A slowing economy, volatile financial markets, fast-changing customer demands and new emerging-market opportunities are redefining the prospects for the global life insurance industry. Executives are asking with some urgency: How can we outperform the market in such turbulent times?
To help uncover the answer, Accenture recently commissioned Institutional Investor Market Research to survey nearly one-quarter of the insurance equity analyst community on their views regarding growth, capital strategies and industry challenges. The findings of the global survey are both enlightening and instructive for life insurers:
o Over the next 3 years, organic growth in mature markets and strategic expansion into emerging markets will be a top driver of superior ratings.
o Capital investments in operational efficiency are valued nearly as much as in share buybacks and dividend increases.
o Modernizing aging legacy systems is seen as a critical industry-wide challenge that, if properly addressed, will be rewarded by Wall Street.
The survey found that life insurance analysts’ expectations for growth and profitability remain steadfast despite the torrent of marketplace changes taking place. Besides organic growth in core markets, analysts expect carriers to find new sources of profitable growth-most notably within emerging markets such as Brazil, Russia, India, China, Mexico and South Korea.
Perhaps the most eye-opening finding of the survey was the number of analysts who said they see an opportunity for insurers to outperform the market through broad-ranging efficiency programs. By a strikingly close margin, they rated operational transformation as the second most valuable use of capital.
This is not just about cutting the fat, however. Purely cost-focused approaches, such as headcount reductions and labor arbitrage, are actually less valued by analysts than optimizing business and technology processes. Even Wall Street, it seems, is ready to reward longer-term investments in efficiency.
Thus it follows logically that analysts consider disparate and outdated technology to be a major barrier to performance for life insurers. They rank IT modernization as the second greatest challenge facing the industry, after portfolio risk. The majority say investment in core technology-such as policy administration and call centers-will be “critical” to the life industry over the next 3 years.
The bad news is that in the face of historic market challenges, it is likely that few life insurers will be able to meet analyst expectations for profitable growth without making substantial improvements to their business models. The good news is that it is well within many insurers’ reach to close the gap between analysts’ expectations and today’s market realities.
Such transformational improvement efforts, we know, can significantly improve profits. One large global insurer turned its business around by implementing a demanding operational improvement program and embedding a performance culture. The results were impressive:
o Profit margins more than 20% above industry average
o 40% reduction in IT operating costs