New Labour, new market.

This year's Swiss Re Life & Health Insurance Report indicates that UK consumers are taking financial matters into their own hands, says Peter Maynard.

The UK life industry has gone through some rough patches during the
last few years. Regulation, recession, the mis-selling of pensions, cost
pressures and increasing competition: all these and more have led previous
editions of Swiss Re Life & Health's Insurance Report to sound notes of
caution and paint a rather gloomy picture of the industry's prospects.

Many of those adverse factors are still present and will continue to be
among the drivers of industry re-shaping. However, the consumer research
for this year's Insurance Report brings some good news and, for a change,
a decidedly optimistic flavour.

The optimism has its roots in the election in May last year of the Labour
government and its subsequent drive to create "a new deal for Britain" via
radical change. Cynics might say that the government's ideology is
essentially that of the outgoing Conservative administration - and there
is more than a grain of truth in that - but, nevertheless, the promise of
change has caught the imagination of the public, whose expectations remain
undiminished despite a little political stumbling over the past 12

Significantly, the programme of change is to be executed in consultation
with interested parties rather than summarily imposed. The overhaul of the
welfare system, a cornerstone of the government's programme, rests on
greater individual responsibility and the creation of strong partnerships
between the public and private sectors. Thus, we have seen a start made on
creating a new savings culture (with the individual savings account as a
central plank), the emergence of the stakeholder pension concept and a
Green Paper from the Minister for Welfare Reform proposing, inter alia, a
new era for sickness and unemployment benefits.

All this activity has been accompanied by a multitude of consultation
documents (experience so far suggests on balance that these do represent a
meaningful process, although a few doubts remain at this fairly early
stage) and, crucially, a great deal of media coverage. "You can't switch
on the television or pick up a newspaper without reading about
this ... the worry that we're going to have nothing when we get older,"
said a participant in one of Swiss Re's focus groups.

This emerging new awareness of welfare funding issues - and pensions
especially - is one of the most exciting findings; it seems that the
cultural shift the government wants is beginning to happen.

The focus groups suggest, too, that younger age groups are particularly
committed to self-provision; Swiss Re spoke to some very financially aware
young consumers who are already mapping out their lives and planning for
retirement via a new set of values and priorities and ready use of
financial products.

Quantitative research also points towards a trend of increasing acceptance
of self-provision. The most recent results suggest a shift in opinion,
between January last year and May this year, on who should have primary
responsibility for providing income in retirement.

Figure 1 indicates a slight move away from the government (already
relatively low), a bigger move away from employers and a big upswing in
individual responsibility. The third bar in each group on the graph shows
respondents' opinions about who will have responsibility in 10 years'
time; it is clear how people see the direction in which things are moving.
The same sort of patterns, though slightly less pronounced, are found for
income in the event of inability to work and nursing care for the very

The research suggests a new commitment to financial planning, with nearly
80% of respondents agreeing that it is important to have a long-term view
of personal finances and to plan for the future. (A quick look at levels
of product penetration, though, immediately indicates scope for even
better planning.) The focus groups revealed some of the reasons why
respondents felt this planning was necessary.

The feel-good factor does seem to be returning, thanks to macro factors
like a stable economy and low unemployment. However, underlying this quite
rosy picture is a pernicious fragility of employment and relationships
that threatens the aspirations - long-term relationships, marriage,
children and comfortable retirement - that many still hold. It is as
though there is an increasing gap between intentions and ability.

The reality is that life's uncertainties increasingly threaten personal
finances, creating a greater need for effective safety nets in the form of
protection and savings products. While some of the risks - for example,
death and sickness - are familiarly mitigated via financial products,
others such as redundancy and divorce are not - at least, not at

Swiss Re's research also showed how the growing belief in self-provision
and financial products correlated with consumer attitudes about dealing
with providers and intermediaries. In recent years, there has been a great
deal of adverse publicity for the industry and increasing cynicism and
distrust among the public. The three previous editions of the Insurance
Report have recorded a decline in confidence in buying life and health
insurance, but this year's witnesses a very welcome reversal of that
trend, with half of the sample stating that they are fairly confident and
a fifth stating that they are very confident (see Figure 2).

However, confidence gaps still exist. Less than half of 18 to 24-year-olds
expressed confidence in buying, and women were slightly less confident
than men overall - 66% compared to 73%. The pattern was broadly the same
for pensions (1998 is the first year that the Insurance Report has covered
these), although confidence was slightly lower overall and the gap between
men and women wider - 73% as opposed to 56%.

Women appear to underestimate their ability in financial matters, yet
there is no intrinsic reason why they should be less able than men,
especially given their traditionally strong role in managing household
finances, and women seem to be increasingly involved in major financial

In 1996, 65% of the sample who were married, or living as married, said
that there was joint financial decision-making in their households; this
year it was 71%.

We believe, though, that the picture is not as straightforward as it
seems. Two nations of women are emerging: one younger and tending towards
the higher social categories that are financially aware and experienced;
and another, older, more down-market, still looking to men to provide help
or take a strong lead.

While confidence in dealing might be on the increase, there has been no
reduction in the desire to deal face-to-face when making insurance
arrangements. No less than 83% of respondents reported that they arranged
their last life/health policy at a face-to-face meeting; a figure
unchanged since 1996 (see Figure 3).

There has been little change during this time, although banks and building
societies have gained some ground, mainly at the expense of company

Moreover, when asked about the channels they would consider using in the
future, a third said a company sales person, just over a quarter said an
independent financial adviser, a quarter said a bank or building society
and 14% said the telephone. These figures are very similar to the results
in 1995. So much for the long-predicted telephone revolution.

The findings suggest a continuing need for advice. Despite signs of
growing consumer confidence, buying financial services is still, for many,
like negotiating a minefield. The products are complex and the choice
bewildering, and recent experience shows that even well known names can
let their customers down. Small wonder consumers look to advisers for
help. They look to other sources too, including the media - and especially
the personal finance sections of the daily press.

There has been much debate and conjecture about the impact of new
entrants, such as retailers, on the traditional industry. Given the
imminent arrival of life policies from the supermarket chain Tesco, the
reality will soon be apparent. Swiss Re Life & Health has been monitoring
public opinion on alternative providers since 1995. The latest research
suggests a levelling off in the acceptance of new providers and access
channels which, on the face of it, is surprising in the light of various
supermarkets' forays into retail banking and savings (see Figure 4).

The support for employers and trade unions is also significant, though it
has declined a little since last year. Responses indicate that these are
regarded as trustworthy potential access points for financial services,
raising once again the question of why 'worksite marketing' has made so
little impact.

However, the levels of interest in generic provider-types mask the support
for individual brands. This is where some of the most significant changes
in attitude in the last year were found, with willingness to consider
buying from retailers such as Marks & Spencer, Tesco and Sainsbury up from
around 10% to 15-20%.

There was also a strong showing from British Gas and telecommunications
provider BT (suggesting that some of the utilities are beginning to shake
off their reputation for fat-cat directors) and from car manufacturers
such as Ford and Volkswagen. These findings confirm the conclusion from
previous research that brands can feasibly be extended into financial
services, provided they embody the right core values.

However, the brand standing head and shoulders above the rest is Virgin,
with 40% of respondents willing to consider its products. It also
attracted a great deal of positive comment in the focus groups,
particularly from men.

It looks as though the industry's fortunes really are on the up. The
government's self-provision message is hitting home, people are readier to
use financial products and they feel able to buy with greater

Perhaps the most significant of these developments is the first; the
welfare climate. This is the biggest shaper of consumer propensity to buy
financial services and it is changing in the industry's favour. A whole
new culture is being created.

Furthermore, the government envisages working in partnership with the
industry to create a range of transparent products that operate
straightforwardly and dependably, delivering real value for money. The
issue of compulsion has yet to be decided but, regardless of that outcome,
demand for financial products will be stimulated, with basic plans at one
end of the spectrum and various 'luxury' ones at the other.

The industry, though beset by problems in recent years (mainly of its own
making), has real virtues and strengths. It needs to use these in working
with the government to maximise the great opportunities now presenting
themselves. Furthermore, these are opportunities that promise to be no
mere flash in the pan: the new welfare framework will be designed to work
well into the new millennium.

However, while a new market is being created, the transition will not be
pain-free. Providers and intermediaries will have to adapt and some will
find that difficult; some may find it impossible. The survivors will have
successfully addressed a whole host of specific challenges, of which the
following are just a few:

- reducing costs to deliver real value for money;

- being competitive in their chosen markets - basic or 'luxury' products
or both (the new welfare-type products may just end up eating into
traditional markets rather than increasing them);

- new product development capability, combining innovation and risks
relevant to modern consumers with short time-to-market periods;

- tapping into the emerging young-consumer market - one that traditionally
has not merited much attention (might this group start the direct channel
on an ascendant path?);

- adapting the distribution mix to suit the range of consumer preferences,
accepting that a new era of simpler products may well reduce consumers'
desire for advice and face-to-face dealing;

- refining segmentation models, combining softer attitudinal and
behavioural characteristics as well as the classic socio-demographic

- embodying integrity and trustworthiness in core brand values; and,

- developing a wide spectrum of relationships to create opportunities and
to influence market development.

Thanks to the government's welfare reforms, the outlook for financial
services is better than it has been for a long time. Equally, the reforms
promise to influence and accelerate industry restructuring. It is a
double-edged sword with exceptionally keen blades.

Peter Maynard is strategic consumer research manager for Swiss Re Life &
Health. Copies of the Insurance Report (Life Report) are available for
£250 from Sue Bethell on +44 171 814 3337.

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