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Thus it follows logically that analysts consider disparate and outdated technology to be a major barrier to performance for life insurers.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

o 30% reduction in service costs per policy

o New product introduction reduced from an average of 12 months to 3 months

Accenture has also found, based on our analysis, that such transformation programs can more than double a company’s incremental improvement of return-on-equity. In one example, we projected that if an insurer diverted 20% of the capital it had slated for share buybacks toward a successful business transformation program, it could generate a 22% improvement in ROE compared to a 1.5% improvement in ROE from a buyback.

So how do life insurers successfully transform? They will need an operating environment that can nimbly support a variety of selling models, product features, and customer service expectations, as well as respond to the conditions, regulations and cultural nuances of customers and employees across the globe. More importantly, the companies that emerge as market leaders in the coming years will be those that have created a culture and an operating model where innovation is at the core.

To begin, insurers must define an operating model that addresses critical questions about the markets to go after, channels to sell through, merger and acquisition opportunities to pursue, products to focus on, services to differentiate by, IT strategies to follow, and ways to engender innovation within their company culture. Without such a model, transformation has little chance of success.

All of this requires a discovery process that typically takes 8 to 12 weeks and involves three key components:

–Identifying key transformation agents, accumulating current-state documentation and metrics, and setting the key objectives for a target operating model.

–Assessing current operations through discussions with key stakeholders to identify the critical opportunities for improvement and innovation.

–Assisting stakeholders to identify the conventional orthodoxies that may be holding their companies back and to clearly articulate a vision for the future.

In any transformation an essential step is to pursue an “industrialized” operating model. That means standardizing and automating business processes to be efficient across the company, while at the same time supporting rapid product and service innovations. Such a simplified model makes it easy to scale and adapt to new markets and distribution channels.

While the journey is different for every insurer, transformation programs typically represent a fundamental shift in a company’s business and operating model and therefore, must be driven from the top of the organization. Transformation is an ongoing process. It means a shift in shareholder returns and operating performance to protect long-term viability and scalability.

With the emergence of a global economy and radical changes in the behavior and expectations of customers, the life insurance industry is going to transform dramatically over the next decade. To outperform the market, insurers will need to put a heavy emphasis on organic growth within core markets, embark on disciplined expansion into emerging markets, and pursue broad structural changes aimed at improving operational efficiency.

Pierre-Louis Seguin is managing director and David Ricker is an executive in Accenture’s North America life insurance practice. They can be reached respectively at and