Europe for private pensions presents a big opportunity for life
insurers, meeting the demand requires in-depth analysis of consumer
attitudes towards existing and emerging distribution channels.
Specialist in the distribution field, Steve
Deaville, provides insight.
Deregulation in Europe’s
financial market has introduced true competition in life insurance,
pensions and general insurance. The result has been a substantial
increase in the mobility of the customer, further exacerbated by
the diminution of state inclination – or indeed ability – to
guarantee a viable level of pension provision for citizens.
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In addition, no European country is producing children at what
is generally considered to be the population replacement rate, with
the consequence that the contributions of a dwindling number of
younger working people are struggling to support the pension
consumption of a growing number of retirees.
Across key European economies, there is widespread consumer
concern that state pensions will be inadequate to fund a basic
quality of life in retirement. Even in the socially benevolent
regimes found in Netherlands and Sweden, a fifth of the population
feels they cannot rely on the state pension. At the other end of
the scale, getting on for a half of all Spaniards are disillusioned
about state pension provision and are putting over 5 percent of
their income into private pension schemes.
The increasing demand for private pension provision presents the
life insurance and pensions industry with massive opportunity. Yet
at the same time, traditional distribution channels are in flux,
with new distribution channels emerging in retail, banking and in
bancassurance. Traditional and new channels involve investments in
property, collateral and people, as well as issues of marketing and
customer service support. Pensions companies need to understand
where, or whether, to retain their existing distribution
channels.
UK-headquartered corporate services group Pitney Bowes recently
commissioned research to investigate consumers’ enthusiasm for
buying pensions through non-traditional channels – firstly banks,
and then emerging new channels such as retailers and post
offices.
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By GlobalDataThe established pattern of distribution channels for life and
pensions products differs across the main countries of Europe. Tied
agents are the dominant channel in Italy, Spain and Germany.
Brokers figure large in the UK, Germany and the Netherlands. Banks
are dominant in France but not in Italy.
However, the critical question in the minds of pension industry
managers is whether the current distribution mix is effective or
efficient. From both an operations and a marketing perspective, it
is essential to know what level of support should be given to which
channel; or indeed, whether new channels need to be
established.
Bank buying
Retail bankers throughout Europe are becoming very focused on
increasing their track record on ‘products per customer’, as a
means of improving performance and shareholder value.
There are currently major variations from country to country,
the highly competitive and deregulated UK sitting on just 1.5
products per customer, compared with the European average of 2.3.
But generally there is a pressing need to increase average rates
across the European industry, with pensions being a prime contender
for cross-selling.
The study found over half of European consumers would be “just
as inclined to consider buying a private pension through my bank,
as I would to go direct to a pensions company or my independent
financial adviser”.
This is a startling statistic, both for life and pensions
companies planning their distribution strategies, and indeed for
the huge opportunity that pensions products offer the banking
channel, an opportunity which is evidently under-exploited as the
low scores on products-per-customer show.
The propensity for consumers to buy their pension through their
bank varies from around 40 percent in the UK, to more like 60
percent in Spain and Sweden. Two clear behavioural groups emerge
from the study, with UK, France and Netherlands in the 40 percent
to 45 percent range, contrasting with Germany, Italy, Spain and
Sweden in the 55 percent to 60 percent range.
However, whichever group one looks at, the opportunity for
pension sales presented by the banking channel is a consistently
substantial one.
Pensions off the shelf
What, then, of more radical new channel options? Once again,
Pitney Bowes’ research reveals a surprising willingness on the part
of European consumers (24 percent, on average) to take up pensions
products through channels such as their main supermarket
or the post office. However, the variation from country is far more
dramatic and polarised than was the case with the banking
channel.
In the Netherlands, the potential for pensions selling through
alternative channels appears to be negligible – around 10 percent –
and certainly quite insufficient to merit standalone support and
resources. In Germany, France, Spain and Sweden, the picture is
more worthy of note, ranging from around 15 percent up to 27
percent. Italy (35 percent ) and the UK (39 percent ) are in a
league of their own, however.
The UK is known as a pioneer in ‘brand stretch’, with many
retailers offering a range of financial services products. Italy is
not usually put in the same bracket by marketing experts, and so
the importance of alternative channels revealed by Pitney Bowes’s
research may cause pension marketers to commission more detailed
analysis of their own brand to better understand its potential for
their company specifically.
Location intelligence
It is worth dwelling on the
need for each pensions company to take note of the national
distribution channel propensities revealed in Pitney Bowes’s
research, but also not to assume that their own company and
customer base conforms to the national trend.
Individual analysis is crucial to see where one pension
provider’s optimal distribution mix sits versus the national norm.
Crucial to this analysis is location intelligence, a powerful
combination of geographical location and consumer characteristics,
behaviours and possibly even psychographics.
Location intelligence tools allow the pensions distribution
strategist and planner to correlate the reach of any potential
distribution partner – bank, department store, supermarket, post
office, or whoever – with their own target audience. This analysis
would usually be focused in two ways.
First, a profile of the partner’s customer base including
factors such as where they live and their geo-demographic profile,
would be compared to the target group profile to see how close a
match could be obtained. Secondly, the catchment of the partner’s
portfolio of outlets would be analysed and similarly compared to
the target characteristics. These analyses allow potential and
existing distribution partners to be assessed for suitability.
Overall, Pitney Bowes’s research has shown that an objective
re-appraisal of pension product distribution channels is an
imperative in key European countries, as consumer channel usage and
behaviour is changing both radically and rapidly.
The appetite for private pension provision is increasing as
demographic change forces up demand. However, future industry
winners in this changing market, many of whom operate on a
multi-country basis, need to conduct individual analyses to
understand where their optimal channel mix lies.
The use of location intelligence to determine this optimal mix,
as well as continuative analysis and performance monitoring,
coupled with automated customer communications to complement
‘industrialised’ pensions workflows with a concomitant level of
customer service, are essential in grasping the growing private
pension opportunity in Western Europe and Scandinavia.
Steve Deaville is retail, insurance and
banking industry sales director at Pitney Bowes
