What does the long-term financial planning landscape look like?
As customers continue to feel the pinch from the COVID-19 pandemic, their focus naturally turns to short-term financial security. Long-term financial planning on the other hand may seem a low priority, as customers build up cash savings as a buffer against further economic uncertainty. Significant stock market volatility will deter many, especially inexperienced investors, from jumping into investment markets. Some could be grappling with large portfolio losses. It’s understandable that we expect customers to cut back on long-term savings, with a low appetite for long-term financial planning products. Some may even lapse their insurance policies for short-term cash flow needs.
Find out what we have to say about the future of life and health products in Part 1.
Insurance has, traditionally, served to enable customers to make long-term investments by offering packaged savings products that pool investment risks and smooth the ups-and-downs of investment markets. How should insurers maintain, and even highlight this role given the uncertainties customers are feeling in the post COVID-19 world?
Educate and highlight to customers that financial planning is a long-term play
Many customers may not understand that opting into financial planning products is a long-term investment. Even if they do, it’s easy for customers to become distracted by the short-term, urgent financial needs and sacrifice the long-term goals that they want to achieve. Customers must assess their policies (be it a pure life insurance policy, savings policy or protection policy) beyond 8 to 10 years to see results. These policies help protect funds for future needs and help customers achieve their long-term financial goals.
Having said that, insurers should still be sensitive to customer and market sentiment. There is no doubt there are customers who understand the principles of investing in long-term financial planning products, but their short-term needs are so great that they have to lapse their policy payments in order to make ends meet for the time being. This is where insurers can leverage their advisory teams to gain personal customer insights and adjust their tactics accordingly.
Nonetheless, as many different types of insurance products flood the market, it has become increasingly complex for customers to understand the basic principles of insurance – an instrument for risk management and mitigation, and wealth accumulation. Therefore, it is essential for insurers to make clear what gaps different products aim to address.
Highlight the benefits of long-term financial products to outweigh the perceived costs
Most insurers have tools that help customers determine their long-term financial goals and how far they are from reaching them. However, most tools provide limited information or don’t do a good job at explaining the different types of insurance products clearly to customers.
For example, insurers should draw the customers’ attention to the guaranteed return, coupon/dividend payments, partial withdrawal as well as the tax-deductible features in some products which can be attractive to some in light of the current market condition.
Equip advisors with good product explainers
Long-term financial planning goals are not the same for everyone. Once customers are aware of their financial goals, it’s up to the advisors to provide personalised solutions and advice for their customers.
Insurers should make sure they provide proper tools and education to their advisors to facilitate sales. It is more important than ever, especially in these uncertain times, for insurers to help advisors explain the key features and upsides of long-term financial planning products and highlight their nature as a long-term investment in an easy-to-understand format to customers.
Managing Director, Actuarial