Choose Your Line Of Business And Make It Work

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To stand out in today’s financial services industry, life insurers should select core business lines and concentrate on them, says Larry Danielson, principal at Deloitte Consulting, New York.

“What you have seen across the board is broad commoditization,” he notes. “Financial services companies now have similar offerings while they are trying to differentiate themselves.”

As a result, prices have been driven down, and expenses have gone up. “Now customers expect high-quality products for less money,” he says.

This, Danielson stresses, has put cost-cutting pressure on all players, small or large, in the industry. In his view, life insurers cannot cut costs and remain competitive by achieving economies of scale or by implementing what he terms the “financial conglomerate” strategy.

Most life insurance companies are not cost-efficient enough to provide a variety of products and services at competitive prices because, according to Danielson, the infrastructure the insurers have built is too expensive to allow them to provide such diversity.

“Their intrinsic business processes as well as the condition of their systems–the legacy systems that are still prevalent in the industry–are just old and not flexible,” states Danielson. “When the systems and the processes need to be customized, they are too slow or too expensive to make that happen.”

In what he terms “specialization,” Danielson suggests insurers should concentrate on one or two business lines in which they believe they can have the upper hand. He breaks down the traditional business model of the life insurance industry into three core business task lines–distributor (gateway), manufacturer; and servicer.

He suggests that companies figure out the best way to accomplish these tasks. “They don’t have to do all three tasks,” he notes. “Insurers can outsource them or minimize their investment in them.”

As far as life insurers are concerned, pursuing the “financial conglomerate strategy through mergers and acquisition will cause a host of new problems,” Danielson asserts. “To become a conglomerate, they have to buy different companies, namely acquisition. They will still have to struggle with merger integration.”


Reproduced from National Underwriter Life & Health/Financial Services Edition, November 5, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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