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Major UK Life Insurers Take Wrap for Investors

Rick Mitchell June 2007

In the last five years or so, a handful of major life insurers in the United Kingdom have embraced what for them is a new wealth-management technology—so-called wrap platforms.

Wraps, as the Web-based, business intelligence systems are called, enable independent financial advisors, or IFAs, and their customers to view and manage, in one application, a range of investment products that includes pensions, bonds and many types of savings vehicles, some with life-insurance-like features.

Insurers may one day use wraps to sell general insurance, but for now their attention is elsewhere: According to industry estimates, the U.K. wrap market was worth 35 billion pounds ($68.9 billion) in 2006 and could swell to 256 billion pounds ($504 billion) in 2010. Analysts say growth will correspond with a drawdown in the managed assets of traditional players, which include large life insurers.

"Wraps are creating great fear in the life and pension companies," says Steve Williams, U.K. manager for Bravura Solutions, a provider of wrap solutions, with headquarters in London and Sydney.

Williams says that, for these companies, "their value is closely linked to the assets they manage on behalf of their customers. One big life insurer has 90 billion pounds ($176.5 million) in assets under management. They've realized that their assets are going to migrate." Williams says, "The threat is huge. It's not a question of whether or not [life insurers] move to wraps. It's a question of whether they can do it fast enough."

In fact, wraps have been in wide use for more than a decade for selling and managing investments in the United States, Australia and New Zealand. In the United States, Prudential, AIG and MetLife are using wraps for asset management. In Australia, where dozens of wraps are operating, wraps account for 85% of individual investments, says Williams. Australian wrap software vendors lead the U.K. market, because of the countries' similar financial markets, says Catherine Stagg-Macey, a senior analyst in the London office of Boston-based Celent LLC. Wraps have not reached the mainland European market, where banks tend to dominate the retail investment market, she says.

WRAPS' APPEAL

Spurred by pension-fund failures and pressing retirement needs of aging baby boomers, the United Kingdom recently eased tax and other laws governing pensions and other investments, allowing individuals greater control of their wealth. That and the rapid rise of the Internet as an investment tool have begun changing a stodgy industry in which most retail investors still depend on old, paper-pushing financial advisers.

Says Williams: "For a [traditional] advisor to provide holistic advice on a portfolio, he has to write to pension providers, write to savings vehicles, and so on, to get valuations for each product. Then he has to analyze each product, its worth and how it's performing over a long period, to build a picture of what an individual customer is worth and then help him set risk-appropriate investment and retirement goals. That's what some would call an 'unserviceable environment,'" he laughs.

With a wrap, the IFA gets up-to-minute evaluation across all of a customer's investments," says Williams. "That significantly enhances their services," he observes.

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