand financial products easier with online tools 47
The Retail Distribution Review aims to increase consumer access to and confidence in financial services 48
However, the effectiveness of the proposals to alleviate consumer confusion is doubtful 48
The Money Guidance service is well placed to fit into existing advice services to offer guidance on money matters 49
Money Guidance principles presents a potent opportunity for banks to educate consumers about finances 49
DISTRIBUTION DYNAMICS 50
Traditional advice channels are becoming an outdated model 50
The majority of pensions are taken out through a consumers' employer indicating the importance of worksite marketing as distribution channel 50
The employer can be seen a source of reassurance for consumers who are looking to find out if their benefit selection has been prudent 51
The use of online channels is more pertinent in consumers taking out life insurance 52
The FSA's Retail Distribution Review will change dynamics of the market for advice 54
The latest proposals suggest that the financial services industry be split into three categories of advice and non-advised sales 55
The RDR produces three key impacts on the market structure and competition for IFAs 56
However, consumers are unlikely to be part with their money to pay for advice 57
ACTION POINTS 58
Action: Effective and regular communication and education will help providers engage consumers with long-term savings 58
Improving the knowledge and understanding of consumers 58
Consumers need effective and regular communication 59
Strategic direction from Government is also needed for a concerted effort to tackle long-term savings behavior 59
Action: Providers must deepen existing relationships to maximize the potential business it can bring 59
Cross-selling strategies must offer value to the customer and not simply convenience 60
Relevant and timely communication must occur to strengthen existing customer relationships 60
Life and pensions companies must take action to build relationships with online aggregator sites and build online communities with consumers 60
Action: Providers can seize opportunities to educate consumers on pensions where the government has failed 61
Providers and advisors should support people to exercise personal responsibility 62
The government and industry must put more personal responsibility on consumers about retirement planning 63
Action: Providers need to focus on making protection more tangible and meaningful to consumers 64
Action point: Advisors need to renew their efforts to improve their standing and reputation among the public 65
Financial advice should be widened in scope to address consumers' lifestyles in the whole 66
Providers should consider tie-ups with aggregator sites 67
APPENDIX 68
Definitions 68
Life-based savings products 68
Life assurance 68
Term assurance 68
Income protection 68
Critical illness 68
Collective life 69
ISAs 69
Personal pensions 69
Stakeholder pensions 69
Group personal pensions (GPPs) 69
SIPPs (Self Invested Personal Pensions) 69
ABI definitions of distribution channels 70
Independent financial advisors (IFAs) 70
Direct sales forces 70
Tied agents 70
Multi-tied agents 70
Bancassurance 70
Direct marketing 70
Telesales 70
Other 71
Methodology 71
Further reading 71
Ask the analyst 72
Datamonitor consulting 72
Disclaimer 72
List of Tables
Table 1: Reasons for UK consumers not holding a pension, by age segment 17
Table 2: Life insurance product holding by age 23
Table 3: Life insurance, motivation for choosing the product 35
Table 4: Level of trust in financial services providers 42
Table 5: Life insurance by channel of opening 53
List of Figures
Figure 1: A third of UK consumers do not hold a savings account 7
Figure 2: Affordability is key factor stalling UK consumers from saving 9
Figure 3: Savings product penetration is lowest among young people in the UK 11
Figure 4: Over 60% of UK consumers do not hold a pension product 12
Figure 5: Affordability is a key barrier to pension savings for UK consumers 13
Figure 6: Pension holding increases with age 15
Figure 7: Young people are discounting the importance of starting pension savings early in life 16
Figure 8: Longer life expectancies are producing a growth in the number of older people in the UK 18
Figure 9: Not even a third of the population hold a protection insurance product 20
Figure 10: Protection insurance holding is lowest among young consumers 22
Figure 11: Consumers do not believe they need protection insurance 24
Figure 12: Most pension holders are motivated to take out the pension offered by their employer 28
Figure 13: Ten million people are expected to participate in the Personal Accounts scheme in 2012 31
Figure 14: Consumers look towards price when taking out protection insurance 35
Figure 15: Consumers trust insurers and financial advisors or brokers the least 41
Figure 16: Consumers desire their pensions provider to be trustworthy 44
Figure 17: Trustworthiness is an important attribute for consumers in their life insurance providers 46
Figure 18: Most pensions are opened through employers 51
Figure 19: The use of online channels is more pertinent in the purchase of life products than pensions 53
Figure 20: The RDR proposes a three way split for advice 56
Figure 21: The future pensions market is one of helping individuals exercise personal responsibility 63

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