60 weeks to the RDR deadline - but who's counting....
This week, Celent hosted a London event on the UK regulatory topic of Retail Distribution Review (RDR) that will impact the entire life insurance industry. As Jamie Macgregor,pointed out, there are a little over 50 planning weeks until the deadline for implementation.
Matt Browne from the FSA covered key points and intentions of the regulations, and reminded the audience that this is the time to take action, not to debate. The essence of RDR is to fix the retail long term savings and investment market which many consider is not working for the mass market customer.
Jamie Macgregor presented key points from Celent’s recent research. Insurers that were interviewed for this paper highlighted that 2012 will be a “horrible year” with the barrage of regulatory deadlines including Solvency II, EU gender directive and RDR whilst continuing to focus on new propositions for growth and profitability. The level of change and effort in Q2 and Q3 will be massive. Even with the delay in Solvency II regulations, many organisations are still committed to the same level of project effort to meet the revised deadline.
It is Celent’s view that the biggest risk facing product providers is around orchestrating the end-to-end delivery of the change program across multiple partners both upstream and downstream. This risk is then made worse by dependency on outsourced relationships within product providers and the visibility of their readiness. Effective communication across all parties involved will be a critical success factor of many programmes.
Martin McKenna from Focus solutions presented a view from a distribution perspective. He noted that IFAs had originally seen the regulation as a threat but that there was a shift in views. IFAs are starting to see this as an opportunity to de-risk the business model. It’s clear that IFAs don't have the capacity to serve HNW, the mass affluent and the mass market . IFAs will refocus their businesses towards what they see as high value clients and this may result in orphaned clients . This is a great chance for new players to enter the market, particularly those with strong brands. New distribution opportunities become available like online only, retail outlets , and mobile. Martin went on to note that whilst the appetite for advice will still be there, consumers will want to choose companies they know and trust. This creates a space for larger brands like banks and insurers to offer products directly to the customer. His view was that the winners would be those companies who could understand the cost of servicing the customer, and who had the scale and brand to respond to the market opportunities.
Kevin Okell from Altus discussed the view of the product provider. Kevin noted that RDR was considerably more than just switching off commissions. Rather, it meant and required a change in the provider operating model. In the new RDR world, advice and a product transaction are two distinct, and potentially unrelated, entities. The rules that allow providers to facilitate the payment of advice between customer and adviser only adds to the complexity of the processes and supporting systems that must be changed. Ultimately, the cost associated with this complexity needs to be covered from somewhere, and it is likely that the consumer will end up paying through increased product administration charges.
And so with the views from the FSA, Celent, IFA and provider, the delegates left with much to think about. Celent will continue to monitor and write on this topic as we count down to 31st December 2012 .