Earlier in the week I mentioned I was highly sceptical about corporate wrap platforms. They have become the holy grail for a magic circle of insurance companies whose business models are increasingly focusing on pandering to the boardrooms of fellow corporate behemoths.
There is something peculiarly irksome about the strategic direction they are taking. The direction of travel was established some years ago by strategic consultants such as McKinsey and Bain. The message was that margins were deeper. risks lower and distribution assured if the life insurers abandoned their traditional role of protecting ordinary people from the risks of dying too soon and living too long. Instead they should concentrate on what was then called “worksite marketing” a strategy which involves using the employer as a product distributor.
Initially the idea was that insurers would provide employers with simple products for everyone. This didn’t happen. Employers couldn’t see why they should become the insurance company’s unpaid salespeople and insurers were forced to think again. Version two of worksite marketing has a subtle twist. The products are now aimed squarely at the people buying the service- those in the Corporate Boardroom.
These products cannot in any real sense be called insurance. To use current parlance, theyare “taxwrappers”. The social value of these tax-wrappers is negligible, they serve mainly to protect the wealth of senior executives from the “calamities” of wealth taxes Capital Gains Tax , Inheritance Tax and the higher rates of Income Tax. They are also marketed as protecting against a furher “executive nightmare” – a collapse in the value of shares dished out on the executive gravy train.
While it’s true that a few large corporates have extended share ownership to middle managers and some blue collar-workers, tax-wrappers are not an issue that finds any traction beyond the Boardroom. It should be noted that most share-price collapses are attributed to Boardroom incompetence but that’s another story.
The insurers have worked out that this strategy which panders to the needs of a small coterie of corporate buyers can be dressed up as “an employee benefit” . With very limited competition, the plans can be distributed via one ot two “super gate-keepers” to a few high profile corporates and advertised by an only too compliant trade-press.
The trick is get the “follow me” pack of employee benefit consultants marketing these Boardroom Benefit Plans (sorry- corporate wraps) to mass market of mid-caps and SMEs.
Except they shouldn’t. The tax-wrappers and the share exchange facilities that the new boardroom benefit plans bring to the party are not mass market products. The share exchange facilities , the corporate ISAs and the advanced stochastic modelling tools that the insurers are peddling need a kind of infrastructure that simply doesn’t exist outside the FTSE 100.
So the insurers are pouring their energy into a product that for all its bells and whistles, is more a marketing gimmick than a proper insurance product.
Meanwhile, the meaningful work that insurers have typically undertaken – providing protection for the important life events, is not being done. These insurers are walking away from the annuity market, the life and critical illness insurance market. They are neglecting their traditional role of financial educators abandoning personal advice for computer models.
The average pension that’s being paid out by these insurers has, according to PWC, fallen in value by 30% in the past three years, according to Alexander Forbes by 40% in the past ten. You’d have thought that at a time when their customers are facing unprecedented losses within their policies, that the insurers would be prioritising helping out their existing estate.
This is the “opportunity cost” of the obsession with “Boardroom Benefits”. As I did the jaw jaw with the great and the good last week, I felt guilty. How does the self-congratulatory back slapping sit with those retiring today on benefits decimated by stock market conditions and depressed annuity rates?
Isn’t it time that we called on the insurers to take responsibility for their “legacy”?
- Insurers find comfort in Boardroom Benefits (henrytapper.com)
- It Is Time to Fix Our Boardrooms (blogs.hbr.org)
- Leading article: Britain’s boardrooms have much to prove (independent.co.uk)
- Investors warn on boardroom pay (bbc.co.uk)
Heart felt Henry, great blog.
Great to see you reading my stuff- regards to all at your shop who have done as much as anyone to restore some sense to pensions recently!