A survey of the UK and German life insurance and pensions markets, conducted by Datamonitor and commissioned by IBM has revealed discord between consumer preference, the power held by Independent Financial Advisors (IFAs) and insurance providers’ customer retention strategies, including admissions that customers take ‘second place.’
Published in May 2007, the research was conducted among 200 consumers, eight life insurance providers and 14 IFAs/brokers divided equally across the two countries. Forty-one percent, a majority of German consumers, are closer to their life and pensions provider because they buy direct; however, in the UK, 40% of consumers buy these products through their workplace. IFAs own a large share of the market in both countries.
Universally, but particularly in Germany, the majority of consumers are high risk ‘five years or less’ policy switchers (UK 39% / Germany 59%), raising concerns of high customer churn for all providers, but providing revenue opportunities for IFAs. German providers are however addressing this issue by developing a company wide philosophy of customer retention.
Friends and family recommendations drive the choice of life and pensions in Germany with 38% surveyed saying this, compared to just 10% in the UK. Conversely 33% of UK consumers rely on financial advisors’ advice.
Tom Pringle, senior analyst, Datamonitor, comments: “Financial services firms often struggle with customer retention due to substitutable products and customer service failings. Firms need to review their customer retention strategies and information infrastructures to ensure they understand the needs of their customers and to serve them better.”
Martin Pack, vice president, insurance industry solutions, for IBM, comments: “Providers need to recognise exactly who the customer is in their market; improving relationships with IFAs is key to both retention and churn because if products and services are poor, then intermediaries will simply switch clients to competitors. Equally consumers are becoming more aware of the options available to them and could easily be swayed by personal recommendation. Single customer view, whether with consumers directly or with IFAs, must be achieved.”
The UK IFA industry bias highlighted by the survey is a concern for life and pension policy providers, as IFAs claim that service inefficiency and long policy processing make it easier to cancel and switch provider than move within the existing provider’s products. Some UK providers are making efforts to highlight and target IFAs who are highly prone to churning business in order to counteract this.
Thirty-nine percent of UK consumers who switch life and pensions provider do so again on the advice of their financial advisor. This is further evidence of the power held by IFAs in the UK market, who are voicing concerns over quality of service and want providers to offer knowledgeable broker consultants, efficient call centres, online application and quicker response.
In Germany, policy switching is usually based on consumers getting poor returns on their investment, suggesting that they keep a closer eye on the market. German IFAs identified clarity of information, improved experience for younger customers, technology and people integration, and a single point of contact as areas for providers to address.
German providers appear far more able to cross-sell products and services however; 70% of German consumers had been offered another product by their provider compared to 38% in the UK. UK providers admitted that customers can take second place and that they are only in the early stages of devising strategies to target and retain customers directly without upsetting their relationships with IFAs.
Loyalty to providers is also greater in Germany with the majority of consumers, 45%, saying they would choose the same provider again; in the UK most, 56%, didn’t know if they would or not.
IBM commissioned the study to analyse the drivers influencing consumers of life assurance and pensions products in the UK and Germany, and how key policy providers and IFAs are responding to these needs. IBM understands the issues faced by the world’s leading insurance companies to improve differentiating customer service, improve profitability through more efficient business processes, IFA broker and agent loyalty and sustained competitive advantage. This is underlined by the fact that 24 of the top 25 insurance companies depend on IBM ECM solutions, making it the leading ECM provider in the industry. Customers such as Aon, AXA, Exeter Friendly Society, Swiss Life and Zurich, use IBM’s ECM solutions to achieve a single view of customer data and records, and to provide optimum service to their customers.