Advice–take it or leave it–but it seems the majority of consumers plan on taking it. According to the 2007 World Insurance Report from Capgemini and the European Financial Management & Market- ing Association, when it comes to buying products, such as life insurance or retirement plans, individuals don’t want to make the decision on their own. “These products are a little more challenging to understand,” notes Bill Sullivan, research associate with the Financial Services Lab of Capgemini’s Global Wealth Management Center of Excellence. In fact, the report found that consumers say they need advice the most when it comes to pensions and life insurance.
The report, based on surveys and interviews with more than 10,000 insurance customers, 350 distributors, and over 50 insurance executives, was conducted in seven countries–France, Germany, Italy, the Netherlands, Spain, the U.K., and the U.S.–and explores the “prolonged and fundamental shift in market dynamics–a transformation that is creating opportunity for many insurance companies, but threatens to catch many others by surprise.”
The number of working people is declining in proportion to the overall population–a measure known as the old-age dependency ratio. According to the United Nations, the worldwide old-age dependency ratio will increase from 11% in 2000 to 25% in 2050, and could increase to 44% during that period in more developed regions–ranging from 33% in the U.S. to 71% in Japan. The rise in the general age-dependency ratio will result, Sullivan says, in a privatization of government-type pensions and programs, especially in Europe, providing insurers with a significant opportunity to start tapping into that market with a new stream of products. “I wouldn’t say that the [products] are fully developed, but they’re moving in that direction, and over the next three to five years, we’re going to see some significant shifts,” he says. “And the insurers that are able to make that adjustment and tap into that new market will really reap benefits from it.”
According to the report, some European insurers are using combination products that provide lifetime protection and moderate investment growth in response to the shifting landscape. Sullivan points out that although these products are challenging, in terms of trying to justify why a client should buy them, they have potential to be a cost-effective product in the long term. The report states that the main challenge in creating combination products is in the perceived cost versus return for the customers, who tend to dismiss the combination product as sub-optimal without understanding the full benefits of the product. For insurers to be successful in these combination products, the report suggests finding a way to offer them as an alternative to traditional debt and equity investments and, most importantly, to provide high-value advice around a particular product strategy for an individual.