The UK Retail Distribution Review: Understanding the IT and business implications for insurers

The UK Retail Distribution Review: Understanding the IT and business implications for insurers

The UK Retail Distribution Review (RDR) presents significant challenges and opportunities for Insurers. These can be categorsed into core - tactical and strategic-transformational responses. This paper outlines the strategic and tactical impacts of RDR, and draws parallels between these impacts and TCS’s experience of applying these technologies to similar business issues that the RDR regulation introduces.

Introduction to RDR

The Retail Distribution Review (RDR) poses several challenges and opportunities for Insurer business models and processes. These can be categorised into core-tactical and strategic-transformational responses. This paper outlines the strategic and tactical impacts of RDR, and draws parallels between these impacts and TCS’s experience of applying these technologies to similar business issues that the RDR regulation introduces.

The RDR regulation will seek to improve customer confidence in the Financial Services sector by changing the way Retail Investment Products are sold. The Retail Investment Market will adapt their processes, operating models and technology landscape in light of the RDR Regulation.

The RDR Regulation encourages the following disciplines:

Quality of Advice

All firms providing investment advice on retail investment products will need to disclose to each client, before providing a service, whether they will provide ‘independent advice’ or ‘restricted advice’

Adviser Remuneration

For Retail Investment Products, Advisers will be remunerated directly by the customers based on the advice provided. These charges will be agreed in advance between the Adviser and Customer.

Professional Standards

Improved professionalism will be promoted by encouraging Advisers to attain qualifications. The Qualification Credit Framework (QCF) Level 4 or equivalent will be the target qualification.

RDR in Context

RDR seeks to encourage a new market structure whereby the Insurance Market will provide different levels of sales advice depending on the customer need. This tiered service system will consist of: independent advice, restricted advice, simplified advice and non-advised advice. These new systems of advice will seek to remove the possibility of any bias in the sales process. Increased professionalism and the introduction of Adviser Charging are central to this new Retail Investment product regime. RDR attempts to deliver a factory gate price for each customer product sale, which transparently demonstrates to the customer the charging and pricing structures and retires the use of commission structures for new business sales.

The post RDR Insurance Technology Landscape will be fundamentally different to the current landscape, particularly in the areas of:

• new distributed channels,
• development of and launch of new products,
• gaining an improved understanding of service performance and customer wants and needs, and
• increased automation of customer centric processes.

All these will pose a significant challenge to the business strategies of Insurers and their competitors in the industry.
Those Insurers that are agile enough to deliver the increased levels of channel, product and process flexibility, and
sophistication, to customers and agents, will emerge as the new market leaders in the industry.

TCS has experience of addressing similar process and technology challenges for many of the Global Insurers. TCS has
been involved in delivering large IT initiatives in the last twenty years, helping us gain a better understanding of the Insurance business and technology landscape. In the past five years we have seen fundamental step-change in the use of emergent technologies to address Insurer challenges. It is these technologies that will be central to addressing the more strategic challenges presented by RDR.

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