The majority of senior insurance executives and investment advisers expect recent UK regulatory changes impacting pensions and annuities will result in an injection of innovation into the market over the next five years.
That’s according to a survey by State Street Corporation which reveals that new products and services will be developed to take advantage of the new flexible environment.
Some 47 per cent of insurance executives interviewed said it would lead to more innovation, compared to 14 per cent who said it would lead to less creativity. The corresponding figures for investment advisers interviewed are 56 per cent and four per cent respectively.
In terms of product development and marketing, the findings suggest the main focus will be on income drawdown followed by products with capital and income guarantees, then U or J shaped annuities where income can go up as well as down to match retirement income needs, and investment structures concentrating on residential properties. However, one in five insurance (20 per cent) executives believe insurers’ existing underlying fund structures and asset allocation blending capabilities may hinder their ability to develop these products. Investment advisers are slightly more concerned about this, with 36 per cent expressing doubts.
Some 43 per cent of insurance executives and investment advisers interviewed believe the new rules will see insurers grow their sales in the retirement planning market over the long term, compared with 28 per cent who expect a decline. The corresponding figures for investment advisors are 43 per cent and 26 per cent. However, both groups expect a decline in profit margins – 52 per cent of insurance executives believe this will happen compared to 66 per cent of investment advisors.
David Howie, head of insurance solutions in the UK for State Street, says: “The UK retirement planning market is going through a radical change, which represents a very exciting opportunity for insurers and other product providers. Our research suggests there is going to be a huge amount of innovation and creativity when it comes to developing new products and services, but the industry clearly feels there will also be more competition. Just over half of the insurance executives and advisers interviewed expect new companies to enter the UK market, so providers are going to have to move quickly in terms of amending their proposition and developing new products.
“However, the industry needs to guard against inappropriate products being rushed on to the market, with 22 per cent of insurance executives and 15 per cent of investment advisors being ‘very concerned’ about this happening.”
In terms of product innovation and focus, half of investment advisers expect the income drawdown market to grow by more than half between now and 2019. The corresponding figure for insurance executives is 46 per cent.
Over the next five years, seven out of 10 investment advisers expect an increase in product development and marketing around retirement investment and income products with capital and income guarantees. Some 43 per cent expect this with U and J shaped annuities that pay varying levels of income depending on your age, and 36 per cent anticipate this for residential property related products. This is followed by one in three who anticipate this for care funding annuities and also fixed term annuities.
Insurance executives have a slightly different view on where the industry will be placing most emphasis on. Half said there would be an increased focused on products with capital and income guarantees, and this was followed by U and J shaped annuities (47 per cent), and then residential property related products (43 per cent) and deferred annuities (40 per cent), which don’t make payments until an agreed age.