Generational gap opens up; insurers, super funds, financial planners must respond.
Consumers of financial services products have gone increasingly digital in the COVID-19 era, with almost 80 percent now preferring online access. Customers are also demanding better value for money from providers, a KPMG Australia survey of over 1,500 people has found.
The report found that nearly half of respondents’ financial positions had declined in the pandemic, and 68 percent had reduced both their overall and discretionary spend. There was still a degree of optimism, with more than two-thirds either confident or neutral to the prospects of a recovery over the next six months, although those whose jobs had been impacted were more focused on ‘getting through’ the crisis.
Rising expectations was a key theme in the study – a majority now expected better value and more flexibility in the provision of financial services. Consumers have been increasingly shopping around the best value products and are more likely to switch providers, with younger Australians financially impacted by the COVID-19 crisis much more active in doing so.
The survey found that the pre-COVID-19 trend towards increased online access of insurance, superannuation and financial planning services has accelerated during the shutdown, with consumers of all ages increasingly see digital as the ‘new normal’. There is however a clear generational divide with most under-40s believing digital leads to better quality engagement while just 29 percent of over-65s agreeing.
- 42 percent reported financial impacts; 34 percent – mental health impacts, 25 percent physical health and well-being impacts from the COVID-19 shutdown
- 68 percent had reduced discretionary spend and 54 percent on essential items.
- Digital is the new normal – 80 percent of consumers can be satisfactorily serviced through digital means while 20 percent prefer traditional methods.
- Insurers facing challenges – only car, home and contents, and to a lesser degree private health insurance now seen as essential.
- Super funds under pressure – consumers seeking better value, satisfaction is relatively low.
- Financial planners – those who use them see value, but majority will not pay for the service.
Tim Thomas, KPMG FS Strategy, said: “Our survey shows the financial impacts from COVID-19 are highly significant and are having far-reaching consequences on consumer spending, attitudes and sentiment to products and services, and preferences to service channels. It finds clear signs among consumers of a ‘refusal to return’ to the old pre-Covid-19 ways of interacting with their providers. There is an expectation in the COVID-19 era that businesses will offer greater value for money and be more flexible in the services and products they offer. Providers need to be aware that even those whose job has not been directly impacted are reducing their overall and discretionary expenditure, and they must respond to these new circumstances and demands.”
“As examples, many super fund members are asking for advice on alternative options rather than just accessing their funds early, while insurers are increasingly expected to offer a discount or rebate without being asked. By meeting these new expectations businesses can build trust among consumers, which is evolving as a concept and now has to meet a ‘will you put my needs first?’ test. Consumers want to buy from providers they trust – both with their data, and in terms of companies having a ‘social conscience’ and being seen to put customers, employees and communities ahead of profits.”
He added: “Trust is also crucial in the provision of digital services – a sizeable number of consumers are not willing to give sufficient personal data which would allow providers to maximise their offerings. And while nearly two-thirds of consumers now believe they should be able to deal with providers solely through digital channels, an older minority still need to have their trust earned and convinced of the benefits.”
The report found a consistent increase in support for digital contact methods during the Covid-19 era across consumers – whether they had previously preferred this approach or not. Email was preferred – 36 percent with live chat and mobile app next on 28 percent and online portals at 27 percent, with convenience, accessibility and time-saving the key benefits, especially for older Australians. A majority (72 percent) of respondents still wanted traditional contact methods as a back-up option if extra help with their queries was needed
Only a small majority (51 percent) pre-crisis had favoured digital methods for engaging with companies. Amongst those who preferred communicating via telephone, preference has increased by 10 percent for digital channels; and for those that preferred face to face, preference for digital has increased by 14 percent. But those who still preferred face to face contact were keener than ever to do so, after experiencing weeks of shutdown.
The survey showed a large increase in two-way engagement between providers of a wider range of services – including mobile phone and utility companies as well as insurers and super funds – and those consumers who had either lost their jobs or had reduced hours or salary during the crisis. Younger people and those whose job has been impacted by the pandemic, were more likely to have reached out to a range of providers than older Australians.
The research identifies three types of consumers emerged during COVID-19
Surviving: Likely to have lost their job (10 percent of survey respondents) and have experienced a significant drop in income, is reliant on government assistance. Likely to completely halt any discretionary spend. Generally more concerned about their financial situation than on health, and likely to be younger, or those in part-time work.
Preserving: Likely to have had income impacted through reduced hours or wages (32 percent of survey respondents), and may be reliant on some government support. Likely to limit carefully scrutinise discretionary spend, and look for ways to preserve financial situation.
Steady: Little impact to financial situation (58 percent of survey respondents), and less concerned with spending but may limit discretionary spend anyway, given general uncertainty about future economic outlook. May also be more focused on maintaining and preserving their health.
Analysis by sector:
Insurers have perhaps been most affected in terms of consumer expectations in the pandemic, with many people now more aware of what their policies do and do not cover. More than 70 percent wanted better value for money from their insurance, and one-third of consumers are either switching providers or considering cancelling policies in the next 12 months – 20 percent health, 25 percent life, and 38 percent Income protection.
Many customers now expect a complete rethink on health, travel, life and income insurance due to current financial pressures they face and nearly half are now looking to insurers to include ‘prevention’ approaches to likely causes of claims rather than insuring against them. Home and car insurance were still largely seen as essential purchases although even these saw one-third of consumers expecting some sort of help from providers. Two-thirds also said the claims experience was more important to them in the current crisis.
Private Health Insurance (PHI) – this is an area of particular focus among consumers, with 48 percent expecting prevention services from insurers and more than one-third of consumers considering lifestyle changes to limit the need for PHI. One-third had reviewed and made changes to their policies since COVID-19; and almost two-third believed PHI approaches needed a reshape. The positive news was that 41 percent believed it was more important now to hold PHI given the pandemic – the largest growth of any insurance category.
David Kells, KPMG Head of Insurance said: “Our survey shows how much insurers are in the spotlight in the COVID-19 era and need to meet higher consumer expectations across the board – in pricing, services, flexibility, and claims experience. Insurers will need to reshape their offerings in health, life and income protection and in particular the new expectation of prevention services will require a response beyond traditional PHI from providers. Customers are understandably more price-conscious than ever and are looking around for better deals or considering cancelling areas which they now consider discretionary rather than essential. So retention will be key for insurers.
But the survey also shows some positive news for insurers – many insurance lines are still seen as a necessity and those who have been directly impacted still see the value of life, income protection and especially PHI cover. Claims experience is also seen as good and almost 60 percent now expect to do that wholly online. So while insurers are under more consumer pressure than ever, there is a solid base to build on.”
Super funds are also under unprecedented pressure in the COVID-19 era. There has been a large-scale withdrawal of money, by younger Australians and those who have suffered job or salary losses, under the early access scheme. Around 70 percent saw super as essential – a lower figure than home insurance – while only 59 percent were satisfied with their provider and 12 percent expected to switch funds in the next 12 months. Here there was a clear divide between retail fund members, of whom 23 percent were likely to switch and industry funds where the figure was only 9 percent. Those furthest from retirement age were relatively more likely to switch, and more likely to feel they had not yet made adequate provision for their retirement.
Half of consumers said they were now more aware of their super balance since the crisis, 57 percent said they needed to review their investments, and nearly half said they had had their savings and retirement plans interrupted by the pandemic. More than 70 percent said they expected greater flexibility in terms of products and services on offer while a majority wanted better service and value for money.
Linda Elkins, KPMG Head of Asset & Wealth Management, said: “Super funds do need to increase engagement with members – the survey shows it is less frequent than in other financial services areas. Nearly two-thirds expected to be able to deal with their super provider wholly digitally and this is an area which many funds are addressing, but they need to focus on operational improvements even more to meet expectations. A majority said financial advice from their provider was important, but only a third were willing to pay for it, so this leaves funds in a difficult position at a time when there are liquidity challenges, falling investment returns and early access withdrawals. These pressures, combined with heavier regulatory demands, will increase the likelihood of more fund mergers to achieve greater scale.”
Financial planners have a mixture of good and bad news from the survey. While more people now see this as a discretionary spend, and a majority are not prepared to pay for it, those that do use these services see them as essential. More than 70 percent were satisfied with their financial planner – compared to 59 percent for their super funds. While more have reviewed this service than any other in the COVID-19 era, there has also been greater engagement than in insurance or super, and planners have been more pro-active in contacting customers. More flexibility in both the services and products they provide and in how they engage – with two-thirds of consumers keen to keep this wholly online – were also clear findings.
Tim Thomas said: “Despite the financial pressures many people face, there is much here that financial planners can take heart from. Australians who have been impacted by the crisis see financial advice and planning as essential and general awareness of the importance of advice is growing due to the crisis. The challenge for planners is turn that underlying potential into services that consumers are willing to pay for. Personal relationship with advisers is often as important as the funds invested in, so regular engagement is critical, and this must be through a variety of channels, given that two-thirds now want to go wholly online. With such a community focus on improving the affordability and accessibility of financial advice the big opportunity for advice organisations is to respond to customers shift in mindset to engage financial planners through a hybrid of face to face and digital interactions, which should go some part to reducing the cost of advice delivery without compromising on its quality. “