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Ernst & Young: Life insurers should transform strategies to remain relevant

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Life insurers need to respond to a transforming marketplace by transforming themselves, their products, their services and their strategies and although that equation can sound fairly obvious, a lot of work has to go into such an overhaul.

That is the conclusion that professional services firm Ernst & Young drew in their Global Insurance Center US Outlook.

One huge component to this overhaul is the restructuring of operations in order to capitalize on the “converging forces” of demographics, consumer needs and product distribution. All this, Ernst & Young contends can be done by leveraging technology to improve current business models.

The report encourages insurers to examine their current books of business and look at them in terms of both generating higher profits and diversifying risks. The end game of this reevaluation should be a balanced product portfolio with no single line dominating its book of business.

It is no secret inside the industry that life insurance sales are at an all time low. There are myriad reasons for this, most out of the industry’s control. However, there are steps that can be taken for life insurance to remain relevant. The report indicates that the industry should look to offering simpler products, namely term and whole life insurance to younger consumers through digital marketing and mobile distribution strategies. There are opportunities to be had in the coming year, insurers can focus on addressing the savings needs of young people while continuing to give attention to retirees and pre retirees.

Insurers also need to begin to alter their products to adapt to the low interest rate environment. The Treasury has said that interest rates are likely to remain low at least until 2014, so it would behoove insurers to alter their products. According to the report, many of them have already done so by de-risking and redesigning products while simultaneously writing down some lines of business and increasing reserves. However, the report cautions that there should be a “renewed focus on asset management and wealth management, rather than on costly and risky guarantees.”

Insurers need to begin to utilize “Big Data” to their advantage. Some insurers are reticent to put too much faith in data but in 2013, they will do so at their own peril. Insurers should invest in IT infrastructure as well as consumer analytics. Obtaining the data and implementing any changes that it dictates will give insurers a huge return on their investment in 2013.

Finally, the report encourages insurers to remain vigilant and attentive to the changing regulatory environment both at home and abroad.


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