Figures from our annual Life reports show that over the last decade, the UK life industry has doled out a cumulative total of £70bn in the pursuit of new business, split roughly as £40bn in adviser commissions and £30bn acquisition costs.
The £70bn spent to grow the industry, what was it good for? In the words of Edwin Starr, “absolutely nothin’”. The stark fact is, in each of the past 10 years, UK life offices paid out more in claims (surrenders, deaths, annuity payments and maturities) than they took in from customers (new business and ongoing regular premium flows combined). The net result of £70bn spent on business development was a whopping £150bn excess of money paid out over money collected in.
And despite £40bn paid out in adviser commissions, by no means have advice firms been rolling in it. Mass market bancassurance has blown itself up, and the major non-bank adviser groups, with one or two notable exceptions, have consistently failed year-on-year to make profits.
If these firms did not turn a profit during an era when providers were throwing cash at them like it was going out of fashion, whether directly in the form of commission, or indirectly by way of marketing allowances and over-priced equity stakes, what chance do they have when commission is but a fading memory and the misselling bills for past misdemeanours start to mount?
The decline in adviser numbers has led to much talk of the emergence of an “advice gap”. Nature abhors a vacuum, however, and a major reshaping of customer engagement is quietly taking place. Many of the big life groups are developing strategies and capability to communicate more effectively directly with their existing policyholders, in some cases in collaboration with advisers, but in a few instances regardless of whether there is an adviser on file.
Some retail and workplace platform providers, such as Fidelity and Legal & General, are devoting considerable resources to enhancing their customer-facing toolsets with a view to boosting mass market savings flows. At the same time, players such as Axa with its Self Investor system are seeking to help advisers provide a service to existing customers that might be difficult to serve post-RDR.
But frankly, all of this is a re-working of the same old same old. The really radical change set to transform customer communications comes from the huge leaps in technology now taking place in front of us. The first iPad was launched only three years ago, and smartphones did not exist when the RDR consultation process was started.
There are interesting developments moving at a rapid pace among the new world’s big beasts, by which I do not mean the traditional life companies, but instead the likes of Google and Amazon. Both are already broadening their horizons into financial services, with Google developing a financial comparison service and Amazon’s credit card launch, widely seen as an “easy entry point” into offering a wider range of financial products.
Imagine, we could soon see Amazon directing people to financial services products in the same way they direct people to consumer goods now, along the lines of “people like you have invested in this fund”.These firms have the balance sheets, the cutting edge intellectual resources, and the data gathering and analytics capability to transform mass market consumer communications.
Ned Cazalet is founder of Cazalet Consulting