Sit up and take note of these six trends driving change in the financial services industry if you want your business to flourish.
1. Declining incomes
Slow growth in incomes and high price increases in essential items such as food, transport and electricity mean lower real household income. Over time, this will lead to a smaller middle class. Transaction Capital noted in their March 2021 results presentation that they are expecting 34% of households to exit the middle class in South Africa as a result of COVID-19. The situation is not unique to South Africa. A 2019 OECD report stated: “The middle class has shrunk in most OECD countries.”
Lower incomes may not sound positive for the financial advice industry, but one spin-off is more people that need good financial advice. “Lower to middle income households are desperate for valued, face-to-face human financial advice,” says Gareth Stokes, financial journalist and author.
Taking clients through a financial needs analysis and aligning need, product and affordability will be critical to ensure this market has the financial products and services they need.
Furthermore, insurers are already embracing this market with innovative products such as pay-as-you-go insurance. Advisers can too.
2. Meeting clients on their terms
Clients want advice and services at a time and place that suit their schedules and lifestyles. Stokes calls this “Meeting your clients on their terms.
“Financial advisers must learn to approach and interact with their clients and potential clients on a platform of the end-customer’s choosing,” he says. “This requires an understanding that customers in the millennial and subsequent generations will sometimes opt for the accessibility, availability and ease-of-use on a digital platform over face-to-face, human attention. Of course, you also need to be there in human form when the customer demands it.”
3. Manage risks for affordable insurance
Insuring risk, short and long term, used to be as simple as: diabetics can’t get life cover, or a house one metre away from the river bank cannot get cover for flood damage. Now risks occur more frequently and are more complex.
Fire, in the Cape and across the globe. Floods in KwaZulu Natal and Gauteng. Riots in the same two provinces in July 2021. Cybercrime, and of course COVID-19. These events are significant for risk cover and insurers’ balance sheets. They result in either excessively high premiums or a rejection of the risk completely. We are seeing this playout in the life insurance industry with increased premiums for policyholders not vaccinated against COVID-19.
Risk mitigation and management can reduce premiums into the affordability range. For example, manage your diabetes or get your COVID-19 vaccinations and you can get life cover at reasonable rates.
This is where advisers can add real value by helping clients analyse risks and suggesting ways to manage and mitigate them, so cover becomes more affordable. In their own businesses, advisers will also need to manage these risks, notably cybercrime, which has become so prevalent.
4. Health and wellbeing is mainstream
Capgemini Life Insurance 2022 trends identifies this as one of the top 10 trends in the insurance market for 2022. It is prevalent in every consumer trend forecast we looked at – health and well-being matters across the globe and people are willing to spend time and money on their health and well-being.
Life insurance products have embraced this trend for some time, with value adds and benefits in the form of incentives to manage health. Products need a health and wellness benefit, as more consumers will demand this. Advisers need to take this into account when recommending products and partner with providers who offer these products and benefits to meet their clients’ needs.
5. The search for meaning and purpose
COVID-19 has given new impact to the saying, “Life is short.” Consumers are interpreting this in different ways.
Some consumers are taking a slightly hedonistic approach and living in the here and now, sometimes at the expense of future plans. Global market researcher GWI noted this in the discussion on the trend, “Pursuit of purpose.” Another group of consumers have taken the sustainability aspect of life to heart and are looking for brands and products that reflect their values, are ethical and transparent.
All these consumers are looking to live a life that is meaningful to them, and they are interrogating it and service providers more closely. Advisers need to be prepared for the hard questions that examine ethics in products and services more closely, such as how a business is managing sustainability with regards to climate change. They will also need to align advice and product to a client’s purpose if they want to build trust and have long-lasting relationships with clients.
6. Changing demographics
For many years the big demographic trend was longevity. Longer life expectancy is still an important feature of the world, even though COVID-19 has reduced life span in South Africa by three years. But outside many developed countries in the northern hemisphere, the current demographic story is young people. From millennials to Gen Zs, millions of young people are entering adulthood, looking for employment, building businesses, starting side hustles and working as gig workers.
Stats SA mid-2021 population estimates show 25% (15.6 million) of South Africa’s population are between 20 and 34 years. A further 17% are between 10 and 19 years. Compare this combined 42% to the smaller 36% of South Africans older than 34.
Unemployment aside, it is this group of people who are tomorrow’s clients. Advisers who take time getting to know this market will be successful at building sustainable businesses.
2022 trends are people-focused
2022’s dominant trends are all about people. You’ll note that we didn’t mention technology – with good reason. Technology has become more than a big theme in financial services, it is integrated into every aspect of financial services and is the enabler that will help advisers manage the challenges and opportunities inherent in these trends.