Needham, Mass. - In the next five years, analysts predict more than 77 million individuals in the U.S. will be of traditional retirement age, and this segment of the population is predicted to be the dominant demographic for a period of 20 years or more. TowerGroup, a Needham, Mass., research firm, expects that this explosion in the retired market will ultimately redefine the U.S. financial services industry, accelerating industry consolidation across banking, securities and investments, and insurance.
So how will insurers acquire and service this massive influx of business? One way, notes recent research by TowerGroup, is through the use of business intelligence and predictive analytics, which allow carriers to actively address customer preferences and drive behavior to more economical delivery options such as online services.
The new research from TowerGroup underscores the challenges facing financial institutions and asserts that the sheer volume of customers shifting from one life stage to another in a tightly defined timeframe will make it essential for institutions to alter their approaches to serving the retirement sector.
"The traditional retirement target market for financial institutions has been individuals with strong private savings falling in the range of the affluent market, with investable assets from $100,000 to $1 million, up to high net worth, with assets over $1 million," said Cynthia Saccocia, research area director in TowerGroup's Insurance practice at TowerGroup. "At first blush, this $10 trillion market opportunity looks robust for institutions targeting the retired. Yet, the real likelihood is that competing for the business of affluent retired investors will be more difficult in the future than it is today, as individuals seek high-touch advisory services for retirement and income planning and begin to consolidate their assets and financial services providers."
Saccocia noted that "this means institutions must broaden their reach today to capture the desirable retirement customer - as well as do a better job of segmenting their customer base to learn more about the individual preferences to more effectively court the retirement wave ahead."
Highlights of the research include:
* In the short term, investors will ramp up savings for retirement and work beyond the traditional retirement age. Yet soon, increasing numbers will begin to shift savings to more conservative portfolios while consolidating accounts. This dual trend has significant implications for institutions, which should consider what their fee structures - and ultimately, their profitability - will look like if most of their investor base begins to move savings to conservative portfolios with declining asset bases.
* Asset thresholds have traditionally been established by institutions as parameters for segregating clients between higher-touch (more advisor contact) or lower-touch (more self-service) delivery channels. Yet today, institutions are finding that most customers want access to all channels at any time.
* In the future, competitive differentiation among institutions will rely as much on services and ease of use at it will on the buying habits of its customers. TowerGroup finds the use of business intelligence and predictive analytics emerging as a method for companies to address risks in their customer portfolios, as well as more effectively target the needs of a large and rapidly shifting customer base. By actively addressing customer preferences, institutions have the opportunity to drive behavior to more economical delivery options such as online services.
"The most successful programs will be offered by institutions that make products and services available to their entire customer base, while targeting specific segments based on customers' life stages, events and expressed needs," said Saccocia. "The leveraged use of delivery channels will be of utmost importance to reach and manage the huge retired populace. For many institutions, this will mean a substantial effort to upgrade technology, customer sales and marketing strategies."
For more information on this research report, titled "Courting the Retired: Predictive Analytics to Define Preferences in Products, Services, and Delivery, visit TowerGroup at www.towergroup.com.
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