Mark Broadhurst, head of insurance EMEA, at insurance software provider Intellect SEEC, explains why robo solutions look certain to play a major role in the insurance industry’s inevitable transformation, and the role robo solutions can play in addressing the insurance advice gap.
The advice gap has continued to grow since the Retail Distribution Review (RDR) as more and more wealth managers are focusing on high net worth clients.
This flight to quality has left a growing number of customers dis-intermediated, and has prompted the emergence of 'Robo Advice' solutions as a potential solution to bridge this growing gap.
The manufacturers in the industry namely the insurers, have predominantly focused their attentions on the high volume intermediated market.
Salesforces were already on a sharp decline prior to RDR, but the increased regulations and lower charging environment has combined to put any remaining models to the sword.
Not only did insurance companies have to contend with the RDR, they faced a new challenge in the shape of fund supermarkets and wrap investment platforms.
Historically, insurance companies controlled volume through product and commission enhancements, and provided a packaged solution which included a product tax wrapper, administration service and fund management
The rise of a new breed of platforms has transformed this space and provided a more holistic unfettered capability for wealth management. It has resulted in insurers suddenly finding themselves becoming fund providers alone.
Some providers chose to become more specialised in niche markets such as equity release, protection or corporate pensions, where they could still offer packaged solutions.
Those wishing to focus on the investment market were forced to either acquire or develop their own platform capability.
Market competitiveness has been fierce and with it came pressure on revenue. Now, we are facing a period of platform consolidation as profitability comes under ever closer scrutiny.
If the turbulence wasn't enough, the industry now faces a new distribution threat in the shape of technology providers.
One thing the industry has been good at is learning from their mistakes, and there is clear evidence that the market is looking closely at all the threats it now faces.
Providers are examining ever more thoroughly their social and economic responsibilities in respect of the savings and advice gap, whilst trying to balance the risk of failing to compete with the new technology entrants, and creating more sustainable and profitable business models for the future.
In this environment robo-advice looks certain to play a major role in the industry’s inevitable transformation, and insurers will look to acquire or develop their own capability to maximise their potential and manage risk.
Early evidence points towards a preference for blended advice through a combination of technology and people.
Will this be a successful formula? While the sector continues to undergo transformation and evolution driven by the challenges of technology and regulation the market looks well placed to win the day!