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Deloitte: Life And Annuity Carriers Can Still Grow If...

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Growth through cost containment and efficiency is a real possibility for life and annuity insurers that commit to identifying and executing on strategic opportunities, according to Deloitte consultants.

To illustrate, consultants at Deloitte, New York, point to how “low-cost performers” have fared compared to median-cost companies.

In life insurance, the low-cost performers have a new business processing expense of just $1.07 per $1,000 of new business face amount, they say. That’s 10% lower than the median.

Low-cost life insurance performers are also seeing shorter new business service-delivery times compared to the median, an 11% lower in-force administration processing expense per in-force administration transaction, and 29% less spend on finance, the researchers say. These firms are also “pioneering” in use of interactive voice response technologies.

In the annuity business, marketing, product and distribution expense now represents the largest share of adjusted line of business expense at 38%, the consultants say.

But the low-cost annuity performers spend five times more than the median on developing and maintaining products, and 11% less than the median on overall marketing, product and distribution processing expenses.

Although total annuity new business unit costs have increased by 1.8% a year for the last five years, the researchers say the low-cost variable annuity performers spend 11% less than the median on new business, and the low-cost fixed annuity performers spend 38% less.

Furthermore, low-cost VA performers spend 17% less than their median counterparts on call center staffing models and tools, the researchers say, adding that the low-cost firms are “doing well” in leveraging self-service opportunities and utilizing e-service at much higher levels than the median.

In the FA business, the median firms have been seeing more than 150% growth, sometimes over 200%, the consultants note. However, they say, this is not a result of new organic growth but rather of “significant turnover of existing portfolios.”

“When you look at life insurance and annuities, the path for growth aligns closely with the impending baby boomer retirement trend,” observes Richard T. Roth, head-global benchmarking at Deloitte. To take advantage of this once-in-a-century opportunity, “carriers should review operations and expenses now and make the necessary adjustments,” he says.

“The economic downturn placed an even greater focus on the role of managing the costs associated with doing business in all industries, with particular importance to insurance,” says Joe Guastella, the leader of Deloitte’s-global insurance practice.