Customer engagement is closed-book providers’ biggest challenge

13 May 2016

Natanje Holt of Dunstan Thomas, looks at how providers are beginning to rise to this new challenge

There is no doubt that pensions providers with large legacy ‘closed books’ are feeling the pressure to develop more effective lines of communication with their closed-book customers before industry developments and consumer expectations mandate it.

There are several developments which will demand that lines of communication are opened up with these policy holders. Firstly, Pensions Freedom & Choice, inevitably means that greater numbers of legacy customers (or their advisers) will be coming to providers with requests to cash in their legacy pensions with a view to going into drawdown or perhaps keeping their assets uncrystallised and taking out lump sums via UFPLS. Who knows, they may even be asking to cash in their annuity in a year’s time when the secondary annuity market goes live.

Closed-book providers need to be able to offer most of these options today, despite that fact that most legacy policies and the systems that support them, were designed for a much simpler world in which the only at-retirement choice was to buy an annuity at the point of retirement.

Sliding an annuity application form in with the Wake Up Pack (which they sent to scheme holders 4-6 months before policyholders’ stated retirement age) was normally enough to continue retaining their business through into retirement. But those days are coming to a close rapidly, if you read the FCA Policy Statement 16/12 published in the last couple of weeks, along with the even more pointed Thematic Review 16/2 Fair treatment of long-standing customers in life insurance sector, published just a month earlier and promising draft guidance on 3rd June 2016.

These documents make it clear that the FCA is encouraging providers to get into proper two-way dialogue with customers with a view to tailoring at-retirement and in-retirement communications to individual requirements and preferences. Disclosure change demands, reflecting Pensions Freedom & Choice, are already in gestation over at Canary Wharf and will be enforced less than a year from now on 6th April 2017.

There is also a recognition in these documents that the paper-based statutory documentation (Wake Up Packs, SMPIs, and the like) are not doing enough to ensure good outcomes for consumers. Disclosure Mark II is on its way and the closed-book operations are least prepared for it, if the TR 16/2 is to be believed.
PS 16/11 even promotes the use of interactive tools to help stimulate the necessary dialogue and get customers engaged in decision-making, in addition to what is achieved in statutory illustrations, see page 15:

“We agree that tools have the potential to aid consumers understanding of their retirement options and expect firms to consider using the tools that best support their customers’ needs. As stated in CP15/30 we regard tools as distinct from illustrations.”

There are multiple issues that the FCA wants providers to get their head round which are detailed in TR16/2:
1. Regular policy review regime to ensure that outcomes stated at outset are still heading for delivery at stated retirement age
2. Stepping beyond simply adhering with compliance, to ensure good outcomes for their customers. An example of good practice which helps us understand what the regulator is looking for is stated as: “establishment of a framework to identify unusual customer behaviour patterns which could indicate potential product-related issues.” (page 26)
3. Opening of communication channels to get customer feedback
4. Communicating consistently and regularly with customers and presenting enough information in a “clear, fair and not misleading way to enable then to make informed decisions about their policies.”
5. Tackling up to 22% incidence of ‘gone-aways’ where providers are simply unable to locate customers to send them any information.

However, since the time when many of these closed-book policies were set up, email communications has become ubiquitous as have social media communications, online shopping, banking and much more besides. This makes it a great deal easier to track people down and put messages in front of them. Most of us interact with our home and business suppliers online already. We have got used to going to multiple online portals to view and pay bills, research product options, track our parcels, and much more. The time is surely ripe to start tracking our retirement savings progress online? The good news is that cost-effective technology is now available to extract data from even the most aged of IT systems supporting legacy books, and present it in an easily digestible graphical format.

This data can be ‘mined’ by providers to uncover customers that are vulnerable to not reaching declared retirement savings targets, for example. This intelligence could then be used to send tailored alerts to customers via email or push notifications from a secure portal. Informative, efficient and highly visual portals can be built in quick sticks.

This might sound a million miles away from where much of the industry is today but they will have to go there anyway if the thrust of the FCA’s declared vision makes it through into regulation. If there was any doubt at all about the online direction of travel of the retirement space, the Pensions Dashboard, now mandated for delivery by 2019, puts it to bed once and for all.

There is an undeniable and increasing consumer expectation that providers should be able to give them a secure online view of their pension assets, showing them where their assets are, how they are performing against target, and what projected funds might deliver them at stated retirement age. This expectation has undoubtedly been fuelled by the growing success of D2C platforms.

The fact that alternative retirement savings vehicles are emerging over and above the highly successful Auto-Enrolment workplace pensions in the shape of the Lifetime ISA; makes the Pensions Dashboard and policy-specific portals all the more important if consumers are to get to grips with their real retirement saving status, work out if they need to be putting in more and make contribution and investment type adjustments on the fly.

Customer Engagement strategies need to consider developing the right messages (ideally eye-catching, succinct, accurate and relevant), via the right media and at the right time, to stand any hope of success. In the digital age, we are being bombarded with information, sales messages and warnings to take action, almost every hour of every day, mostly via our smart phone. It is into this space that the pensions world must jostle, via Apps and mobile responsive portals offering a combination of useful information and statutory documentation, via engaging ‘gamified’ apps and online tools designed to educate, inform and support good savings outcomes.

We are already beginning to see some of the fruits of innovation in online customer engagement tools like the Aviva Saving Smarter financial profiling tool and adviser firm True Potential’s behavioural economics-led impulseSave tool. Providers hunting for the right model for all- encompassing online customer engagement need look no further than the leading D2C platforms. There is no doubt that customer engagement is now much more than a buzz word in the pensions market. Good customer engagement strategies, well executed, will positively impact customer retention, new business acquisition and AUM numbers, all while keeping the regulator at bay.

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