The UK is the largest insurance market in Europe and the third largest in the world, and plays an essential role in the UK’s economic strength. However, in recent years the industry has been under increasing pressure, from the 2009 stock market crash to the latest pension regulatory changes.
The newest and biggest pension change to affect the UK insurance industry is that as of April 2015, people are now able to access their Defined Contribution (DC) pensions without arranging an annuity. This means that the 4.5 million people that have a Defined Contribution pension will have access to their pension freely from the age of 55 (57 from 2028), taking out as much as they like and whenever they want. Since 2011, it hasn’t been compulsory to have an annuity anymore and, as many UK insurance firms rely heavily on annuity business, the 2015 change could be a further blow to the industry.
So what’s the impact so far?
Since the pension changes, the insurance industry has already seen a 38% decline in annuity sales. This decline could also cause a wider problem, as annuities provide a huge amount of revenue that pension companies invest in various UK projects, such as regeneration, buildings and roads. According to Jonathan Evans MP, an unintended consequence of the reforms could see a loss of tens of billions of pounds in investment for these projects.
Competition will come from all quarters. Most recently the launch of the 65+ Guaranteed Growth Bond by the UK Government was the fastest selling financial product in history selling over £13 billion in four months. With new tax breaks in place and low returns on traditional pension products saving through bonds and ISA’s are significant competition.
To overcome these changes, insurers will need to take a different approach to their business. Historically, insurers would automatically ‘win’ new customers (50% of customers bought annuities with their existing pension providers). As it’s now simpler to buy products from other companies, insurance firms will have to really understand their customers and make a compelling sales pitch.
It’s important, however, that the ‘selling hard’ mantra doesn’t plunge insurance companies into the murky waters of mis-selling. Successful insurers will put measures in place to ensure such mal practise doesn’t happen. The PPI business (Payment Protection Insurance) is a great example of mis-selling being very costly and damaging to the financial service business. PPI in recent years has been mis-sold to millions of people. Policies have often not paid out when people needed help and many sales staff did not explain PPI properly, for example to the self-employed or those with pre-existing medical conditions who would never be able to make a valid claim.
Insurers need new analytics tools to gain greater insights into the market and understand the customer base. They will need to invest in new product development and innovative ways to keep and grow their client base.
Of course, product development and growing the client base will generate more data and insurers will need to have a really good understanding of their data as well as better access to it.
The UK insurance sector traditionally has been slow moving – insurers knew generally when people would retire so the business could plan for it. With this new change, the industry is being forced to move a lot faster. People will be able to shop around and change up their investment vehicle and insurers will need to have access to the data quickly and truly understand the customer.
Big Data platforms will have a role to play in aggregating and analysing this data. One of the biggest challenges for insurers is getting the data from their legacy policy systems into the data lake. Extracting data from these systems can be costly and time consuming, causing projects to frequently fail.
Attunity’s technology is used by many leading insurance companies such as Zurich Insurance. In fact, half of the Fortune 100 choose to rely on Attunity to overcome the challenge of data integration and help define and build useable data models in data lakes and data warehouses.
It’s not just moving data where Attunity helps. To make sure that insurance companies fully understand their data and customer base, Attunity’s solutions help market leaders get an enhanced 360-degree view of the customer and improved business intelligence and analytics.
Although the future of the insurance industry looks uncertain, it’s clear that if insurance companies equip themselves with the right technology solutions they will stand a better chance of fully understanding their customers’ needs.
Further information on what the challenges and opportunities facing the insurance industry and how Attunity can help can be found in our latest Financial Service whitepaper.