Unlike many of his competitors, Scottish Widows chief executive Toby Strauss refuses to forecast the future number of advisers or the way the sector may segment. “Our planning assumption is that we are going to have to cope with a wide variety of different outcomes,” is all Strauss will say when it comes to predicting an unpredictable market.
The Lloyds Banking Group-owned provider announced its intermediary plans last week, which will see it return to the IFA annuity and protection sectors.
Strauss, who joined LGB last October as insurance director, moving from the role of Aviva UK life and pensions chief executive, says the strategy will see the firm focus on the middle market and aim to offer low-cost products to help advisers service this area. He says Widows has no plans to launch a wrap. Instead, he suggests the company will focus on “straightforward products” that link into advisers’ back-office systems.
The firm’s first priority is launching its IFA annuity proposition, which Strauss hopes to bring to market within the next year. Again, Widows’ focus will be on mainstream annuities rather than investment-linked or fixed-term products. It will, however, be offering an enhanced annuity option.
He says: “Our biggest focus is customer segmentation and a fit for purpose, simple set of products to suit that need and thinking about areas such as spousal cover and impaired annuities. We are less interested in the more esoteric stuff that plays in the high-net-worth space.”
Strauss says he is confident about competing in the open market option in terms of price and service. He says: “We have a very strong balance sheet. Many insurers have moved away from risk but we have the expertise and we want to be doing this.”
Strauss says a major reason for joining Widows was his view that the company was underleveraged on the life side. He wants to increase its annuity market share of less than 2 per cent to a “natural” market share of over 10 per cent.
An IFA protection proposition is next on his list. Widows offers a menu-based life and critical-illness proposition on the direct side, with 80 per cent of business auto-underwritten at the point of sale.
Strauss says the firm is consulting with advisers but will look to launch a similar type of proposition in the advised sector. Widows will also consider an income protection product.
Strauss says he is looking very closely at the equity-release market, which would complement Widows’ annuity move but he needs to be persuaded that the demand is there and can be serviced effectively from a risk perspective before any entry would be considered.
He is “open-minded” over whether the product would be sold through the IFA channel or through a specialist team of direct advisers.
Although politicians are looking closely at the potential for equity release to benefit asset-rich people, Strauss believes the political agenda will have to change before the firm will be able to play in this area in a meaningful way.
He recently met with Health Secretary Andrew Lansley to discuss options for long-term care reform, where equity release could play a role. Strauss says the firm would also be interested in offering long-term care insurance in certain circumstances if a cost cap is put in place.
Corporate pensions is another important area. Widows has a strong market share boosted by the significant levels of commission it pays advisers but how will it compete after 2012?
Strauss says he is confident mid-sized employers will not want to pay fees for advice separately and will instead load them as a member charge. He suggests Widows’ schemes will offer better value for members after the RDR than competitors. He says the firm is committed to continuing to pay ongoing commission and will not look to “turn this off”.
Widows is building its nil commission proposition ready for auto-enrolment and the RDR and Strauss says it will be competitive in this area.
With FSA costs rising and the impact of the RDR, Solvency II, gender equalisation and the regulatory split to consider, Strauss has his hands full on the regulation front. A priority is ensuring Widows’ systems are ready for the RDR, which is not helped by the fact that some rules are yet to be decided, specifically on trail and legacy commission.
Following a recent meeting with FSA chief executive Hector Sants and Financial Conduct Authority chief executive designate Martin Wheatley, Strauss says the regulator is well aware of the industry concerns on this subject. He is calling for a “period of grace” to implement whatever proposals the FSA finally decides on rather than have them introduced next January as part of the RDR. Is the regulator sympathetic to this argument? “They have heard it,” is all Strauss is prepared to say.
Many advisers are concerned insurers will use the RDR as an excuse to strengthen their direct offering at the expense of the intermediary channel. Widows has around 50 regulated sales advisers, plus 20 support staff and about 5 per cent of business is direct. Strauss says he sees this number growing modestly but has no desire to take business from advisers.
He says Widows’ direct arm only steps in on the group side if the adviser or employee benefit consultant does not want to mange the scheme and on the individual side if the adviser leaves the industry or does not want to deal with the client.
Strauss says it is difficult to predict the number of advisers who will go restricted, although he suggests many might be considering it as an option.
He believes the market will evolve, with a number of different solutions driven by adviser needs. He says: “Most advisers will be able to get through exams, it is much more about the economics. Our role is about helping to make the economics work and helping advisers service the mid-market.”
Toby Strauss on…
Not our focus at the minute, we might come on to it in due course but the most important thing for us to solve is the mid-market conundrum. We are focused on relatively straightforward products that can be serviced with information flowing in a straight-through process back into advisers’ back offices.
Taking our direct protection capability and playing it out in the intermediary world just seems like the right thing to do.
The vast majority of mid-market customers want to buy an annuity despite rates coming down. They want certainty of income, we should be playing in that space more actively.
Upcoming regulatory split
Cleary, the split between prudential and conduct is going to be more onerous for us. There is no doubt that having two sets of supervisory teams and two sets of objectives will be more burdensome,
The effect Martin Wheatley will have on UK regulation
My sense is he is thinking hard about the type of conduct regulator politicians want. It can be very much at the consumerist activist end, that is an expensive option. Or backing off to be more of an oversight regulator looking for areas of systematic detriment for customers. I think he is heading towards the latter but at a balance. He is driving that debate to get politicians to understand the trade-off.
The Widows brand
We are happy with the power and impact of our brand although we are working on a campaign for later this year to put the Widow in a more modern context.