Current robo-advice propositions are geared towards investments rather than insurance. The main reason is that unlike investments, insurance contracts do not need to be managed on a regular basis. However, as these platforms evolve and aspire to provide a holistic view of or advice on one’s financial wellbeing, they need to consider insurance products, just like a human financial advisor would. That said, robo developments among pensions and life insurance products have begun to gain traction with players looking to automate purchasing journeys and cut costs.
Listed below are the key macroeconomic trends impacting the robo-advice industry, as identified by GlobalData.
More empowered consumers
Robo-advice can make the investment and insurance purchasing process more transparent. Rather than simply being told how their money is invested and how it is performing, robo-advice gives investors a way to interact with their advisors. From an insurance perspective, it also provides personalised advice to customers wishing to initiate the purchasing process on their own, rather than them having to rely on generic advice.
Growing advice gap
The inability of financial advisors to provide services to people with limited investable assets has created a well-documented advice gap. In the UK, for example, BlackRock calculates that 26 million Britons have fallen into the advice gap. The percentage of clients effectively excluded from financial advice is remarkably consistent across all geographies in leading industrial nations.
Robo-advice will help bridge this gap by making advice more accessible to retail consumers, not only making financial advice more affordable but making it accessible.
Inter-generation wealth transfers
Traditional wealth management is designed for traditional holders of wealth. But beginning around 2030, an estimated $4tn of wealth is going to be passed on to millennials in the UK and North America from their parents. Millennials typically manage far more of their lives, including their finances, through digital channels. Building robo-advisory capabilities is a highly effective engagement tool for younger generations.
Geographical shift in wealth
Although most of the world’s millionaires currently live in North America, the fastest growth in personal financial wealth is occurring elsewhere. By 2023, revenue pools of the private banking channel in Asia could equal or exceed those of Western Europe. These vast populations stretched across vast geographical areas can only be served affordably at scale through digital channels near-term.
An aging population increases the need for strong financial planning
Due to advancements in healthcare, the world’s population is getting older. By 2050, 15% of the world’s population will be older than 65, according to the United Nations (UN). This will have a significant impact on social services, as there will be a smaller working population that must support a growing number of retirees.
Strong financial planning from an early point in life will be paramount, as retirement savings will need to last for a longer period of time. This presents opportunities for insurance and pension providers to help the population prepare for retirement. Robo-advisors can help bridge the growing advice gap for the mass market, allowing more individuals to successfully plan and fund their retirement at lower costs.
A weakening middle class will need access to affordable advice
According to the Organisation for Economic Co-operation and Development (OECD), the middle class is slowly disappearing, leading to greater income inequality. Middle-income households once generated 3.9 times as much as high-income ones on aggregate, but this figure stood at only 2.8 times as much in 2015.
The need for affordable advice around financial planning is therefore paramount. Robo-advisors will play a key role in analysing a household’s financial situation and providing affordable products to fulfil its needs.
This is an edited extract from the Robo-Advice in Insurance – Thematic Research report produced by GlobalData Thematic Research.