Products evolve with their client base, so what should we be looking for as the UK ages? Stuart Hayman investigates likely changes
Twice as many ‘very old people' (aged 85 and over) are living in Britain compared to 25 years ago, figures from the Office of National Statistics revealed recently. And the UK is not alone - populations across the world are growing older.
An ageing population poses a number of challenges to those in the life insurance industry. Older people have very different needs to those we have been used to servicing. Clearly they require products that are tailored to their specific life stage as well as their ability to communicate and interact with businesses using preferred channels.
While this is a short-term challenge for any provider, it should also be viewed as a long-term opportunity for the industry. With this trend set to increase, the future success of the sector will depend on how life insurers respond and rise to meet the needs of ageing populations.
So given this backdrop, how should providers shape their product portfolios? Gone are the days when at 65 everyone took a pension, donned their slippers and moved to the coast. The over 65s are now healthier than ever (thanks in large part to advances in medical treatments), living active lifestyles and continuing to work full or part time. In fact a report from Friends Provident: Visions of Britain 2020, found that 40% of those surveyed said they plan to work past the age of 70.
And at the end of last year the Department for Work and Pensions forecast that almost a fifth of Britons will celebrate their 100th birthday.
Living by distinct values
While it would be wrong to generalise too much, the older segment of society live by a distinct set of values including modesty, waste not want not, sacrifice and an aversion to debt. Understanding these values is key to providing this age group with life insurance products that appeal to them while meeting their needs.
Also, whereas in previous generations older people looked to their families, especially children, for support this is no longer the case as financial pressures on younger people continue to grow. Combine this with spending cuts in the UK which will affect the level and scope of care the State can provide the elderly and the reality is that a whole generation of pensioners could be left struggling to provide for their care.
A number of initiatives are already in the market which look to re-focus protection products to the older population, for example:
1. Age limits
Maximum life insurance limits are being raised in order to reflect the increasing longevity of the population. There is recognition that older people do have a need and are in demand for protection later into life than previous generations on account of their more active lifestyles and longer working life.
2. Cover for chronic health issues
For many people living longer, more active lives, one of the biggest concerns is chronic health issues. There is a lot to be said for helping pensioners to live in their own home for as long as possible - not only is it more comfortable but it is also cheaper than paying to enter a care home.
In recognition of this, insurance products have been developed which pay a regular income allowing family members to give up full or part time work to care for elderly relatives at home rather than having to send them to a care home. Clearly the circumstances triggering the claim have to be carefully considered and perhaps differing scales of ‘infirmity' will need to be applied as these products are developed.
This highlights the opportunity for ‘interim' products for this market.
A more digital-savvy customer base?
Having the right products is only half the battle. Understanding how this customer wants to do business is also vital. Do the majority want face-to-face contact? Are they happy to buy life insurance online? And how should marketing messages be targeted to this more active, healthier and older age group?
Other than motor insurance, purchasing financial services products online is not currently mainstream for many of this older segment of society. Providers must therefore look at alternative communication channels.
White labelling ventures with brands which are associated with this age group is one option. Providers administering large pension schemes could, for example, work with employers to educate employees on the benefits of taking out sufficient protection. There seems to be an appetite for this approach. According to a recent Aon survey, more than a third of European workers would willingly sacrifice some of their pay for greater financial protection in the event of illness or injury. This idea could also be extended to those in receipt of occupational pensions through their regular communications with policyholders.
With many older people leaving full time employment to take part time roles, often involving some degree of volunteer or charitable work, providers should also consider ‘partnerships' with these organisations as a channel for distribution.
Support groups such as mental heath organisations are another option for consideration. Typically, the membership will be groups who have similar needs and experiences, allowing the benefits of the product to be positioned and focused accordingly.
Opportunity Knocks
The ageing population represents a big opportunity for providers to re-engineer products and to re-affirm their value to this growing group.
There have been a number of initiatives in other industries where services and products have been re-badged and re-focused on the needs and values of an older population. Take the travel industry for example, where a number of big players have tapped into the needs and wants of the older customer very successfully.
The demographic ageing of societies means that the financial services industry needs to plan ahead and account for the fact that older consumers will become the definers of consumer trends, rather than their younger cohorts. However, providers are going to have to ensure that they deliver a completely focused service in which their products resonate with this audience, through the channels they access, if they want to benefit from their significant spending power.
Stuart Hayman is a senior business consultant at Vertex
