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Development focus: Preparing for the future

The financial services industry will continue to evolve in response to market and regulatory pressures and businesses need to ensure they are as prepared as they can be.

Predicting the future is a tricky business.

One of the problems is the leap of imagination typically needed and this can mean that predictions are either wildly over-optimistic or strikingly mundane.

According to many predictions from the 20th Century, we should all be driving hover cars by now and have houses full of robots to do the ironing.

And as with most forecasting, the longer the timescale, the harder it is to get any predictions right.

While expectations of telephone watches are closer to fruition, most future-gazers failed to predict the birth of the internet and the huge impact it would have on our lives.

But the difficulties in predicting the future does not mean people should not try and see what is in store so they can try and prepare for it.

A recent report produced by Ernst & Young and the Chartered Insurance Institute has had a look at the life, pensions and health insurance industries and asked what the world will look like in 2020 and how businesses will have to change to succeed.

The report, Beyond 2020: skills required for future success in UK life, pensions and health insurance, is written from the point of view of life companies and providers, but there are some interesting insight for financial advisers.

CII life and pensions faculty chairman Robert Fletcher says: “This new report provides the impetus for what is a crucial debate, not only within the sector, but also with the Government, the regulators and other stakeholders in identifying the challenges and trying to anticipate the major changes we all need to make together.”

The report lays out 13 different factors which will shape the industry and the market it operates in.

These include impact of the ever increasing age of first-time property buyers and the knock-on effect this will have on savings patterns. In the 1960s, the average age of first time buyers was 26, but the report suggest this will have increased to 40 by 2020, and means the target market for the life, pensions and savings industry will those aged 40 to 80.

With auto-enrolment kicking in this year, the report suggests that low and middle-income consumers will only save through government initiatives.

The report also suggests that with government borrowing remaining high, there will be limited scope for the government to use incentives, such as tax relief, to increase savings rates.

In a further bleak assessment of the future, the reports says the overall reputation of retail financial services proves to be so badly damaged it is effectively beyond repair, while the advice gap will continue to grow with only the affluent willing and able to pay for advice.

Another current market trend that has been predicted  becoming more pronounced is the increase in use of technology. This is both to provide greater efficiency but also as a response to customer demands.

To address some of these issues and problems, the report suggests businesses need to put in place a number of key skills to adapt to the changing market.

Top of the list is ensuring marketing skills are embedded in businesses, both to ensure key messages get out and ensure that customer feedback is taken seriously and acted on.

With more customers and clients choosing to interact with businesses of all types electronically, businesses need to be able to keep up to date with new technology and use these distribution channels to remain engaged with their clients.

To ensure businesses are kept up to date and to meet changing demographics, particularly to tackle youth unemployment, many firms are expected to continue developing apprenticeship schemes. This is also picked out as a way of building good will amongst customers and the local community by providing financial education to young people.

Fletcher says anticipating these changes “will enable us to create a dynamic insurance profession response to compete in diverse and global markets with relevant skills”.

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