Time was when people regarded a pension as an insurance against getting old, right now insurers compete with master trusts and SIPPs for the nation’s retirement saving and the staple features that made them indispensable seem increasingly irrelevant.
Distribution
Let’s start with distribution. Insurance companies reached parts of the public like no other institution. Men from the Pru, Pearl and many others were as much a feature of housing estates as ice-cream vans and news paper boys. But that stopped when savings moved to standing orders and direct debits and the new kids on the block were Hambro and Abbey Life and a host of imitators. Insurance turned introduced savers to investment and opened the door to a world where we aspired to a “capital reservoir” not an “income for life”.
Progressively, distribution moved from retail insurance to workplace saving, the RDR did for the salesman and auto-enrolment did for the financial advisor – until advisors re-emerged as wealth managers, but by then insurance was a dirty word.
The sole remaining dependency , the retirement saver had on insurance was the annuity, when pension freedoms severed that umbilical connection , insurance became a “legacy product” – in terms of distribution – no financial adviser would regard themselves as selling insurance (even if protection products remain an important part of the job). Pensions are not sold as insurance full-stop.
Products
For the last two decades, indeed since the demise of Equitable Life, insurance companies have been looking for ways not to guarantee savings rates. The capital requirements on them make insured saving through with-profits uncompetitive with alternatives available.
A friend of mine reminded me this week of attending a focus group with Frank Field on stakeholder pensions. The group was of lower income and non (privately) pensioned .
The women wanted their money run by Richard Branson. Men wanted Nationwide. No one wanted insurers. None.
Insurance company products have become deeply unfashionable partly because of their brand image and partly because there are more exciting alternatives. From Virgin to Pension Bee, from Hargreaves Lansdown to Nucleus,. the attraction of not having to use an insurance company is highly attractive to the public.
For a time , insurance companies tried to reinvent themselves as banks or mortgage brokers and eventually they realised they had a job to do buying out the pensions of the corporate occupational DB schemes , most of which were run as under-capitalised and badly managed insurers themselves. Almost every insurer (Royal London being the exception) active in pensions is now focussing on buy-out and for all the noise about wanting a slice of auto-enrolment, insurers are now non-essential players accumulating workplace pensions. The large insured master trusts exist now as competitors for occupational DC plans looking to hand over the reins under the cosh from DWP and TPR.
Most people saving with an insurer are doing so by accident – because of decisions made by employers and trustees – not by them. And given half a chance, they will jump ship and take their money either to their bank or to a non-insurance company like Pension Bee or a funds platform (like Hargreaves Lansdown).
What future for retail insurers?
I am not sure that many insurers want to reinvent themselves for the retail savings market, they will continue to compete on rate for the reformed individual annuity market but they will get very little of the old high margin inertia business that arrived because the saver couldn’t be arsed to broke their annuity.
As regards the burgeoning drawdown market, this is increasingly owned by advisers who use the technology they can purchase or rent from the likes of 7IM (I got the demo last week).
Their best hope (and I see firms like Just and Standard Life toying with this), is that they decouple their annuity offerings from insurance guarantees and find a way to offer collective pensions on a non-guaranteed basis. Here they have what advisers do not have, the capacity to process underwriting and pension payments to hundreds of thousands if not millions of customers.
It would take a leap of faith for the above mentioned, Canada Life, L&G and the few other players in the individual annuity market to offer non-insured equivalents – but my bet is – given half a chance – they would.