What a difference a year can make! The tones of speakers presentations at the annual press briefing by Ernest & Young LLP, New York, an event that was dominated by expectations and excitement with the beginning of a new Millennium a year ago, were still positive, but tinged with caution and a sense of urgency for change.
“The longest economic boom in U.S. history is now over,” said Beth E. Morrow, senior analyst with E&Y. The Sept. 11 terrorist attacks immediately accelerated the contraction of the U.S. economy, noted Peter R. Porrino, global and Americas director of insurance industry services at E&Y. “While the events of Sept. 11 affected all segments of the financial services industry, the insurance industry understandably was the hardest hit,” he said.
Given the difficult environment the life insurance industry is currently in, companies that have stretched their business lines thin will suffer most. “The environment is so much more difficult now,” said Morrow. “Many of them [insurers] cannot continue to fund those operations and manage the difficulties in their business.”
The time is ripe for life insurers to improve operational efficiency, rather than revenue growth. It isnt that size does not matter, but what especially matters is scale within your business, she noted. Scale refers specifically to volume in a particular business line,” Morrow explained.
Morrow pointed out that specialization could be more important to midsize and small life insurers than big players. “Second-tier insurers can do better if they focus on a certain market, business line or region instead of spending their energy all over the place.”
In the past, mutual ownership status helped life insurers avoid efficiencies necessary in capital markets where stiff competition was underway, noted Morrow.
“Insurance companies have believed they need an individual operation, a group insurance operation and a pension operation,” she said. While the rest of the financial services industry has streamlined its operations and pursued specialization in the past decade, life insurers stretched themselves thin, explained Morrow.
However, that will change in the future because “it is now more difficult to get capital and more difficult to manage your portfolio,” she noted.
Reproduced from National Underwriter Life & Health/Financial Services Edition, November 26, 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.