In our previous post, we discussed how compression breaks challenge P & C wearers’ top and bottom lines. We also looked at why we see advisory asset management as an attractive market for carriers right now. In this post, we will highlight why we believe that P&C operators and agents have a unique right to play in this market.
Let us first remind ourselves why this market is attractive. Historically low interest rates and new players in distribution drive carriers to segments with high capital and low returns in the value chain for financial services. From a strategic perspective, the transition to advisory and asset management offers carriers and agents a potential lifeline in the midst of the vicious circle of compression disruption. It can also provide a path to growth and improved customer retention as well as overall brand stickiness through an increased share of the wallet.
Based on changing customer expectations and the P & C agents’ existing reputation, we believe they have an edge over competitors – if they are flexible enough to use it.
Let us explore four reasons why non-life insurance companies and their agents are uniquely positioned to access and thrive in the advisory and asset management markets.
1. Customers’ expectations shift to holistic financial advice
Consumers are increasingly looking to trusted advisors to provide services that cover all financial products. Accentures latest Wealth management consumer survey found a widespread and pronounced demand for holistic offerings. More than half of all respondents (56%) want a holistic offer of asset management that includes advice, risk protection and lending. In addition, 79% of investors – including 85% of Generation X and 91% of Millennial investors – expect their advisers to offer both banking and insurance products.
Despite this appetite for advice, many consumers are skeptical of the value of the advice they currently receive. According to the same consumer survey from Wealth Management, 55% think the advice they receive is too generic. The same proportion (55%) also believe that they could do a better job by investing themselves by making decisions that create better returns excluding fees.
As consumers increasingly seek financial advice that reviews their entire financial situation and makes specific recommendations, the potential to seek a new source of net advice, or switch from their current source of advice, is likely to increase. In fact, almost one in five respondents to our survey changed counselors in the past year. This creates an opportunity for insurers to combine risk solutions and move into, or collaborate with, related industries to meet the full spectrum of customer needs in relation to advice and asset management.
2. P&C carriers and agents have ongoing relationships with their customers
Insurance companies and their agents are still among the most reliable financial institutions. The latest Accenture Global Banking Consumer Study found that 24% of consumers say they trust “a lot” of their insurer to take care of their long-term financial well-being. If that does not sound like a lot, keep in mind that only 8% said the same thing to retailers. Similarly, 32% of consumers said they trusted “a lot” of their insurer to protect their data, compared to 21% for online payment companies and 7% for social networks. Furthermore, customers are willing to provide additional information and personal information to insurers and their agents if there is a perceived benefit from doing so.
Add to this the fact that insurance companies are already used to having frequent, intimate conversations with their customers. The average car policy will be renewed 13 times while a home policy will be renewed seven times. These create multiple points of contact between agents and their clients as they review coverage and discuss options, leading to unique opportunities for the agent to offer additional services such as asset management. This level of interaction is also expected on the advisory and wealth management front – almost four out of ten respondents in our consumer wealth management survey wanted to hear from their adviser more proactively. The relationship between insurance and policyholders is still unique in financial services, and the operators who did the extra for their customers yesterday are strongly positioned to talk to these customers about asset management tomorrow.
P&C companies and agents also have unique access to the underserved market for financial advice. As net worth (and investor assets) increase with age, financial advisors tend to work with a demographic that distorts the elderly. Non-life insurance companies and agents, however, work across both net worth and age spectrum because they provide personal insurance to America at large. The relationships that this creates, of course, open the door to wealth management opportunities for markets that are underserved today. This gives carriers a head start when it comes to taking advantage of history’s largest wealth transfer between generationsunlike their financial advisors who first have to establish relationships with younger clients.
3. Brokers have a lot in common with financial advisors
From geographic footprint to selling regulated products, there are more similarities between non-life insurance agents and financial advisors than may seem obvious at first glance.
Let’s start with geographical footprints. Both financial advisors and insurance agents market themselves as “local”. Due to the nature of both exclusive agents and independent agent channels, these agents already exist in virtually every city, town and community in America. P&C carriers do not need to establish a local presence because they already have one.
These agents are also used to selling regulated products. For the non-life insurance companies and agents who also sell life insurance and annuities, the differences are almost non-existent due to the rules of “best interest” and policy illustration. Of course, additional control will be required for P&C carriers, and additional licenses will be required for agents. But the leap is not as far as one might imagine. In fact, there are many organizations that believe that agents will need to obtain securities licenses to sell fixed-index or equity-indexed annuities at some point in the future. Some lobby for this change.
Many insurance companies and agents have already taken small steps on this path
Finally, many P & C companies with exclusive agents have already started offering wealth management products. Carriers such as Farmers, Allstate, Country Companies and many of the Farm Bureau insurance companies already have limited brokers / dealers who allow them and their agents to sell funds, either as part of an insurance product or as a stand-alone investment, to their clients. We know one, FBL Financial Group, which has created a registered investment advisor and offers a complete set of investment advice and fee-based asset management. This service has been adopted by both its agents and customers.
A unique opportunity in a unique moment
In summary, there is a significant opportunity for P&C companies to take advantage of the compression disorder that is happening in the market today and create a new revenue stream of assets. The shift in customers’ expectations towards holistic financial advice combined with the industry’s sustainable, unique customer relationships and its proven ability to sell complex, regulated products all create a unique path to growth. Although some P&C companies have successfully approached this, we believe that the biggest results are yet to come. By establishing or building on a comprehensive set of opportunities, P&C carriers can truly win in this market.
In our next blog in this series, we will explore the strategic principles and capabilities required to capture this opportunity.
In the meantime, if you would like to discuss diversifying your offerings to include wealth management advice, we’d love to hear from you. You can find Scott here and Bob here.
Get the latest insurance industry insights, news and research delivered straight to your inbox.
Disclaimer: This content is provided for general information purposes only and is not intended to be used in consultation with our professional advisors.