In the UK, the Retail Distribution Review (RDR) goes live on 31 December 2012. The regulatory changes introduced by the review will bring about a rapid consolidation of the market as insurance providers reassess their distribution channels and advisory and product propositions. This is likely to unfold in the coming months, as companies work out that current advice propositions for the mass market will become uneconomic, and reductions in sales volumes in will threaten companies which have not executed strategies focussed on profitable segments. Evidence that this is starting to happen includes Barclays, HBOS and the CoOp recently announcing the withdrawal of large numbers of advisers from the market
Companies that want to capitalise on the longer-term opportunities brought about by these changes must ensure their response to the RDR has a strategic focus. Those that simply address the immediate requirements of the new regulations risk merger or break-up in a market that will be unable to sustain the current number of providers, both from a manufacturing, distribution and advice perspective.
New opportunities post RDR
Significant numbers of major providers are focussing on high net worth customers and platform development in order to drive asset accumulation and offset reductions from lower value transactional sales. They cannot all be successful in a largely mature market. Alternative strategies being deployed include a focus on D2C propositions to seek to offset falls in sales via advisers. However, some companies seeking to adopt this approach have limited track record in dealing in this segment.
A large proportion of the market that is currently served by face to face advice will find themselves unadvised after the RDR changes come into force. Either companies find innovative or different ways to add value to customers, or the government will face the challenge of a generation of consumers for whom savings and protection becomes an ever decreasing priority.
RDR programmes capable of delivering strategic advantage must map and analyse the full range of opportunities and threats posed by RDR to the current business model by:
making clear where the providers are really adding value to their customers - some businesses may struggle to find the required margin from their traditional market segments. As a result, M&A activity to achieve advantages of scale or reduce costs is expected to increase. However companies with a longer-term view and those prepared to engage with regulators and government in considering innovative solutions will find alternative opportunities to serve the average consumer
ensuring they are flexible enough to cope with areas of ambiguity whilst consultation with the FSA continues - platforms and providers must ensure that remuneration models remain flexible enough to facilitate adviser charges, and also disclose charges to the customer in a way that makes it clear that they are not subsidised by insurance providers. Advisory businesses facing a new disclosure regime need to be confident that the customer is willing to pay what they wish to charge, and that their operational model can be adapted to meet customers’ changing expectations
linking to a strategic change programme - to inform their strategy for the medium and longer term, CEOs must have a clear view of the accessible market and cost to serve post RDR, taking into account competitor activity and current and intended capability. Having clear strategic direction is key, but the ability to successfully execute complex programmes will be a differentiator in a crowded market.
RDR programmes that link with other strategic projects and maintain flexibility on key deliverables have the capability to deliver significant long-term benefits well beyond the scope of the shorter-term mandatory changes most programmes are established to address.
To find out more about how PA’s financial services team can help you realise the potential from your RDR programme please contact us now.