Accenture’s 2014 UK Financial Services Customer Survey

UK Life & Pensions

Winning the race for relevance with insurance customers

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Survey methodology and objectives

Accenture’s annual UKI FS Customer Survey polled over 10,000 customers across retail banking, life & pensions, and general insurance in the UK and Ireland in February and March 2014. This report is based on the 2,870 life & pensions customers surveyed in the UK. The questionnaire probed topics including the level of digital interaction; buying behaviour and preferences; customer attitudes towards new and alternative sources of advice and guidance; perceptions and behaviour shaping customers’ relationships with life & pensions providers; levels of customer satisfaction; savings behaviour; and the factors that influence their choice of providers.

Executive Summary The time for action is now

Having successfully rebuilt financial returns since the Eurozone crisis, life & pensions (L&P) providers now face a new challenge – arguably the greatest they have ever encountered. Against a backdrop of new regulation and legislation, our research points to a new marketplace shaped by changing consumer behaviour and increasing disengagement between consumers and providers. The situation is further complicated by the need for new multi-channel distribution models spanning digital and physical touchpoints.

L&P providers that fail to address this situation risk being pushed further into the role of ‘financial utilities’ and/or becoming increasingly disconnected from customer needs, and therefore slow to react to changing market conditions.

With disruptive market entrants competing for their customers, L&P providers need to differentiate themselves by focusing on three priority areas:

•Creating and delivering a joined-up and integrated customer experience.

•Developing transparent and relevant digital propositions that go beyond product and price to anticipate and meet customer needs across life-stages.

•Building new ways of interacting with customers – directly and in combination with distribution partners.

The time for action is now. This study examines how today’s L&P providers can get started on transforming their customer relationships for the digital era.

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Accenture recently interviewed almost 3,000 life and pensions (L&P) customers in the UK on their views, experiences, intentions and behaviour with regard to L&P products and providers. Their responses form the basis for this report, the publication of which coincides with a period of unprecedented challenge for the L&P industry.

Waves of regulation and legislation, combined with the exceptional pace of change in consumer behaviour and digital technologies, mean L&P providers today are operating in a volatile and fast-changing environment. Static savings levels1 and the continued problems of protection and savings gaps provide the backdrop to this turbulent landscape.

Introduction

While the UK L&P industry has lived with constant change for the last 30 years, Accenture believes that an inflection point has been reached.

Along with continuing evidence of customer disengagement, our survey shows that customers are becoming increasingly dissatisfied as providers fail to meet their expectations in a number of vital areas – from the clarity and simplicity of products to digital servicing capabilities.

At the same time, in an increasingly complex marketplace that is being transformed by digital, L&P providers are being challenged by the need to create new models for multi-channel relationship management and distribution.

The priority is to enable seamless interactions across different contact points – human and digital – and also facilitate and guide consumers to the relevant channels for advice.

As our survey highlights, this combination of changing customer behaviour and an increasingly digital marketplace poses major threats for L&P providers.

1. Accenture’s 2014 UKI FS Customer Survey has revealed that although more people are saving, the amounts being saved have not increased. The percentage of UK L&P customers that are not saving has fallen from 27% in 2012 to 23% in 2014. However, in spite of economic improvements, the average annual amount saved has remained largely static at an average £1,700.

An inflection point has been reached

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Q: How satisfi ed are you with your provider?* Base: All respondents

Q: How likely are you to recommend your provider in the next 12 months?* Base: All respondents

Source: Accenture’s 2014 UKI FS Customer Survey – Life and Pensions*

*All graphs in this report are derived from the fi ndings of the Accenture 2014 UKI FS Customer Survey, unless otherwise indicated

Life & Pensions Motor Insurance Current Accounts

Dissatisfi ed Neutral Satisfi ed Unlikely Neutral Likely

3% 3%1%

53%

32%

37%

44%

67%

60%

12%

6%10%

68%

56%

49%

21%

39% 40%

L&P providers have the lowest levels of customer satisfaction and likelihood to recommend

Disagree (0, 1, 2, 3) Neutral (4, 5, 6, 7) Agree (8, 9, 10)

Q: Please indicate on a sliding scale the extent to which you agree that the following types of company are…* Base: All respondents

…trustworthy …easy and convenient to deal with

O

ther

indu

strie

s FS

firm

s Re

taile

rs

Although they have fewer detractors, insurance companies rank lowest of FS fi rms for trustworthiness and convenience

High street retailers 5% 51% 44% 4% 44% 52%

Online retailers 6% 55% 39% 3% 38% 59%

Supermarkets 6% 55% 39% 3% 39% 58%

Price comparison websites 12% 61% 28% 10% 54% 35%

Banks 23% 53% 24% 13% 55% 33%

Independent fi nancial advisers and 19% 58% 24% 18% 57% 25%insurance brokers

Insurance companies 14% 63% 23% 12% 63% 25%

Technology companies 16% 62% 22% 15% 61% 24%

Telecoms fi rms/mobile operators 23% 61% 16% 18% 58% 24%

Web and social media fi rms 34% 53% 13% 18% 51% 30%

Q: How satisfi ed are you with your provider?* Base: All respondents

Q: How likely are you to recommend your provider in the next 12 months?* Base: All respondents

Source: Accenture’s 2014 UKI FS Customer Survey – Life and Pensions*

*All graphs in this report are derived from the fi ndings of the Accenture 2014 UKI FS Customer Survey, unless otherwise indicated

Life & Pensions Motor Insurance Current Accounts

Dissatisfi ed Neutral Satisfi ed Unlikely Neutral Likely

3% 3%1%

53%

32%

37%

44%

67%

60%

12%

6%10%

68%

56%

49%

21%

39% 40%

L&P providers have the lowest levels of customer satisfaction and likelihood to recommend

Disagree (0, 1, 2, 3) Neutral (4, 5, 6, 7) Agree (8, 9, 10)

Q: Please indicate on a sliding scale the extent to which you agree that the following types of company are…* Base: All respondents

…trustworthy …easy and convenient to deal with

O

ther

indu

strie

s FS

firm

s Re

taile

rs

Although they have fewer detractors, insurance companies rank lowest of FS fi rms for trustworthiness and convenience

High street retailers 5% 51% 44% 4% 44% 52%

Online retailers 6% 55% 39% 3% 38% 59%

Supermarkets 6% 55% 39% 3% 39% 58%

Price comparison websites 12% 61% 28% 10% 54% 35%

Banks 23% 53% 24% 13% 55% 33%

Independent fi nancial advisers and 19% 58% 24% 18% 57% 25%insurance brokers

Insurance companies 14% 63% 23% 12% 63% 25%

Technology companies 16% 62% 22% 15% 61% 24%

Telecoms fi rms/mobile operators 23% 61% 16% 18% 58% 24%

Web and social media fi rms 34% 53% 13% 18% 51% 30%

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Accenture’s 2014 UKI FS Customer Survey reveals the extent of consumer disengagement with L&P. Having remained stagnant over the years, barely shifting since Accenture’s 2011 survey, customer satisfaction and recommendation levels are lower for L&P than any other financial services sector (see Figure 1).

Fewer than half of the customers we interviewed would describe themselves as satisfied with their life insurer, and only around 20 percent have, or would, recommend their provider to other people. This lack of engagement is being driven by a number of factors:

•Customershavelittleornoproactivecontactwiththeirproviders: around 70 percent of L&P customers had no contact with their provider in the last 12 months; this rises to around 85 percent for customers in insurers’ existing books of business (i.e. excluding new-business customers who bought or took out a policy in the last 12 months).

•L&Pproductsaretoocomplicatedandunnecessarilyconfusing: almost 40 percent of customers strongly agree with that sentiment and wish that L&P products, and their terms and conditions, were much simpler and clearer.

•Customersneithertrusttheindustry,norfindproviderseasytodealwith: the insurance industry currently ranks below many other sectors on both of those metrics. Although the insurance industry has fewer detractors, our study found more consumers agree that banks are trustworthy and easy to deal with (see Figure 2).

Figure 1: L&P providers have low levels of customer engagement in comparison to other FS sectors

Figure 2: The insurance industry currently ranks below many other sectors that are perceived as being more trustworthy and easier/more convenient to deal with

1. Customer behaviour is changingA lack of customer engagement

—— 2011—— 2012—— 2014

Q: Thinking about the insurance company you consider to be your MAIN life insurer, how well do you think it delivers on the following factors?* Base: All respondents

Average scale from 0–10

7.3

7.0

6.5

6.0

5.5 Trustworthy Polite and Clear and Value for Speedy and Competitive Personalised Ability to Broad Ability to Innovative Ethical and Attractive brand knowledgable transparent money effi cient pricing and contact my range of manage my products sustainable media staff communications service appropriate insurer at a fl exible, policy in a and business image products and time that high quality way that services practices services suits me products suits me

1.2

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—— 2011—— 2012—— 2014

Q: Thinking about the insurance company you consider to be your MAIN life insurer, how well do you think it delivers on the following factors?* Base: All respondents

Average scale from 0–10

7.3

7.0

6.5

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5.5 Trustworthy Polite and Clear and Value for Speedy and Competitive Personalised Ability to Broad Ability to Innovative Ethical and Attractive brand knowledgable transparent money effi cient pricing and contact my range of manage my products sustainable media staff communications service appropriate insurer at a fl exible, policy in a and business image products and time that high quality way that services practices services suits me products suits me

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Figure 3: Customers’ perceptions of their life insurer’s performance are deteriorating

Figure 4: Aside from value for money and pricing, life insurers are falling behind customer expectations on the clarity and simplicity of products and communications, and their digital capabilities

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Customer expectations are not being met

Taken together, these factors explain why customer perceptions of the performance of L&P providers have deteriorated. Accenture’s UKI FS Customer Survey shows how, over time,

customers are consistently lowering the rating they give their life insurers for delivery across key service and proposition metrics (see Figure 3).

In particular, our survey shows that life insurers are failing to match customer expectations of value for money, competitive pricing and clear

and simple products and communications. And, perhaps crucially, in a world where customer expectations are moving rapidly cross-industry, they are falling down in their digital servicing capabilities by failing to enable customers to manage their policies how, when and where they want (see Figure 4).

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Figure 5: What does the emerging digitally-enabled L&P customer* look like?

Better savers: •Saving, and saving more, across a wider

range of savings vehicles: (Only 11% of digital customers are not saving vs. 27% of non-digital customers, and 30% are saving >£3,000 a year vs 24%)

Advice seekers:•Hungry for information and advice on

long-term financial planning. (Twice as many digital customers want information and advice in comparison to non-digital customers: 68% vs. 33%)

Relationship seekers:•Digitally savvy but also keen for human

interaction; with similar levels of desire for in-person financial planning as the wider population (71% of digital customers vs. 75% of non-digital customers)

•More interested in financial planning over the phone (63% vs. 42%)

•Open to regular services and tips from L&P providers (33% vs. 22%)

More vocal:•Advocators: Over 4 times as likely to

recommend their insurer (38% of digital customers vs. 9% of non-digital customers recommended in the last 12 months)

•Complainers: But far more likely to complain about their providers too (18% vs. 3%)

More open to alternative channels and products:•More likely to consider buying L&P from

non-traditional channels such as PCW, retailers, Internet giants and online financial-planning tools

•More open to differentiated L&P customer propositions**

More relaxed about the use of their personal data, everyday behaviour and preferences for targeted offerings

Digital L&P customers are:

* Defined as customers who have had some form of digital interaction with their L&P provider (across researching, purchasing and servicing) over the last 12 months. They are typically more weighted towards the younger and wealthier demographics.

** Our survey tested consumers’ level of interest in differentiated propositions, including loyalty programmes offering a range of insurance and non-insurance services, digital self-direction, holistic long-term insurance and retirement provision, and healthy rewards via fitness-tracking.

2. Source: ‘Protect Me!’ How to maximise future value creation in the UK Life & Pensions industry’, Accenture, 2014

A new breed of customer is emerging

Current propositions are not engaging customers, and with recent changes to pension legislation, customers will increasingly want new products and services to support their long-term financial planning.

All this is playing out in a market where digital disruption from other industries and providers is an ever-present and escalating threat. Our survey has revealed a strong rise in price comparison website (PCW) activity in the life sector, with 19 percent of the consumers who purchased a life insurance policy over the last 12 months doing so via a PCW.

Customer-centric wealth aggregators have also proved to be increasingly successful at winning market share. Backed by simple online propositions, these platforms grew assets under administration by £310 billion between 2001 and 20132.

While switching may not increase significantly for standard term or whole-of-life products, the influx of disrupters could have a major impact on consumer expectations. Likely outcomes include an increased focus on price, more shopping around prior to purchase, and changing buying behaviour for key products such as annuities and retirement income.

Accenture’s 2014 UKI FS Customer Survey highlights the emergence of a new breed of digitally-enabled customer. These customers are defined as those who have had some form of digital interaction with their provider in the last 12 months, and are typically more weighted to younger and wealthier demographics. They account for around 27% of L&P customers.

The attitudes and behaviour of this new L&P consumer (summarised in Figure 5) mean that ever more complex and diverse patterns of interaction will become the norm.

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In tandem with this fast-changing consumer behaviour, the L&P industry is experiencing a transformation in distribution and relationship management. These are being driven by the rapid rise of digital, and the increasing complexity of multi-channel distribution.

Digital is transforming everything…Digital changes everything by reshaping consumer behaviour and expectations and presenting L&P providers with new opportunities for forging richer customer relationships, based on more regular contact and personalised services and offerings.

…for consumers…Driven by digital, the way that customers choose to conduct long-term financial planning, and interact with their insurers, continues to change at pace. At the same time, their broader digital expectations are feeding across into the L&P sector.

The trend for customers to use digital channels to conduct their research online is already well established. However, our survey also shows that there is a significant number of consumers who are now using these channels to buy L&P products and service their policies (see Figure 6).

The rise of players such as PCWs and wealth aggregators with simple online propositions further underlines this trend.

…and for L&P providersFor L&P providers, understanding and accessing customers have become critical to successfully engaging them in long-term financial planning. There are a number of reasons why:

•CAGR of integrated sales force numbers has dropped by 18 percent since 1991.

•Bancassurance has retrenched dramatically.

•The Retail Distribution Review (RDR) has severely disrupted intermediary revenue models.

•Recent pension reforms have increased customer desire for advice and relationships during savings accumulation.

Against this backdrop, L&P providers are keen to harness digital as a cost-effective way of interacting with customers, while meeting increased customer demand for digital interactions. With value creation under pressure, they are increasingly encouraging customers down the digital self-service route as a way to improve efficiencies and reduce costs.

Increasingly complex distribution modelsL&P distribution models have become a lot more complex. In addition to managing banks, IFAs, direct, and workplace interactions, providers are having to meet the increasingly digital needs of consumers and their expectations for cross-channel interaction. The priority (and the challenge) for providers is to master the complexity of integrated multi-channel distribution spanning customers and distribution partners across all digital and physical touchpoints.

Figure 6: Extent of digital customer interaction in UK L&P

Planning

61% of L&P customers are interested in conducting their long-term financial planning using online tools

Buying

38% of consumers buying life insurance in the last 12 months went online to purchase their policy, while, 19% went to a price comparison website

Interacting via Mobile

8% of those buying life insurance interacted with their provider via mobile, and 8% via tablet

Servicing

25% of customers who have serviced their policy in the last 12 months did so online

Talking

19% of customers who recommended their life insurer and 33% of customers who complained in the last 12 months did so via social networks

Learning

27% of consumers considered using social media for information and advice on L&P products in 2014 (up from 15% in 2012)

2. Distribution and relationship management are transforming the L&P sector

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Figure 7: Customers want a combination of digital AND personal interaction

Source: Accenture’s 2014 UKI FS Customer Survey - UK Motor Insurance Customers, Ipsos MORI – Accenture Customer Retention in UK General Insurance Paper, 2007

Digital behaviour quickly became mainstream

Digital purchasing increased rapidly cross-generation

2006 2014

2%

>65-year-olds bought online

18%

Of all customers switched

35%

Of online customers switched

32%

>65-year-olds bought online …. reaching levels seen in 18-24-year-olds in 2006

67%

>65-year-olds visited a PCW …. not too far away from the 79% of customers overall

42%

Of all customers switched …with little difference between online and offl ine customers

100%

80%

60%

40%

20%

0%

Q: Would you consider conducting your long–term fi nancial planning using any of the following methods?Age group 18–24 25-34 35-44 45-54 55-65 65+

In person Instant Internet Online calculators Mobile tools Over the messenger portal and and services phone guidance tools

Consumers under 45 want digital AND personal interaction

3. 39 percent of 18-24 year-olds, 42 percent of 25-34 year-olds and 39 percent of 65+ year-olds, compared to just 27 percent of 35-54 year-olds (source: Accenture 2014 UKI FS Customer Survey)

Plugging the advice and information gapIt is clear that a combination of digital and personal interaction is needed to engage customers and reduce the impact of the advice gap. The recent Budget changes have accelerated the need for many L&P providers to improve their customer facing capabilities and will increase demand for broader financial planning, information and advice in a more varied product landscape.

The industry therefore needs to find a way to engage with consumers who seem reluctant or unsure of how to seek information and advice. Our survey highlighted that:

•48% of L&P customers who feel they would benefit from information and advice have never actually sought any professional advice or guidance.

•51% of consumers who own no L&P products claim they do not need any help with planning or managing their finances.

However, it also revealed that 27% of consumers who own no L&P products are interested in online financial planning tools, and as already highlighted, almost two-thirds of existing L&P customers are interested in these tools. Digital should therefore be seen as a vital step in engaging consumers with the industry and facilitating and guiding them to the relevant channels – both digital and face-to-face – for information and advice.

Customers still have a strong desire for personal contact for financial planningProviders that push their customers down the digital route solely for cost reasons will further reduce customer contact and engagement and make it even more difficult to build (and retain) relationships.

In spite of the strong emerging desire for digital, our survey underlines how L&P customers still very much want and need personal contact and advice at the moment of truth to know that they are doing the right thing:

•Consumersprefertoconductlong-termfinancialplanningface-to-face: 30 percent currently conduct their financial planning in this way, and a further 43 percent expressed a desire for face-to-face contact.

•ThereisnoevidencethatIFAsareindecline: 35 percent of customers buying an L&P product in the last 12 months bought via an IFA (the majority of them face-to-face). In addition, more customers would consider IFAs for information and advice in 2014 than in 2012 across all major L&P product types. Interestingly our survey shows that it is the youngest and oldest age groups which are using IFAs the most3.

•Consumerswouldlikeacombinationofdigitalandhumaninteractionforfinancialplanning: customers under 45, in particular, show a strong preference for both types of interaction in their long-term financial planning; although younger customers are most interested in (and geared up for) digital interactions, they are also the ones who are most in need of guidance and advice on managing their finances (see Figure 7).

It is clear that insurers will need to manage customers’ desire for human interaction during key moments in their relationship.

In Banking we have seen the emergence of a more transactional, self-directed customer with more ‘distant’ relationships.

Insurers can learn from the efforts that Banks are making to re-engage with their customers, and focus on improving transactions and restoring relationships in an increasingly competitive environment where switching levels are starting to rise.

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The convergence of an increasingly digital marketplace, complex distribution models and fast-changing customer behaviour poses a major threat to the L&P industry. Little or no customer contact, products that are too complicated and confusing, and the erosion of trust have already resulted in a steady decline in customer value. The risk now is that, by further reducing personal interaction, the industry’s drive to digital will make customers feel even more disengaged.

Given the rapid pace of change, and growing competition from alternative players, providers cannot afford simply to allow this situation to continue. We identify two major threats to providers that fail to take prompt and decisive action:

•Margin erosion: providers that are pushed into the role of ‘financial utilities’, increasingly distant from the customer relationship, will drop lower down the value chain.

•Declining market share: providers that are disconnected from customer needs will be unable to respond rapidly to market developments.

With the value available to existing players being eroded by disruptive market entrants, L&P providers must avoid being pushed too narrowly into the role of ‘product manufacturers’. The bottom line? L&P providers with unclear propositions and limited customer insight will be unable to meet customer needs. The consequence? They will face escalating competition from alternative brands with the deep customer insight needed to create holistic, tailored solutions – and deliver them to an increasingly discerning market.

As the L&P industry faces up to these realities, the message is clear – prompt and decisive action is vital. Providers that take decisive steps to embrace change and transform customer relationships for the digital era have an exciting opportunity to position themselves as the disrupters of the future. Those that do not act swiftly risk being side-lined as financial utilities, or being left behind by their more agile competitors.

Future-ready propositions are essentialOur survey clearly establishes that consumers do not currently engage with L&P customer propositions and are rapidly changing the ways in which they interact with their providers.

Despite the continued importance that consumers attach to personal contact, the level of digital interactions that consumers have (and expect to have) with the industry will only increase.

To ensure they don’t get overtaken by disruptive competitors, providers need to future-ready their propositions to reflect the needs of the emerging L&P customer. As well as looking at the behaviour and attitudes of these younger, digitally-savvy consumers as an indicator of future mass-market trends, they also need to focus on attracting them early in their financial journey. Given the clear desire for guidance and advice, not just at and through retirement, but also through savings accumulation, the priority must be to deliver value across all customer life stages.

3. Changing customer behaviour and an increasingly digital marketplace pose a major threat for L&P providers

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Based on our research, we believe that the L&P industry needs to address three key questions:

1. How can providers effectively embrace digital to forge richer relationships with their customers, based on more regular contact and personalised services and offerings?

2. How can propositions be better targeted to meet changing customer needs and engage the emerging L&P customer?

3. What is the right customer experience strategy for L&P providers looking to thrive in the digital era?

So how can these questions be addressed? We have identified the following priority actions:

1. In a more direct digital world, focus on creating a ‘joined-up’ customer experience by delivering a ‘sticky’, integrated customer experience across multiple touchpoints.

•Generate ‘footfall’ by engaging with customers when they want, how they want – interacting with them through the right channels at the right point in the customer journey.

•Create a dialogue with your customers, attracting them with interesting content (both digital and physical).

•Once consumers are ‘talking’ to you, make sure that the ‘conversations’ are friction-free, simple and clear.

•Implement diversified, flexible and personalised distribution channels that marry digital with some form of guidance or human interaction at the point of need, and improve digital servicing capabilities to enable ease of moving through education, self-service, guidance and advice.

2. Focus on developing and delivering simple, transparent digital propositions that meet customer needs and deliver value across all life-stages.

•Instead of focusing on products, focus on customer outcomes, shaping propositions that meet these desired outcomes and delivering them through the most relevant channels.

•Ensure products and services are simple, relevant, flexible and personalised. Deliver value for money that is recognised as such.

•Use the power of digital to make propositions relevant and engaging for today’s digital and younger customers – as well as for the L&P customer of the future.

4. Designing a strategy for success: transforming customer relationships in the digital era

3. Don’t just use digital to reduce transaction volumes and save costs. Focus on building new ways of engaging with customers directly, using digital to cost-effectively enhance the visibility and relevance of your brand.

•Do not view digital purely as a cost-reduction exercise digital purely as a cost-reduction exercise or simply to facilitate transactions. The power of digital to realise these benefits is undeniable, but the primary motivation should be relationships, not cost.

•Work with distribution partners to pool customer data.

•Use analytics and big data to build an ongoing dialogue and relationships with customers which manage life-stages and reward loyalty.

•Implement an active cross-selling and retention strategy.

•Recognise that ‘content is king’ – make digital interactions engaging and personal to maintain existing relationships, increase digital footfall and encourage engagement on a regular basis.

•Create relevant and visible brands that engage consumers more – use digital to do this in a cost-effective way.

With further industry disruption inevitable, UK L&P providers must take action now to develop their strategies for success. We believe those that do so, have an exciting opportunity to capture market share and increase customer value.

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Authors Dr Peter Kirk Managing Director Accenture Distribution and Marketing, Financial Services +44 777 184 3939 peter.kirk@accenture.com

Vicki Summerhayes Accenture Research +44 207 844 6373 vicki.summerhayes@accenture.com

Accenture experts If you would like to hear more about Accenture’s views on this topic, or would like to discuss how you can address the strategic and operational questions highlighted in this paper, please contact:

Dr Peter Kirk Managing Director Accenture Distribution and Marketing, Financial Services +44 161 435 5069 peter.kirk@accenture.com

Will Pritchett Managing Director, Insurance Head of Accenture UKI Life & Pensions +44 207 844 5485 william.j.pritchett@accenture.com

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