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Accumulation and savings business in the UK life insurance market

Insurance Consulting and Technology
Insurer Solutions

By Phil Tervit | May 30, 2022

In this article we look at the accumulation and savings business and where we are seeing providers dare to differentiate during the early part of 2022.

In February we published our Insights to the UK Life Insurance Market 2022 where we boldly made predictions about the forthcoming year split across the four market segments – accumulation & savings, retirement & decumulation, legacy, and protection.

In this update we will take a deeper dive into the accumulation & savings segment and where we are seeing providers dare to differentiate during the early part of 2022.

What we are seeing in the market

The juggernaut of members and their pension savings moving towards DC pensions and ISAs has continued unabated in the opening period of 2022 – bolstered by the tax year-end flurry of activity as customers seek to utilise their tax advantages.

The underlying drivers supporting the accumulation & savings market remain – the government legislating auto-enrolment for employers, the treasury continuing to incentivise pension savings (subject to annual and lifetime limits), and the ever-increasing realisation of working individuals (albeit not enough) that provision for retirement by and large falls to them. There is now the issue of rapidly increasing inflation which could erode the value of pension savings over time – leading to underlying fund innovation or potentially product design (might we see the return of guarantees?) to protect policyholder interests against this market dynamic. Of perhaps greater note is the evolving regulation in this segment to protect customer interests – more on that below.

Hot off the press in Ireland, the government has announced design principles underpinning an Automatic Enrolment Retirement Savings System to apply from 2024 very much akin to UK auto-enrolment.

Propositional differentiation

There is a multitude of activities we are seeing at the propositional side of the Workplace offerings. By and large these are targeted at ‘getting ahead of the pack’. Companies are investing in their proposition with ambitions to substantially improve their offering in this competitive landscape.

We believe a 'Value for Member' lens can be hugely valuable here – not least because it is a regulatory requirement under tPR for Master Trust Boards and Independent Governance Committees to monitor and evidence it, but because it systematically allows stakeholders to focus on the strengths or weaknesses of the component parts:

  • Scheme management and governance (incl. meeting regulation)
  • Administration (including all aspects of service delivery and automation thereof)
  • Investment governance (including the default fund, core range and climate strategy)
  • Communications (including key customer journeys particularly at the points that matter)
  • Financial wellbeing (fitting DC savings with wider employee financial wellbeing strategies)
  • Risk management (continuity, financial reserves, operational resilience and much more)

The industry leading players are seeking to strengthen each component part, the holistic Value for Member and evidence this to key stakeholders.

Take for example the recent rises in inflation. Those getting ahead of the pack will be actively considering customer financial wellbeing and the communications around this, as well as potential investment solutions and risk management. A Value for Member framework with agility to apply in practice will set the market leaders apart.

Updates on this segment would not be complete without mention of pension dashboards. As our WTW article Pensions dashboards – a pivotal year ahead outlines, this is a pivotal year for this initiative.

Financial and risk matters

Many of us are now breathing a sigh of relief as another year-end reporting cycle concludes and results are safely delivered to the market. Finance and risk teams will not have time to rest however, as they consider key forthcoming regulatory changes. Below we give an accumulation & savings segment lens to these:

  • Solvency II reform: insurance providers will note the recent Solvency II reforms and PRA Quantitative Impact Study. WTW has prepared a report, commissioned by the ABI, that explains the key challenges and potential impacts including an anticipated risk margin reduction and hence greater capital efficiency.
  • IFRS 17: we are seeing many companies now begin to fully assess their transitional balance sheets under IFRS 17. For unit-linked portfolios the choice between a fair value approach or retrospective can materially affect the day 1 equity impacts and on-going profitability profile. Meeting auditable standards and explaining the results to Boards and the market are two key challenges here.
  • IFRS 17: regarding IFRS 17 delivery itself, there is a heightened risk that manual workarounds are employed at the 11th hour only to require remediation in 2023+ as was seen under Solvency II. Our IFRS 17 global survey showed that relatively few firms had yet had the opportunity to consider their communications to analysts or the strategic impacts on their business. Success will be defined by the efficiency of the end-to-end reporting process built over the past 5 years, and the quality of explanation of transitional and on-going results given to the market. This was a key finding from the 2021 WTW global IFRS 17 survey, and with the 2022 survey now in progress we look forward to fresh insights!
  • Investment firms: from 1 January 2022, the Investment Firm Prudential Regime (‘IFPR’) kicks in and firms will now be preparing their new capital assessments more tailored to these firms and distinct from their banking counterparts. Operational risk assessments are key to the new Internal Capital and Risk Assessment (‘ICARA’) with this regulation change providing a platform to improve the assessment.
  • Operational resilience: the FCA and PRA have been very focused on ensuring that the UK financial sector is operationally resilient for consumers, firms and financial markets. Most firms will now have the initial steps of Operational Resilience underway – identifying your important business services and considering impact tolerances. The stronger approaches treat this as an opportunity to provide a fresh perspective on end-to-end processes which can be de-risked and improved, whilst others will view this as an additional compliance exercise.
  • In short, a packed agenda for CFOs, CROs and Chief Actuaries.

    Technology and infrastructure

    In a low-margin segment, the ‘behind the scenes’ operations of the business need to constantly be kept under close review for cost efficiency. In Finance, for example, having in place robust end-to-end automated systems is vital. More than ever, firms are considering the suite of technology they have and whether it is fit for purpose, and the extent to which linkage (classic hand-in, hand-off) points are error-strewn and slow – and hence need targeted remedy. In operations where the volume of customers (and schemes) is vast and growing, streamlining customer journeys, reducing paper, robotics, and better process linkage are all themes that continue. As referred to above, if firms can dovetail operational efficiency planning and delivering operational resilience then they will get more from their investment.

The bar is being raised on investment best practice – impacting insurers and wealth managers. Optimising asset allocation is crucial to the multi-asset funds that are the lynchpin of many accumulation and decumulation products. Here the right technology and investment solution can dramatically improve the optimisation of the investment fund against its intended objectives, as well as operational delivery. WTW’s Optimum SAA solution uses WTW’s trusted calibrations and modern approaches to let investment professionals build allocations. In addition, Optimum SAA allows Independent Governance Committees to validate the asset allocations of their funds.

Data analytics

Most big players are aware of the need to understand and better serve their customers, and to use that understanding to increase profits. The route here is data analytics: relatively simple types of multifactor analysis can reveal patterns in policyholder behaviour that can improve retention strategies. Another angle we have seen increasingly is the application of these techniques to understand the vesting behaviour on personal pension accounts. In a low-margin and competitive market, apparently small adjustments can make a noticeable difference.

Success drivers

Front of house there is no time to wait. Taking a critical view to the existing offering, assessing how this can be best enhanced and then making it happen are the obvious steps – but easier said than done!

Back-office, managing the heavy agenda in 2022 and 2023 is going to be a major challenge driven primarily by the IFRS 17 stretch on teams. Leaving enough in their kit bag to focus on capital optimisation, M&A and other strategic ambitions will be a big achievement.


Phil Tervit

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