Shifting demographics and increasing market share in the midst of heightened self-serve and social media technology are major issues shaping the future of the insurance industry – trends that insurers, MGAs and advisors need to embrace or lose business to more nimble players, an April PwC panel told industry participants.Petrina Dolby, managing director, and Byren Innes, senior strategic advisor, both with Consulting & Deals at PwC, outlined results from a recent CEO survey that showed that 47% of CEOs believe that building out current market share is their main opportunity for growth. Another 86% said technological advances will transform their business; 86% see over-regulation as a threat to their organization and 26% believe innovations in products and services will be the key to their growth.
Insurance companies have been increasing their market share by adding wealth products to their insurance offerings for quite some time, but the latest results indicate that those products are expected to surge in the next couple of years, thanks in large part to high net worth clients.
“[The wealth management] industry continues to grow despite what seems to be going on externally,” said Dolby. “If you look at some studies that have been around for many years that measure the growth of the high net worth market, there’s only two years over the last 20 that this market actually had a downturn. In Canada, many of the financial services institutions are looking to double their wealth management practices over the next three to five years.”
MGAs should follow in the footsteps of insurers and look upon adding wealth management products to increase their businesses, said Innes.
“I think this is an opportunity for the MGAs to embrace wealth more than they have in the past,” Innes said following the presentation. A number of MGAs have already taken the first steps by incorporating more mutual funds and other wealth products on top of their segregated fund businesses, he said. “So it’s going down the same path [as insurers]. Whether you are in a wealth management firm or you are an MGA that does wealth – it’s the same answer to a large degree – expanding out the business, ensuring that the overlap works properly and encouraging insurance advisors to become more of a wealth advisor.”
As well, a number of insurance companies are repositioning themselves in light of smaller, more agile technology companies that are capturing market share from clients demanding more self-serve products. Many clients have been influenced by technological advances in other sectors like finance and retail banking, where they have access to online shopping and banking. But wealth management firms, in particular, have been slow to bring new technologies to market due to the conservative nature of the industry and compliance concerns.
“As clients expect more and more of a digital experience, that drives transparency and access to more information, and their expectations of this [wealth management] sector are changing as well and exacerbating some of the challenges being faced [by the industry],” said Dolby.
Also driving change is shifting demographics, including the stronger influence of women in households.
Money in motion
While many companies acknowledge that women control 50%-60% of the “money in motion” – much of it from the transfer of wealth due to inheritances – few companies have segmented that market enough to take advantage of the opportunity, said Dolby.
Younger Generations X and Y tend to be more cautious and less trusting of authority and many prefer to go to their friends or social media and use self-serve research tools rather than take a page from their older boomer parents who have traditionally relied on face-to-face advice. Some providers are beginning to offer mobile solutions to these clients and investments in these kinds of technologies are increasingly appealing to the larger, more affluent market, said Dolby.
“So what you are seeing is clients having access to the same types of tools that advisors have and this is putting increased pressure on advisors to stay ahead of the curve,” she said. With the average age of advisors being 59 there is a huge transition that will be happening in the next few years of younger, more tech-savvy advisors entering the market. “There are a number of advisors saying ‘This isn’t the industry I got into,’ so they are looking to see what they can do now to sell their book or move on.”
That pressure is bolstered by research from PwC that shows between 30%-40% of current customers – from high net worth to middle income – are at risk of opting out of the retail advice channel altogether and using direct channels for their investments by 2017.
The “sweet spot” for advisors will be those who fall in between the traditional advisor category – those who have become used to using social networks on a daily basis – and those who have become specialized, channel-based advisors who have embedded themselves into the social network of self-directed investors, said Innes. Some advisors will have to slacken their hold on their clients who want to do some self-serve investing, he said.
“Clients are going to make that move anyway [to self-serve] so advisors are asking themselves, ‘What part of that do-it-yourself piece am I comfortable letting go and letting my clients do on their own while I still have the confidence to maintain the relationship and be able to give advice when it’s needed,’” Innes said.
Insurers will need to invest heavily in technology – and move fast on completing their projects just to keep up. But Innes cautioned that the pace of change in technology is so rapid that it may be a good idea for some insurers to set up start-ups that run alongside current systems.
The big challenge in all of this is how regulatory and compliance officials will feel about this new self-serve market and become more digitally aware by incorporating client needs into their guidance.
“The challenge is going to be how to balance everything,” said Dolby. “How can you start moving from this regulatory-driven agenda and start merging it a bit more with a client outcome? What are some of the client outcomes that we can get out of some of the compliance initiatives that are going on and where CRM2 might take us as we move forward?”