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.
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.
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:
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.
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:
In short, a packed agenda for CFOs, CROs and Chief Actuaries.
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.
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.
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.
