Despite the current ‘doom and gloom’ being put around by some, it has been fascinating and refreshing to have had conversations with a couple of IFA businesses that have recently moved to 100% fee based models – both conversations were quite inspiring.

The two stories were remarkably similar and neither moved to fees to pre-empt RDR, in fact RDR was almost irrelevant to their decision. Both believed passionately that fee based services were the way forward for the benefit of their customers and their own businesses. They had taken a little time to establish exactly how to achieve this, but once they had invested time to indentify and clearly articulate their business proposition, they hit the streets with their new models and haven’t looked backwards since.

That makes the transition sound easier than it undoubtedly was. For one of the IFA firms, they started with a client bank of 4,500 and found only 10 of those would transition to a fee based model. How scary is that? The client bank that they had grown and nurtured for 10 years was effectively going to have to be rebuilt – virtually from scratch! However, they did it and at the end of year one of operating their new model they had grown revenue by 85%!

With RDR coming around, you may think these companies are sitting there looking pretty smug – ready for the changes. However, regulatory change was never the key driver in the first place – good customer service and keeping ahead of the game was the motivation and these firms are now looking at what to do next to stay at the forefront of the market with a service based value proposition.

Neither of these firms is large, they are not owned by large product providers, or heavily capitalised. However, as with many IFAs, these companies are resilient, resourceful, focused and driven. As a result, they will undoubtedly survive the difficult conditions the financial services market is currently facing. A fear of failure is causing some to bury their head in the sand and hope these issues will go away. Those facing a similar dilemma should not be afraid to ask for help and as these companies have shown, it is not only possible, it has proven to be more beneficial than trying to maintain the status quo.

Outsourcing
> Non core activities to specialists (not just cost cutting of labour)
> BPI (effective and efficient – doing the right things in the right way)
> Thinking and innovation (use disconnected business people who see things differently)

Cost effective supply chain management
> Still very cumbersome and paper based

Security
> Information and data needs to be protected
> Criminals are exploiting technology more than the insurers are

Risk awareness, implications and management
> Climate change, disasters, terrorism, crime and pandemics

Social networking
> Access to between half a billion to a billion people
> Exploit web2 technologies

Global marketplace
> Emerging markets are not just open to physical presence, but technology potentially means we have a ‘borderless’ world
> Legislation, regulation, political and cultural barriers may be put up as economic hurdles

Improvements in health and mortality
> We can predict the health and longevity of people fare better than ever before
> Technology improvements in prediction may not be fully utilised [but is it a matter of time?]
> Predictive capability of health and mortality of individuals could be used to focus on problem management and mitigation
> Science, technology, biology and pharmaceutical developments extend quality and longevity
> Providers could tailor product terms to benefit individuals (Annuity products already have tailored benefits for ‘impaired lives’)
> There is a significant social and political hurdle to overcome

Taking the last bullet point into more detail:

The life insurance industry is obviously facing a number of challenges in the current market environment. One of the potential future opportunities and key drivers for the industry is going to be life extension. We are rapidly approaching a time when we can begin to more accurately predict and improve people’s longevity through a combination of pharmaceuticals, life style management and eventually even medical devices. Individually personalised medicine is emerging, indeed if we look at the US as an indication of future trends, the consumer genomics marketplace is an increasing opportunity. Genomic information could be used to predict and promote health and life. With the pace of change accelerating, we are living in an era where people will be living dramatically longer than ever before and the quality of their life will be much better. There are significant social, political and economic implications that could affect what we have to do and what we choose to do with that extended and improved quality of life. Will we have the income and or capital to fund this extended future? Will we want to or need to work longer? If we live longer, will we need long term care? Will we end up with a society like that portrayed in the motion picture Gattaca?

Improvements in medical science will not stand still. Killers such as cancer and heart disease are and will increasingly be brought under control. Companies like 23andMe are offering to sequence your personal genome and analyse it against thousands of genetic tests for disease. While there is an argument about whether it is acceptable to use the potential new sources of knowledge such as genetic profiling to underwrite products, this argument has been focused on the ‘negative’ implications of insurability (or more particularly ‘uninsurability’!).

However, if and when people begin to start taking advantage of this technology, insurers will have the possibility to map that to different kinds of new insurance products tailored to individual circumstances. There is already a trend by some insurers towards creating products targeted at people who ‘live a healthier lifestyle’ and whilst this is currently a pretty crude judgement of health and longevity, if people eventually choose to access genetic knowledge, they will be likely to want to capitalise on ‘good news’ and be better able to manage and mitigate the ‘bad news’ through healthcare improvements.

With the problems of today being at the forefront of the minds of managers, it is likely that they will be analysing their businesses with a microscope. However, whilst this is important, they should not ignore to also use a telescope to ensure that they have a clear view of what the future may hold too.

I attended the Mortgage Expo 2008 show yesterday.  This year my interest lay not just in visiting the stands as normal, but in seeing how the show had been affected by the current market conditions.  Would attendance be down? Would the number of exhibitors have reduced? Will the atmosphere be one of uncertainty and fear?  The answer of course was yes, yes  and yes.  As I arrived at 10 am I was jumped on by what seemed like every exhibitor that had braved the market conditions to attend. As one of the few attendees there freebees were thrust at me while scanners were clicked all around me trying to capture my details for some future marketing campaigns.  At that point there were so few attendees if it had a pulse the exhibitors jumped on it.

As for the exhibitors the numbers were also reduced substantially and the big prominent stands of the past were distinctly lacking. Gone were all the sub prime lenders that had entertained us in the past, even the traditional lenders were reduced in numbers.  Gone were the alcohol based stands, the computer games, walk in buses and chocolate fountains replaced by bowls of chocolates, bananas and free packets of mints.

The exhibitors were now made up of Software companies, Surveyors, Networks, Publications and Insurance companies – indeed of the 79 exhibitors listed in the exhibition guide, only 6 of these were lenders.  These remaining exhibitors have benefited and had clearly got increased stand size for reduced fees.  Some companies used to tiny stands said their stands had been increased in size 3 times by the organisers at no additional cost.  However given the drop in footfall in the exhibition itself this will have been of small consolation.

Let’s hope the market upturn happens quickly and next year things are back to normal.