April 20, 2015 Tom Murray

ISA.pngThis article was originally commissioned for the March/April 2015 edition of the Actuarial Post.

The answer is the rules surrounding regulated savings and investments. Just when we absorbed the need to change systems to facilitate a new type of pension product, i.e. the pension as a bank account, three new types of regulation comes trundling along. With the flexible ISA, the First Time Buyers ISA and the New Personal Savings Allowance, there is going to have to be major changes in how life and pension providers illustrate and administer their savings products.

Never has there been such a flurry of changes in the previously quiet backwater of savings and investments, and the result has exposed the companies that haven’t invested in their systems. Processes that have a high level of manual input or whose automation is founded on old, inflexible technologies are already struggling to adapt to the speed that the government is changing the playing field. Given the imminent election, the likelihood is that there is going to be further changes in this key area of the economy no matter who or what combination wins in May. Those companies struggling to cope with the pace of change need to take a step back and consider if avoiding the undoubted expense of upgrading their systems has actually cost them more in the long run, and whether now is the time to bite the bullet and modernise for a more flexible financial environment.

It is clear that the government policy has been to de-regulate and thereby open the door to new entrants; new entrants who will start from scratch unencumbered with mounds of legacy systems that have been around since the late 20th century. Yet what they don’t have is the client and knowledge base possessed by the life and pensions companies, and therefore they are at a significant disadvantage. By upgrading to more modern systems and adopting a more customer-service based approach, they can offer far more than new entrants, along with the stability of their already well-known brands – a key factor for people when it comes to handing over their money for management.

Without upgrading though, companies will not be able to offer the flexible levels of service that are required. Only last November, I requested a quotation from a previous pension scheme and got a valuation on the 12th February 2015 giving the value as at the 20th November 2014. A 10-week delay in providing basic information is simply not acceptable in this day and age, and it is this complacency that has to be pushed out of the mind-set of life and pension companies.

New flexible systems that can let people control their own finances have proved to be a boon for banks and have allowed them to control their costs whilst improving their levels of service to their customer base. If life and pension companies persist in offering the levels of service that I received, they will quickly find them outpaced by newer players who overcome their lack of longevity in the marketplace by offering a customer experience far in excess of what is regarded as the industry norm.

Once this happens, those life and pension companies who hadn’t modernised will be left struggling to catch up, and may miss the most of the opportunities that the new markets being created by the government are providing. For example, there will be a whole new market created by the government when they commence their new initiative of allowing a second-hand market of existing annuities to be created – a market that many companies are eyeing up as one full of excellent opportunities for their shareholders.

Life and pension companies need to prioritise the modernisation of the infrastructure, but for once it needs to be driven by the needs of their customers rather than by the needs of the company. It’s no use being able to just do what they are currently doing a bit cheaper or a bit faster. They need re-thinking from a customer–centric mind-set in order to maximise the flexibility of the infrastructure and leave themselves in a good position to deal with the as yet unknown changes that are undoubtedly coming.

People’s finances are of vital importance to them and the banking sector has been quick to grasp this. The amount of people who now do significant amounts of their banking via their smartphone is growing and in February 2015, a survey by Adaptive Labs showed that 43% of UK consumers are now using their smartphone for banking with almost 33% using it weekly. This is a huge change in consumer behaviour, which would have been laughed at a mere ten years ago.

The life and pensions industry need to be asking themselves how much longer can they stay behind the curve before others push past them offering the kind of personal control over financial products that consumers clearly want.

Technology can offer many solutions but the starting place has to be that current service levels are unacceptable and that life and pension companies need to rethink their whole raison d’etre from a consumer viewpoint. Only by doing this can they hope to remain a player in the faster moving financial services market that the government is creating.

Actuarial Post is an online publication offering actuaries insight into the market, an extensive library, news and the latest job listings. With a dedicated comment section; the most talked about topics in the actuarial market are discussed by actuaries dealing with the issues on a daily basis. Articles focus on the latest trends changes in regulation and the areas of pensions, investment, life and insurance.

Tom Murray

Twitter: @TomMurrayDublin or @Exaxe

Google Plus: TomMurray

What do you think? Let us know in the comments below!

Pensions, UK, Life and Pensions, Individual Savings Account, technology, ISAs, personal savings allowance, regulation, Life & Pensions Blog, government policy, Actuaries, Actuarial Post, news, pension scheme, isa, first time buyers, rules, annuities

Tom Murray

Tom is Head of Product Strategy at Exaxe with primary responsibility of overseeing product direction. Tom has extensive experience of managing web based insurance software from conceptual design through to commercial release and beyond. Tom has been leading the development of the Exaxe Internet insurance architecture since August 1999.

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