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Perspectives

Life Expectancies Are Changing — Why Aren’t Financial Services Offerings?

2019-03-14


To align their services with people’s longer, multi-stage lives, financial services organisations need to focus on supporting the financial, health and vocational resilience of their customers.

With longer lifespans, it’s the end of retirement as we know it — but you’d never know that by looking at what financial services organisations have to offer.

Consider Pamela. At 62, she planned to retire in five years — until her doctor noted she may well live beyond 100. Great news — except Pamela can’t afford to retire in her mid-60s and live to 100. Now she wonders what went wrong.

This is the reality for an increasing number of individuals. Traditionally, people’s lives — and the financial services that support them — have been built around three stages: education, work and retirement. But our longer, multi-staged lives are punctuated by a variety of transitions. The idea of saving enough for a retirement that may stretch over 20 years and perhaps far longer, is simply not realistic.

Increasing Longevity & The Changing
Relevance Of Financial Services

From Product Providers to Engaged Collaborators

A fresh vision is needed that helps shift some of the investment, health and longevity risk from consumers. Individuals now need financial services providers to act as engaged collaborators that enable them to maintain and enhance their financial, mental, physical and vocational resilience through each transition and stage of their existence.

For example:

  • What if Pamela could use her long-term savings, without any tax penalty, to fund training for entirely new job skills — which could, in turn, launch another fulfilling career?

  • What if a family could conveniently use their retirement funds as a deposit for a home payment, thus helping them break out of the rental trap into home ownership?

  • What if mortgage providers could take into account not only income and assets but also insights around retirement savings, health and career prospects to inform their decisions?

The technology and architectural components exist to offer a truly innovative approach to financial products and services on a scale that reaches a much larger market than before. We envision a trust-based architecture that, with customer permissions, could access data across borrowing, income, insurance, savings, mortgages, retirement and health plans to enable a 360-degree view of the financial and health position of individuals, groups and even societies. This capability could help individuals at every life stage make decisions around work, education and health, using much more information on how their decisions impact their financial resilience.

The greater challenge now appears to be gaining and rebuilding the trust of customers and regulators, so that the financial services industry can effectively and safely deliver the products and services that address these new realities. This will require cross-industry collaboration on establishing open and transparent governance, standards and architectures at the regulatory and industry levels, as well as engage the public in ways that engender trust.

A New Architecture Design

An effective future design will be built around three fundamental principles that reflect how organisations will need to work together to create efficient commodity services, freeing them to create new areas of competitive advantage:

  • Build trust by giving customers control over their data; democratise data to the individual, not the corporate entity.

  • Use that data to create customer value and insight, through the use of predictive analytics and machine learning.

  • Build a data ecosystem that minimises the friction of sharing data securely and feeds value creation from insight. 

Empowering consumers with sovereignty over their own data should be a cornerstone of the new underlying architecture. This would give the financial services community the opportunity to lead and guide regulators on how consumer data management can best be done in everyone’s interest.

Three Areas of Insight

With these foundations in place, enterprises can realize competitive advantage by using data science and technology to deliver insight across multiple dimensions of a customer’s life. We see three areas where this will emerge:

Financial resilience

The natural starting point will be to provide insight and guidance on financial resilience by looking at a personal balance sheet that considers assets, liabilities, income and even insurance, using analytics and robo-advisors to give a financial resilience assessment across both the short and long term.

Vocational resilience

Individuals face an increasingly uncertain job future, with expected increases in the rate and number of career changes during their extended life, as well as rapidly shifting required skills in a job market transformed by artificial intelligence. Organisations could provide guidance on future job prospects, based (for example) on LinkedIn profiles and job board activity, while also advising individuals on potential training opportunities to meet new skill demands.

Health resilience

The ability to work and remain healthy will have an obvious impact on the other two dimensions of resilience. Access to data from the growing number of personal health devices and their ever increasing accuracy and depth of the personal health data they capture would allow organisations to use the insight from thousands of aggregated data records.

There’s a final capability that will be vital for organisations to be successful in this new digital ecosystem: combining technology with human insight to deliver new insights at scale. Enterprises will need to combine data-driven insights and machine learning analysis with a fundamental understanding of human motivation. This can be done by overlaying technology-driven insights with anthropological and human behavioural science.

Figure 1

We already have the technical means to address these needs and opportunities. By rebuilding the trust of regulators and customers, the financial services industry can help individuals improve their financial, physical, mental and vocational resilience as they address the challenges across their longer and multi-stage lives.

For the full report, read “Reimagining Retirement: Longevity and the Future of Financial Services,” or visit us at www.cognizant.com/digital.

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Life Expectancies Are Changing — Why Aren’t Financial Services Offerings?