As 2011 draws to a close the industry faces a world in-flux. In the US, the life and annuity industry must navigate an ever-changing path with obstacles appearing, disappearing and appearing again. The industry will need to display unwavering gumption with the only certainty being an amorphous political and economic climate.
Ernst & Young’s Global insurance Center U.S. Outlook, has identified five major issues that that the industry will need to deftly handle to make it through the year unharmed.
The low-interest rate environment will most likely continue into 2013 increasing the risk of compression for existing products while concurrently suppressing efforts to increase the sale of fixed annuities and universal life insurance. There remains a distinct possibility that interest rates could jerkily rise when the Federal Reserve’s Treasuries buying spree ceases. This scenario could foster disintermediation risk as policyholders shun existing products for newer ones with higher interest rates. Ernst & Young feels that understanding the interaction of asset liabilities and cash flows under a wide array scenarios will keep insurers nimble and ready to adapt.
The uncertain regulatory environment should be another concern to the life and annuity industry. While the authors of Dodd-Frank may be retired, it has passed its first anniversary with essential rules that impact insurers floating in purgatory. The Federal Insurance Office (FIO) could potentially clash with the National Association of Insurance Commissioners (NAIC) when it comes to European Union harmonization directive of Solvency II and its “equivalency” for US insurance regulation.
Insurers should take heed to utilize customer analytics in order to manage risk and encourage efficiency in the current environment. As analytic and predictive modeling techniques continue to evolve and improve, opportunities for increased sales, improved productiveness and expanded capabilities are born. Analytic and predictive modeling can both improve the underwriting as well as the sales process and in the current fluctuant environment this is one aspect of the industry where there is empirical evidence of the benefits it provides.
As restructuring the tax code has become an issue being tossed around on the political battlefield life insurance companies should keep a close watch on. Any developments could alter the status quo. Potential Congressional action has the capacity to impact both corporate-level taxes as well as policyholder taxes.
Finally, Ernst & Young encourages life insurance companies to open their arms further and fully embrace the web. Most companies’ web presences are relegated to applications that consist of financial calculators and lead generation activity. Companies should look for ways to exploit the web and incorporate all of its facilities into the sales process. Using social media, life insurance companies can keep a closer watch on their customer’s pulse which will leave them in an advantageous position to tailor products to their needs.
Doug French, Financial Services and Insurance and Actuarial Advisory Services leader at Ernst & Young LLP said in a statement, “ In spite of the current environment, insurers should take advantage of opportunities to drive efficiencies through the greater use of customer analytics and leveraging technology to develop stronger ties to clients.”