Category: Financial Services

Does that compute? Robo-Advisers and the digital AI trends shaping the Financial Services markets.

Consumers are becoming increasingly open to the use of robo-advisers and AI to help inform and solve the issues that they face in their everyday lives.

Phone assistants like Apple’s Siri and Google Assistant and in-home devices such as Amazon’s Alexa have become common place when looking for the latest football scores or finding out what the weather is going to be like this weekend. Robo chat support is also becoming ‘the norm’, there to try and answer the simple questions quickly and efficiently without the use of a human resource, (although some, myself included may argue about their effectiveness), before guiding you to a human if required.

Investment in AI technology is at an all-time high with forecasts that it will hit $4.5bn by 2021. But with the growing use of artificial intelligence it is perhaps interesting to see that only 5% of finance companies have adopted chatbots (compared to 36% of real estate businesses).

“The #1 reason people dislike calling companies: not being able to speak to a real person right away” – Newvoicemedia.com

Your robo-adviser will see you now

Robo-advisers in the financial sector are becoming a more and more common experience for consumers. In mainstream banks, Natwest launched an AI service in 2017 targeted at customers that wouldn’t usually have access to traditional investment services, with Santander following suit a short while later with a service specifically targeted at first-time investors. Betterment and WealthFront have robo-financial advisers for investment; SoFi Wealth boasts one for borrowing, saving, spending, investing and protecting, and Bloom provides a robo-advisor to guide customers through their pension options. Not all services have been a success though with UBS closing their service to new customers in 2018 and Investec doing the same in may this year after it racked up losses of £13 million. But beyond the economics where do consumers draw the line between the areas where they are willing to take this kind of advice and support vs. where they want to speak to a human?

A Test Case: Making big decisions using AI

Spurred on to create a mortgage product by the drawn-out application process, it’s fair to say that Habito’s CEO Daniel Hegarty is disrupting the long-standing traditions of the mortgage market.

Launched in 2016, Habito has a simple aim – to help consumers get the best mortgage possible, fast. Offering free mortgage brokerage to the client, this platform is based entirely online and they pride themselves on being jargon-free.

“We are committed to saving our customers time, stress and money and plan to deliver customers unprecedented choice, ease, speed and certainty over their mortgage in 2019.” Daniel Hegarty – CEO of Habito

Habito entered, and still operate in, a market that is deeply fragmented, with the biggest player staking a claim to just 6% of the market (attributable to London and Country). Habito could point to an interesting shift in consumer behaviour when it comes to trust in robo advisers, after all, our mortgages are one of the most important decisions we make in our lifetime – and certainly the largest debt for the vast majority of us.

This mortgage firebrand grew 20% every month over their first 16 months in business. By 2017, Habito had lent £250m to 50,000 borrowers, and had expanded their team to 45 (from 8 at launch). Their efforts have not gone unnoticed either with an award for ‘Innovation in the Delivery of Financial Products’ in 2018, and a balance sheet that has skyrocketed from £1.2M in 2016, to £5.1M in 2017, onto a cool £18M in 2018.

“While we welcome anything that speeds up the often torturously slow mortgage application process, face-to-face advice or over the phone will have a place for a while yet – although mortgage lenders and brokers need to improve their technological offerings”. Jonathan Harris, Director of Independent Mortgage Broker

Companies using AI for these purposes tread a fine line between the capability of the technology to answer customers questions quickly, provide accurate and actionable advice or suggest the right products or services for the consumer and the frustrations that can arise when AI just is not quite fit for purpose … yet. AI is developing fast and will no doubt get to a point where these frustrations disappear but, at least for now, it’s a delicate balancing act. Watch this space the smart robots are coming.

Cyber insurance and staying relevant

72% of large firms experienced a cyber-attack in the past twelve months. Cyber insurance market is set to top $14 billion globally by 2022

For cybercrime insurers, it’s clear that there’s an identified demand for their coverage, and that business is booming. But in an industry where technological change shifts faster than in any other, the rate of policy-change required to stay relevant is a pressing matter for insurers to address.

Despite the first cyber insurance arriving during the late 1990s, as a product it remains in relative infancy.

Policies have changed significantly over the years. Early providers were extremely limited as to what was covered – such as only including online media, while others protected against errors in data processing.

As times have moved on, businesses have become ever more reliant upon data, in ever increasing formats. Policies have reflected this change, and today cover:

Third-Party Liability Coverages

Network Security Liability
Network Privacy Liability
Electronic Media Liability
Errors and Omissions Liability

First Party Coverages

Loss or Damage to Electronic Data
Loss of Income or Extra Expenses
Cyber Extortion Losses
Notification Costs
Damage to Your Reputation

While cyber insurance continues to develop, insurers are still grappling with how they can weigh up risk and shape their products, when lacking significant data to be confident in their underwriting.

In 2015, 63 percent of global companies were insured against loss of income due to data breach, while more than half of the companies without cyber liability insurance considered purchasing it.

Large companies are only too willing and able to get cover for potential attacks – with a staggering 85% of the world’s cyber insurance being sold to protect US-headquartered entities.

But the typical SME represents a curious client for insurers, as the damage caused by data breaches and other cyber-attacks is disproportionally high amongst smaller organisations.

And when we say damage, we don’t only refer to set pounds and pence. SMEs must also account for the damage to their reputation, the lost confidence of customers where personal data is involved and the loss of intellectual property. As for the cost of cybercrime on the average SME, the latest FSB survey reported that fraud and cyber-crime costs Britain’s SMEs £800 a year each (54% have reported becoming a victim in the past twelve months).

It’s logical to think that SMEs would be the businesses to jump up and down for cyber protection. And yet just 14% of SMEs has cyber insurance. The question is why?

After all, cybercrime is on the rise (four in ten businesses have suffered an attack in the past 12 months), and public awareness has never been stronger.

Despite the lowly take up rate, SMEs do appreciate the threat of cybercrime (and the average £3,000 bill faced when becoming a victim).

The reasons that may lie behind this 14% may be three-fold:

First, many presume that their standard business insurance covers them in the event of a breach (and when we say many, we mean more than half – 52%).

Second, what they don’t yet see is that insurers are offering sufficient coverage to counter the full impact of a cyber-attack.

“The drop in take-up of cyber insurance shows that this is still maturing as a product. Companies do not see the cover currently on offer as targeted to their individual risks and therefore not value for money”.

– Domenico del Re, insurance director at PwC

Third, if and when companies do seek a quote, they are posed a series of what seem intimate questions about their security systems (which are critical to calculate premiums, but which are also closely guarded by cautious business owners).

And these issues are just the tip of the iceberg for insurers that are trying to convince SMEs that their products are worthy of investment…

Over the course of 2018 alone, hackers cracked HSBC and Facebook – two of the most strenuously protected IT networks in the world.

These 12 months also saw a shift in behaviour, as criminals moved away from using mass mailing and malware as their weapons of choice, to harnessing increasingly targeted extortion efforts. This rapid shift in strategy is a standard characteristic of cyber criminals, as is the rapidly advancing tools that they have at their disposal.

In contrast to this speedy landscape, is the pain-staking practice of insurance. Underwriting has always been a notoriously time-consuming task, while risk analysis and modelling remains complex.

Encouraging SMEs to sign on the dotted line of a solid cyber insurance policy begins with education, and pushing home the fact that these businesses are often seen as soft targets by hackers.

Education also extends to reassuring businesses of all sizes that their security secrets are safe with them (a steep mountain to climb, given the distrust in even the largest of banking giants to sufficiently protect customer data).

Education and encouragement of SMEs to purchase policies is relatively easy when compared to the tall task of ensuring they feel safe entrusting their trade secrets to insurers. This is only compounded by insurers that remain cautious when placing limits on the amount of coverage they offer under their policies.

The only way to resolve these issues is to fully understand the threats that SMEs face, and for insurers to see everything from their point-of-view (including the perceived threat of sharing information with the insurers themselves).

‘To sleep, perchance to dream’ … a potentially big impact on an SMEs bottom line

A few weeks ago we wrote an article on employer provided benefits (“EPBs”) – and over the past year we have explored the role of EPBs in SMEs (apologies for the initialism). So, this statistic caught our attention.

A Harvard University study[1] found that in the US, insomnia is the root cause of the loss of 11.3 days’ worth of productivity per person per year.

The number of people sleeping less than the recommended level is on the rise – as a result of a range of factors including our modern 24/7 society, electronic media use and the ‘always on’ work culture. Not only is a lack of sleep associated with a range of negative lifestyle, social and health issues that result in absenteeism but also a lack of productivity while at work – so called presenteeism (not our word)

A 2016 Rand Corporation study[2] estimated that the UK loses around 200,000 working days a year due to sleep deprivation (which equates to a £40bn hit to the UK economy). Working the Harvard numbers through would actually give us c. 375,000 lost days. The Rand report noted that “if those who sleep under 6 hours a night can increase their sleep to between 6 and 7 hours – this could add £24bn to the UK economy”.

Trying to calibrate these different studies is something of data headache – so best we just summarise it as a big expensive issue calling out to be addressed. Employers are beginning to recognise the importance of sleep as well as their own role in fostering a healthy sleep culture.

“Eight hours of sleep makes a big difference for me, and I try hard to make that a priority. For me, that’s the needed amount to feel energized and excited” Jeff Bezos, reported in Thrive Global

“To perform in a way that is required by my current job, I need seven hours of sleep, every night” Cees ‘t Hart, president and CEO of Carlsberg Group, reported in Harvard Business Review

McKinsey found 70 per cent of the leaders it surveyed thought that sleep management should be taught in organisations, alongside time management and communication skills

“A growing awareness of the dangers of sleep deprivation on health – and therefore, its impact on insurance costs and worker productivity – is prompting companies to try and improve their employees rest … Goldman Sachs has brought in sleep experts, Johnson & Johnson offers a digital health coaching program for battling insomnia and Google [its always google!!!] hosts ‘sleeposium’ events” The Washington Post

But can SMEs afford this kind of enlightened self-interest? With our SME hat on, we wondered what the impact of this stat is for a typical SME (accepting that there isn’t a ‘typical’ SME – see our recent MRS Fin Serv Conference presentation ‘Stuck in the 70s! Why our understanding of the SME sector needs a reboot’).

Let’s assume that the UK experiences a similar level of lost productivity i.e. 11.3 days per annum, and then put that into context. For an SME with 20 employees … that’s 226 days per annum across the business lost to sleep related issues. A UK employee generates £283 of ‘GDP’ per day[3]. So, sleep related issues cost our SME ~£64,000 per annum in lost ‘productivity’.

SMEs are positively embracing the auto-enrolment pension – but feel the pension industry is not delivering

63% of SMEs reported that the auto-enrolment pension had a positive impact on the way employees thought about the business

Recent research conducted by Decision Architects has found that over 60% of SMEs reported that the auto-enrolment pension had a positive impact on the way employees thought about the business AND furthermore two thirds of these businesses are currently paying more than the minimum contribution – showing a higher level of engagement than might have been expected. While the scheme could have been seen as a box that employers had to tick to meet legal requirements … instead they are embracing auto-enrolment as an opportunity to improve their relationship with their employees.

64% of SMEs are currently paying more than the minimum contribution into staff auto-enrolment pensions

We have previously reported external research that shows that 50% of people say they will turn down a job offer if the benefits are not good enough, and 84% say benefits are essential in keeping their current job which rises to 93% for respondents aged 25-44. For employers to really attract – or retain – the staff they want, they must deliver better benefits packages, including higher contributions on the pensions they are now all obliged to offer.

93% of 25-44 year olds say benefits are essential if they are to stay in their current job

So, while on first sight the auto-enrolment pension may have looked like another government mandated administrative headache, many SMEs are seeing an upside for the business. That is not to say that it is not a nuisance – 48% of SMEs surveyed agree that it is a “logistical/administrative headache” and only 20% disagree – and as we would expect this is more acute in more complex multi-site businesses.

But while many SMEs have embraced the auto-enrolment pension as a win-win for the business and the employee, not everything in the garden is rosy. In a previous post we highlighted the need for greater understanding between employees, employers and pension providers if the scheme is to reach its potential, but this research suggests there is room for improvement. Only one third of these companies say they definitely or probably wouldn’t switch providers, 43% definitely or probably would and the remainder will investigate their options.

43% of SMEs will probably or definitely switch auto-enrolment pension provider in the near future

Dissatisfaction is highest amongst the larger SMEs (200+ employees) as well as the smallest SMEs in the sample (10-19 employees) – in both instances over 50% of these businesses definitely or probably would switch providers. Given the disparity in size their needs may well be different, but it appears that they are not yet getting what they need from their pension providers.

These figures give a strong indicator of the potential opportunity for pension providers – there are plenty of companies looking to switch, but how to capitalise on this? In future research we will explore some of the causes of dissatisfaction and gather views of SMEs on the current product offers (both good and bad)

What opportunity does this represent? The auto-enrolment scheme is in its relative infancy, and as such there are still many organisations which have not yet found a solution that works for them, as evidenced by the large proportion who are looking to switch providers.

There is no lack of engagement or motivation here, most companies want the best for their employees, and understand that the scheme can help in that regard, but there are still a number of barriers to a successful scheme. For pension providers there is an opportunity here to better understand and address these product or service issues … SMEs are willing to embrace the auto-enrolment pension for all the right reasons but there is some dissatisfaction with the tools available to them.

Research conducted amongst 300 UK based SMEs (10-299 employees) in Q.4 2018

The Benefits Balance – what really matters to employees?

Since the financial crisis of 2008, the business of employing staff has seen a seismic shift in the power balance – the candidates are now in the driving seat. The right employee benefits are now a priority for businesses looking to attract (and keep) high caliber candidates.

Employers are offering a host of benefits from coffee bars to craft beers, free fruit to a fun-filled playground. With employee perks revolutionizing the workplace, what are the benefits that matter to employees? Which of the benefits, whether financial or lifestyle, help employees to choose or stay with a company?

The Buzz About Benefits

Employee benefits are nothing new. In the mid-19th century Cadbury Brothers provided housing and sports facilities, arranged works outings and summer camps, and negotiated discounted train travel for employees. Similarly Lever Brothers developed Port Sunlight as a model village to accommodate workers in its soap factory. However, in recent years, employee benefits seem to have enjoyed a new lease of life.

One study found that 80% of employees want benefits or perks more than they want a pay rise – this is a cultural shift that places greater emphasis on work-life balance than money. Furthermore, 50% of people say they will turn down a job if the benefits are not good enough.

For employers competing in a candidate-driven marketplace, it is clear that just chucking money at staff is no longer a way to attract and retain staff (although financial benefits still play a significant part). Of course, for many businesses, it is not financially feasible to keep offering pay rises and bonuses. For employers to really get the staff they want or improve retention rates, they must better understand what motivates them – and it won’t be one size fits all

What Benefits Matter Most To Employees?

Recruitment company Monster conducted research in the UK into what employer provided benefits (“EPBs”) matter most to job seekers. The study found that a health care plan topped the list of EPBs followed by more holiday time and then a pay raise. The study is supported by a survey from employment website Glassdoor, which found that 40% of employees value health insurance more than a pay rise. Other studies have shown that historically a pension was also a significant employee benefit, however, the advent of the auto-enrolment has meant that pension provision is no longer a point of differentiation – however more attractive packages beyond what is legally required, will be seen as an attractive benefit by workers. Beyond healthcare and holiday time … there is no surprise to see work-life aspects such at family-friendly schedules, workplace flexibility, remote working and wellness programs also dominating the top ten in many benefit surveys

What is the right mix of EPBs? The only way to really find out is to ask. And this is important as businesses offering benefits that employees don’t want, are unlikely to get positive feedback or results.

The Best Employee Benefits From Companies?

JibJab Media helps people to achieve an improved work-life balance with less stress by relieving chores thanks to a weekly laundry service.
Basecamp pays for the hobbies for their employees and well as vacation travel expenses.
Airbnb offers their employees $2,000 travel credit.
Twitter offers three catered meals per day as well as holistic benefits such as on-site acupuncture treatments.
TransferWise offers an all-expense paid holiday (although some may argue a holiday with your colleagues is the opposite of a perk!).
Opus Professional Services owns a villa in Italy which staff can use for free.
Allen & Overy have an onsite GP and dentist to ensure employees stay in tip-top health.
Jagex offers free bicycle repairs to encourage employees to stay fit and active.
CA Technologies offers an on-site childcare facility
Visualsoft provides unlimited holiday time, and they do not monitor flexitime either.

The Benefits Disconnect

So 84% of respondents say benefits are essential in keeping their current job which rises to 93% for respondents aged 25-44. While benefits are now taking greater prominence in most workplaces, there is still a feeling that more could be done. The continued provision of EPBs is by no means guaranteed. There is an apparent disconnect – while workers are still hoping for more benefits from their employment, many firms have indicated that they will reduce benefits in the future or not make an attempt to increase the ‘perks’ they offer.

58% of people believe they will work for more than one employer in the future driven by the lure of flexibility. With the pull of the ‘gig economy’, organisations need to focus on offering those benefits that will engage staff, while staff may be looking for benefits with added ‘portability’.

Of course, benefits become another staff cost alongside salaries and pension contributions BUT organisations should aim to prove that effective EPBs are cost-neutral or even cost-positive. For example, businesses allowing flexible working may benefit from higher productivity. Furthermore, remote working increases worker satisfaction and provides the company with access to a global talent pool which allows employers to take advantage of more competitive salaries and more skilled workers which can help to grow the business. Often, employees will accept benefits instead of a higher salary. A recent study shows that 50% of millennials will take a 15% pay cut for a job where they could have a social or environmental impact.

In terms of health and wellness benefits, Wellness Councils of America reported a $24 return for every $1 spent on company wellness program. 81% of employees also say that health and wellness programs favorably impact productivity. Again, this shows a cost-positive return for businesses. Health benefits also have been proven to reduce absenteeism which can reduce costs for businesses – especially in the case of sick pay – and businesses may also receive tax advantages.

EPBs are not just for the big boys

Is there an EPB sweet spot? A group of companies big enough to have the financial wherewithal to actually provide meaningful benefits, but small enough to know exactly what their staff value and to have a more homogeneous workforce? While larger companies do provide more benefits, they tend to be more prescriptive or paternalistic when it comes to deciding what these should be.

For small businesses it may not only be the cost of implementing a scheme, but also the administrative burden which is putting some employers off. However, SMEs do have an advantage – many employees would rather work for smaller businesses (they typically offer a more relaxed, flexible and entrepreneurial environment) and the lines of communication are shorter (and more effective).

Furthermore, some of the favored benefits such as childcare vouchers, life assurance and income protection insurance all offer tax advantages and can be achieved at a relatively low cost. If this cost is still too high, then SMEs can consider salary sacrifice schemes. 65% of people believe more benefits should be made available through salary sacrifice, with popular choices being bicycles, pensions and mobile phones.

And while many big firms are able to offer more benefits because they have a dedicated HR team in place to run and manage the benefits … SMEs can embrace technology to help make the scheme more cost-effective. For example an insurance platform that makes it easy to add and remove the cover for different policies and staff members. Some platforms can even automatically enrol a new beneficiary with the introduction of a new starter onto the system.

For more personalized benefits that really matter to employees, companies such as ‘Bob’ can help. ‘Bob’ is a business management platform that allows you to get in-depth information about your staff to create a healthy workplace culture.

For a more diverse benefits offering, brands such as Perkbox allow you to select from a range of rewards so you can personalize rewards accordingly or staff can choose themselves. From luxuries to practicalities, employees can make the most of the benefits that matter to them. The administration and facilitating of benefits is minimal to the employer making it a cost-effective time-friendly way to increase perks and therefore improve staff morale and retention.

By embracing technology to lower HR costs, SMEs have the chance to become more competitive and offer a considerable advantage to employees over the big corporations.

Looking a gift horse in the mouth … assessing the ‘impact’ of your auto-enrolment pension

Many auto-enrolment pension policies are now approaching their anniversary. This offers SMEs a chance to take stock and reflect, but just how many will?

In many cases, simply fulfilling the obligation has been, and will be, satisfactory – just another box ticked to ensure that they are meeting the legal requirements. Put to the back of the mind and forgotten. But how many others will seriously consider switching providers?

There will be some who want to reduce the monthly costs paid for the policy – just like any other business cost to be managed down as far as possible – which for any business will be a key consideration, particularly for smaller ones. For businesses who view auto-enrolment as a ‘necessary evil’, cost was/will likely be the most important factor in choosing their policy, and by extension, whether they decide to switch from their current provider

Some businesses however may see auto-enrolment as an opportunity to improve their relationship with their employees. To improve their employee benefit offer. In this case, there will be a number of additional factors to consider, largely driven by their perception of what their employees want out of a workplace pension. The most obvious here is the performance of the investment itself – are your employees getting the most for their monthly contributions? There is a large variation in the performance of the UK’s workplace pension schemes, with some policies returning 5 times lower than the market’s top performers. This is a significant difference, so for organisations that want the best for their employees, might they feel compelled to trade up to a better performing policy?

There are several other factors that can be considered when you are focusing on the best possible policy for your employees. You may want to give your employees maximum flexibility with the policy, so that they have a level of freedom in how they approach their investment. It may be that your employers value simplicity, in which case you want a policy that is as easy as possible to understand.

What does this mean for pension providers?

How can pension providers ensure they are offering relevant auto-enrolment products to their clients? Research from Hargreaves Lansdown has shown that in 2017 more than 90 percent of people were invested in their workplace’s default fund. Understanding why this is the case is critical for pension providers who are looking to make an impact with their auto-enrolment policies.

Ultimately, it is the company itself that will be making the decision on which policy they go for, and so pension providers must be able to identify which organisations are sufficiently engaged in providing the best possible policy for their employees. Is there a particular profile of company that is more likely to shop around on behalf of their employees? And what are their main motivations for doing so?

Once this is understood, it then becomes a case of understanding the needs of the employees within these organisations, so that products can be tailored to meet these needs.

Are employees making a conscious choice to stick with the default? If this is the case, then perhaps it is the policies themselves that need to be examined.

It is unlikely that the best solution for every individual will be the same, so if the majority of employees are not choosing to customise their plan, it suggests that the level of customisation on offer is not sufficient to meet the needs that different employees will have.

Alternatively, is it a lack of understanding or engagement with the policy? This would require an examination of the level of communication received by the employees, either from their employers or by the pension providers. For employees to be able to customise their own plans, they need to be able to have a full understanding of the policy and the options available to them.

As with any government enforced scheme, it may well be that there is a certain apathy, from clients and providers alike, that this is just something that ‘has to be done’. With a greater understanding of client demands, however, comes an increased focus from pension providers on their auto-enrolment policies, which will lead to greater competition, more relevant policies, and, ultimately, improved retirement prospects for employees.

An interesting segmentation that goes beyond elephants and donkeys – lessons from the US electorate

An interesting new report looking at the US political landscape was published this week (see the end of this article).
Why interesting? It’s a good example of a nice-looking segmentation – examining American public opinion through the lens of seven population segments. The report’s authors describe these segments as “America’s hidden tribes” – hidden because they have shared beliefs, values, and identities that shape the way they see the world, rather than visible external traits such as age, race or gender. By avoiding the use of demographic information or other observables – the authors contend – segments go beyond conventional categories and identify people’s most basic psychological differences.

The tribes identified are:

Progressive Activists: highly engaged, secular, cosmopolitan, angry.
Traditional Liberals: open to compromise, rational, cautious.
Passive Liberals: unhappy, insecure, distrustful, disillusioned.
Politically Disengaged: distrustful, detached, patriotic, conspiratorial.
Moderates: engaged, civic-minded, middle-of-the-road, pessimistic.
Traditional Conservatives: religious, patriotic, moralistic.
Devoted Conservatives: highly engaged, uncompromising, patriotic.

“Essex man” was an example of a type of median voter that explained the electoral success of Margaret Thatcher in the 1980’s. The closely related “Mondeo man” was identified as the sort of voter the Labour Party needed to attract to win the election in 1997

Now there’s nothing new about political segmentation – whenever an election looms, someone produces a segmentation of the political landscape, and the media get over excited. In the UK this has famously resulted in Essex man, Mondeo man, Worcester Woman etc. All of these shed interesting insight on a phenomenon BUT, as with commercial segmentation, there is usually practical limitation on their application.

This latest US report cites its ultimate aim as “identifying the most effective interventions that can be applied on the ground to counter division and help build a renewed and more expansive sense of American national identity”. But how are these interventions supposed to happen? How do you intervene with the ‘Passive Liberal Tribe’? Put simply, how do you find them?

We’ve discussed before how the dissatisfaction with the outcomes of segmentation has risen, as the mix of effective marketing levers that an organisation has at its disposal has proliferated. The rise of direct-to-consumer, and the increasing importance of targeted communication and the use of databases has mean that the ability easily identify a segment (rather than relying on the customer to self-select) has become a crucial success factor.

The inability to effectively ‘target’ segments is at the crux of much of the dissatisfaction with segmentation. I have no doubt that this work on ‘tribes’ includes a complex algorithm to determine segment membership but these are difficult to action as the criteria for segment membership are complex and often difficult to replicate. How do you find the segments in the real world? While it is possible to profile these clusters after they have been created, as they have done with the ‘tribes’, often the results are less than clear cut.

This is less of an issue when you are using ‘above the line’ communications to communicate a political (or commercial) position, but increasingly organisations want to target their communication activity, undertake ‘direct-to-consumer’ advertising (for example) and locate these segments in their CRM database. An actionable segmentation allows us to better address strategic ‘where to play’ questions i.e. which voters (or customers) to focus effort on, their relative priority, and the opportunity they represent … as well as tactical ‘how to win’ questions i.e. what activities or messages are most likely to achieve our objectives in priority segments.

For those of us who don’t get to vote in US elections, all of this can be something of a spectator sport – but if you have a professional interest in segmentation and marketing frameworks – it raises interesting questions. While the ‘tribes’ segmentation is intrinsically interesting and insightful – too often in the commercial world we find that this type of analytical methodology limits the ability to identify “the most effective interventions that can be applied”.

https://static1.squarespace.com/static/5a70a7c3010027736a22740f/t/5bbcea6b7817f7bf7342b718/1539107467397/hidden_tribes_report-2.pdf

Do we need to rethink wealth management for Millennials?

Two interesting take-aways from a recent seminar on millennials and wealth … firstly ‘millennials want to pay more tax’ – or at least they want to ‘avoid avoidance’ and, secondly, they are less interested in robo-advice and instead want the reassurance of a ‘flesh and blood’ advisor.

These are both worthy of further investigation.

Are millennials more socially conscious? In a recent Pew Research centre report, millennials were more likely than other generations to agree with statements expressing a desire to make the world a better place and confirming a purpose in life. Other studies have shown that millennials want to be engaged and feel good about the decisions they make – including the firms they work for and those they invest in. They are more likely to identify with a ‘cause’ and feel that their decisions have to have a positive social impact, and may avoid controversial sectors which they may consider ethically questionable – defence, tobacco, oil etc.. So we could argue that a greater need for social responsibility would logically translate into a desire to pay their “fair share of tax” – even if avoiding some tax due was a possibility. The perceived social stigma attaching to tech firms’ and celebrities’ tax avoidance contortions may be colouring this view.

BUT a 2016 report ‘The Millennial Economy’ from EY & EIG (in the US) found that 53% of young adults (ages 18 to 34) said the amount of income taxes they pay is “about right,” compared to 36 percent who said their amount was “too high” and 3 percent who said their amount was “too low.” The report concluded that the older and wealthier Millennials get, the more they feel their tax burden increases, and Millennials may feel relatively comfortable with their own tax burden, but they remain concerned about fairness in the tax system generally. This was apparently comparable to previous generations. So no great Millennial effect then?

Turning to the second of these ‘Millennial insights’ – younger people with money to invest eschew robo-advice for the reassurance of a ‘flesh and blood’ advisor. An element of this may be bound up with the lower tolerance for risk – if we equate an actual financial advisor with lower risk. If not lower risk then maybe there is something comforting about someone who can provide bespoke answers to questions, which feels less risky.

A study from US fund manager Global X, found that for millennials the most important role for an advisor was protecting their investments during a downturn. Millennials investment strategies tend toward the conservative – they have a lower threshold for risk than their parents BUT they are more likely to look for socially responsible investments and take a more activist approach.

However others have argued that the robo-advisors such as Betterment and Wealthfront have disrupted the financial advisory business, and that many Millennials are forgoing traditional financial advisors in favour of algorithmic, low-cost alternatives to managing their money. All very point and click. Very hands-off.

But financial advisors counter-argument is that … ”these robos are asset allocators, not advisors. They aren’t putting together financial plans and following them through a relationship with a client. That part of financial advising — the planning, the relationship — can’t be robo’d away!” (well, they would say that wouldn’t they). But the argument seems to be that the proliferation of robo-advisors is overwhelming and Millennials are turning to financial advisors for clarity coupled with the financial planning they are not getting from on robo platforms

I think the only thing we can say with any certainty- when it comes to Millennials and tax or Millennials and advice … is that this is not as clear cut as it might at first seem – ‘beware Millennial mythology’ – there is a lot of anecdote masquerading as fact, particularly around what people are keen to position as a ‘cultural phenomenon’

Education in the fourth industrial age – do we just have our collective heads in the sand?

This week Andy Haldane, chief economist of the Bank of England, has warned that the UK will need a skills revolution to avoid large swathes of people becoming technologically unemployed as artificial intelligence makes many jobs obsolete.

Should we fear the rise of the machines? Or ‘That robot stole my job’!

In our 2017 article HERE… we discussed that while the technological wave may hold out the hope of new jobs – as yet undefined – this is going to require a route and branch rethink about how we educate people in the UK. 75% of school leavers will not have the skills to compete in this new world … who is prepared to grapple with this issue today?

Who will disrupt the insurance industry?

Disruptive innovation can hurt – if you’re not the one doing the disrupting. Clay Christensen Disruptors appear as a reaction to consumer dissatisfaction with the status quo, in sectors characterised by complacent incumbents. These incumbents have lost their way or at least have failed to keep their finger on the pulse of consumer expectations …. they have failed to realise which way the wind is blowing. In a world of multiplying customer touch points and rapidly changing customer behaviours becoming, and staying, customer focused is increasingly difficult to do.

Insurance is perhaps a great example of an industry crying out for a true disrupter at scale. Many insurance brands and their messages seem stuck in the 1950s, with key themes of family, duty, financial strength and fear, and often speak in euphemisms, rarely mentioning the products or the true benefits offered … and as a result their customers do not ‘like’ them very much, and this matters because, by and large, we all – either through compulsion or choice – have an insurance policy

Association of British Insurers data shows that the UK insurance industry is the largest in Europe and the third largest in the world. It plays an essential part in the UK’s economic strength. It employs around 315,000 individuals, of which more than a third are employed directly by insurers with the remainder in auxiliary services such as broking BUT how do you think the average insurance customer would respond to the assertion that … “insurance is socially useful – [by working in insurance] you can make a contribution to society”. A recent article argued that a career in insurance is attractive to millennials because it is ‘socially useful’ – that made me stop and think). Maybe there is change in the air!

In a recent FT article – Identity crisis: the insurers moving away from insurance [1] – the discussion was of insurance companies moving away from a conventional insurance ‘offer’ to more of a “services business”… the examples given were of baby-sitting services for people in hospital and counselling for some individuals caught up in a crisis – important I am sure for the individuals involved but somewhat underwhelming as a consumer strategy in the face of – as the article expostulated – a fundamental lack of customer loyalty and a huge amount of disruption as companies like Amazon (it’s always Amazon) redefine customer experience. In this world the customer doesn’t want to buy a product, the customer wants a problem solved, and as Stéphane Guinet, founder and managing partner of Axa’s Kamet, said in the FT article: “The industry will move from risk transfer to more and more services . . . The future will be for the ones who can design and deliver experiences. The risk transfer will be ancillary.”

Will digital services finally change the relationship between insured and insurer? Is this the disruption that allows new firms to emerge or old firms to rise (phoenix like) to the challenge of meeting customers’ expectations with innovative, customised solutions, clear and relevant information, transparent pricing, 24/7 access and crucially build a relationship of trust. Disruptors want to make a radical difference – not protect the status quo. Re-envisioning an insurance business and brand … to become a more high-performing, customer-centric, future-focused company – the key is (as ever) to deliver the right solutions to the right consumers in the right way. A solution they value.

In a 2017 article McKinsey [2] laid out the advantages of ‘digital’ to the insurance industry. It argued 3 key benefits:

Higher customer satisfaction and increased customer retention will allow insurers to improve profits in their core business and at the same time remove significant cost across the value chain, further increasing customer lifetime value.
Longer-term growth opportunities will reside in innovative insurance products and protection services – from cybersecurity to products fit for a sharing economy or the gig economy etc.
Digital technology and the data and analysis it makes available will give insurers the chance to get closer to their customers – and hence develop and offer more tailored products delivered directly in a more timely manner.

It feels to me that 1 and 2 are only really possible if a potential disruptor can get 3 right – putting the customer at the heart of the business is ‘just’ effective marketing

We touched on some of these ideas last year in our ESOMAR paper delivered, with MetLife, at the global congress in Amsterdam (You can find that paper on our website). In this paper we argued that companies that lead are the ones that shape the future, rather than just imagining what the future could be. To challenge perceived wisdom and enable a much more consumer focused organisation to emerge, businesses must envision what new future is needed for the insurance industry to survive, and then take a series of concrete steps to build it. If the goal is to ‘put a dent in the universe’ actions speak louder than words. Being visionary is not a vague abstract aspiration.