Article initially published on International Advisor. Read the article here.

IA spoke to three life companies to find out where the sector is heading and how it needs to grow

The life insurance market in Europe has had a change-up over the last few years. There have been some big acquisitions, notably Utmost Group’s purchase of Generali Worldwide(now Upmost Worldwide) and Generali PanEurope (now Utmost PanEurope).

Some firms have pulled out of particular markets; such as SEB Life retreating to the Nordics, while others have offloaded parts of their business; for example Generali Group selling operations in Belgium, Germany and the Netherlands.
That being said, Generali has also outlined ambitious European growth plans.

Then there is Hansard Europe, which closed to new business entirely in 2013.
These pullbacks alongside the implementation of several radical regulatory frameworks have altered the landscape. But, as costs rise and firms start to exit the market – what does this mean for clients looking for products in Europe? Is the high net worth European market well-enough covered from the life companies in Luxembourg, Ireland and the Isle of Man?

Expats left out

David Matthews, head of sales for Europe at Old Mutual International, told International Adviser that the local community is “well serviced” but the expat community does not get the same treatment. “They don’t enjoy the same breadth of choice, especially since some of the major life companies have withdrawn from the region recently.

“Expats who fully integrate in their new chosen country of residence may choose to access domestic market products through their local bank; however, they must be comfortable working with the product in the local language. "

“On the other hand, some expats might be simply retiring somewhere in the sun and may not learn the local language or do not understand the local regulation."

“This type of customer typically does not have access to the products provided by the local banks and is presented with limited options in the market."

“Local financial advisers who speak English are crucial to these clients; and continue to be a key distribution channel as they are able to explain how a product works and advise which one will work best for their individual needs in a language they understand.”

Gaps in the market

With firms exiting the market – it is leaving gaps that need to be filled.

Rob MacIntyre, head of wealth structuring solutions at Lombard International, said to IA that there are two areas missing in the current cross-border life sector.
Firstly, he believes that building investment flexibility into the products can be one way to attract clients.

“If you look at insurance as a solution for high net worth clients, it has a number of key advantages that clients are attracted to, [specifically] around the fact that it’s an internationally understood structure unlike many wealth planning structures out there,” said MacIntyre.

“The taxation of these products is specifically laid out in a tax code in various countries, so it has a lot of attractions. "

“But I think the thing that is often missing is that, if you look at the high net worth clients, they are looking for more investment flexibility in terms of how they invest their wealth. The insurance market has got to give more to be attractive as an investment option. "

“Clients want to take more decisions themselves rather than leaving them to discretionary investment managers. “Building that investment flexibility is something that the sector could do more on.”

Liquidity planning

Secondly, MacIntyre thinks liquidity planning is the other area missing for clients at the moment.
He added: “The other area is around liquidity planning for clients. What I mean by that is high death benefit insurance. "

“Why do I think that is a gap in the marketplace? I think we are seeing tax policy countries across Europe that are targeting the rich, to make sure they pay more taxes, and a tightening up of the world planning opportunities available to them.

“If you look at the entrepreneurs who are business owners, if they were to buy at a wrong time that would have a significant impact on their legacy; particularly if it’s a company which is a illiquid and how that gets passed onto the next generation.

“Being able to provide liquidity to pay taxes during that time is an undeveloped area. I think that is because insurers have not really thought about the best proposition to clients. "

“I think the underwriting capacity globally is how it’s delivered locally by understanding those requirements of the clients.”

Evolving sector Nigel Dunne, chief executive and director of Europe at Standard Life International, told IA that he feels there are “sufficient options” in the sector but they need to “continuously” evolve.

“There’s an increasing need for drawdown/post retirement solutions which need to be supported by specialist, ongoing advice,” said Dunne.

“The ageing demographic and increasing requirement for individuals to take responsibility for their own retirement provision accelerates this need."

“We’ve seen a shift in investment risk being transferred to the individual and we need appropriate products, advice, tools and services to support our customers on this journey.”

Dunne agrees with MacIntyre that there is a gap in the market, but he views it as having more to do with how firms offer advice to clients than the “product domain”.

“We need to find ways, whether face-to-face advice or via digital means or both, to engage better so we can build trust and provide a valuable service and a better overall customer experience,” Dunne added.

“There is, and will be, growing demand for life long financial planning. “While the trend for many years has been on providing wider fund choices and open architecture, we’re seeing a return to more ‘made to measure’ investment solutions.”

The silent killer

Firms are looking to get new products and client offerings into the market but it takes creativity and innovation. But, is regulation; such as Mifid II, GDPR, RDR (retail distribution review) and Priips (packaged retail investment and insurance products), stopping firms from changing the life sector for the better?

“The way we are dealing with regulation is to enable us to grow in an efficient way, we need to embrace technology and digitalisation,” said MacIntyre.

“It’s about being able to make onboarding of clients simple, and increased flexibility for investment simple, which can be done in a smart, digital way. “Regulation, though, is in danger of killing innovation if the regulators are not careful."

“We are managing to deal with it; but each time you think you’ve got a pause in terms of regulation, another acronym comes along.

“There is an issue with ‘death by acronym’ with terms like GDPR, Mifid II and Priips. “These things are sucking up valuable resources that should be used to focus on what clients really want.”
Matthews echoed the sentiment that regulation has changed behaviour: “The local regulatory landscape can also be challenging at times. “Providers must tailor their solutions to meet regional requirements in order to be compliant."

“By tailoring solutions, the provider ensures a product is fit for purpose in each jurisdiction it is provided in. “This involves significant legal advice and technical knowledge, which gives reassurance to advisers and their clients.”

Biggest issue All regulatory changes have made work harder for life companies – but, for Lombard, Priips is top of the list. MacIntyre said: “We operate in many core countries across Europe and we are having to produce documents for all of those markets. “It is a massive undertaking in producing and keeping those documents current.

“I have to say, do they actually give clarity to the consumer who is buying a product? They are always given to the client, but is this a key factor in their buying decision?"

“No, it is not. It will be around the specifics of the contract and what we are doing for them."

” Where do we go now? Overcoming issues like regulation can be hard – but where does the sector go now?"

Each market has different dynamics at play but we expect the trend for consolidation, both for life companies and advisers’ businesses, to continue and perhaps even speed up in some countries,” said Dunne.

“Life company consolidation is quite mature in the UK and has led to many changes in the international life company sector as a result."

“Scale is more important than ever given the regulatory overhead now required to run a life company."

“Technology will also play an increasing role for both engaging with, and providing services to, our customers and advisers."
“It will also play an increasing role in the distribution of simple, transactional life products, while also supporting broader advice.”

IA asked Dunne whether financial advisers are still a key distribution channel for life insurance firms, and if they will be for the future. He replied: “We believe independent advice plays a crucial role in the all-important area of protecting consumers.

“Good advice is a form of consumer protection, especially in the area of relatively complex financial services products.

“We’re very committed to independent advisers and try to provide our distribution partners with the best possible support – not simply via products but also training and tools to allow IFAs to position themselves even more strongly as highly qualified experts in the area of investment and retirement planning.

“We strongly believe clients will continue to need face-to-face advice, but technology will undoubtedly play an ever increasing role in the value chain to help efficiency and drive enhanced customer experiences.”