Britain’s EU exit has the country fearing recession and gripped by uncertainty. Whatever their political view, Life companies will watch carefully as the story unfolds. Who can blame them when the pound has tumbled, bond yields are down and markets are unpredictable. Indeed, many Life companies have dedicated response groups managing the fallout of Brexit. But what will the recommendations be…?
Many commentators have expressed views that departing the Solvency II regime is unlikely, with too much effort expended, too much to unwind and it being too early to speculate. More pressing is the growing concern for profits resulting from more variable investment returns, which could be seen as a signal to engage in extreme cost discipline and focus on cash flow.
For Life companies this could mean a number of things including cutting back to core business activity, checking that strategy remains appropriate, increasing focus on sales and reducing expenses wherever possible.
Perhaps there’s merit in these activities, but I’m unconvinced that tightening the belt and poring over today’s figures should be the default option following a seismic political shift. Nonetheless, it’s a credible theory of what may happen in a domain that’s been habitually focused on preserving margins for so many years.
Reverting to these policies might enable Life companies to align with their competition. However, Brexit could provide an opportunity for some to steal a march on their peers by opting to be different. Put in perspective, “on average, boards of directors devote nine times more attention to spending and counting cash flow than wondering where it comes from and how it could be increased” (Ambler, 2003). Exactly the kind of thinking that could kick-start following Brexit.
So what to do? If not taking precautions now, on the eve of ‘the real deal’, what should we do?
Brexit will be a bumpy ride for Life companies and developing a distinctive market position is difficult at the best of times. However, it’s an opportunity to do exactly that for those who are brave enough.
Life companies everywhere are experimenting with digital initiatives. By predicating their operating model on digital streams that flow through their business, they can holistically change their customers’ experience whilst benefitting from greater flexibility and efficiency. Re-formulating their operating model can enable them to grasp a distinctive position while the panic of Brexit leads others to focus primarily on reducing waste and inefficiency in their existing models.
Unhindered by Brexit, movements in technology (eg wearables) and regulation (eg the Financial Advice Market Review) signal a change in distribution and consumption within the industry. The market’s softness and lack of differentiation means the opportunity to differentiate distribution models and leverage existing brand strength in this new space is probably short term. However, those embedding new technology into their distribution channels and developing the customer relationships that new segments demand could create unique organisational personas, if they’re brave enough to act now.
‘Sharing’ customers may feel counter-intuitive, especially in uncertain times, but Life companies that explore joint ventures or partnerships could transform the way their organisation and products are perceived and experienced. These Life companies have an opportunity to broaden their customer base and create a network of benefits for their customers, driving long-term relationships and loyalty.
Brexit has brought uncertainty to the UK and clearly the fallout is still to be determined. However, those Life Companies willing to make brave decisions may find that irrespective of political beliefs, it brings opportunity with it.