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5 things life insurers need to do to stay competitive

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A recent report from the Deloitte Center for Financial Services reveals that the industry has to keep working on areas such as targeting underserved markets, simplifying products and launching new distribution programs. Today, in the middle and the long term, the life insurance and annuities industries are going to be:

- Experiencing new avenues for expansion

- Operating in a state of perpetual limbo in terms of regulations and legislation

- Staring at a transformation in talent with millennials and an aging insurer workforce

- Transitioning from a paper form business into a digitalized business

- Dealing with cyber security risks, in terms of potential liability and harm to their reputation

- Growing due to mergers and acquisitions

The report’s outlook for 2015 reveals that in the short-term, there should be a more favorable environment for growth in the U.S. because of the economic recovery and the chance that the Federal Reserve will raise interest rates in the second half of the year. Deloitte is also projecting an increase on both net household wealth and real disposable personal income over the next two years. This may signal an improvement in sales for life insurance and annuity products when combined with a falling unemployment rate, Deloitte says.

For the longer-term or the bigger picture, Deloitte recommends that insurers focus on these five things to stay competitive:

challenge ahead

1. Transforming for growth

Insurers should make products that are simpler to understand and more consumer-friendly. Moreover, they must improve methods to attract and engage clients through traditional and new channels, and communicate more effectively the value proposition that they offer.

With another Deloitte report citing 38 percent of consumers as saying that they don’t know anything about annuities (and one quarter saying the same about life insurance!) educating the public on the role and value of life insurance and annuities is vital to acquire new clients. The graphic below illustrates the different avenues that insurers need to take to see sales growth and reach more clients. 


Also, a new generation of products and distribution channels should help meet market expectations. Carriers should refocus marketing and advertising strategies to rebrand the business. For example, the report calls for insurers to be portrayed not just as product sellers, but as long-term partners on whom consumers can count to help them meet evolving financial needs over time.

Becoming more customer-centric and figuring out who the consumer is, what their needs are, and tailoring the products to those clients, should help educate the insurance consumer and make the products more attractive to them.


2. Addressing longevity risks

There’s a big opportunity for insurers and carriers to provide more products and advice to the ever-increasing aging population in the U.S. such as improving health care, helping consumers generate sufficient savings and income for retirement. “However, because of the long-tail nature of the risk and the uncertainty of investment markets, figuring out how to profitably design and underwrite longevity-related policies could also be their most formidable challenge,” says the report.

This is where educating consumers about how the annuity industry can be part of their retirement planning comes to play. While demand for longevity coverage is likely to soar, insurers need to be careful when designing and distributing such products to meet economic targets and reduce the long-term risk. The graphic below illustrates baby boomers’ confidence in retirement, according to the Pew Research Center and Deloitte’s “Meeting the Retirement Challenge” report. (Click on the image below to enlarge)


Insurers need to manage consumers’ expectations and product features as mortality trends play out, “rather than just treating longevity policies as a one-time product sale and hoping their assumptions turn out to be profitable.”

Even though opportunities are expanding in this segment, the report cautions that the challenge remains as to how carriers “will be able to fulfill their longevity income commitment and still remain profitable.”

One way that insurers can manage risk and consumer expectations is to creating hybrid products, such as combining life insurance, retirement income, and long-term care coverage in a single policy, while limiting longevity exposure by capping lifetime income benefits.


3. Achieving information fluency

As LifeHealthPro has covered before, there’s a lot of information that is being collected digitally, also known as big data. But how insurers process, interpret and set plans into motion using that data is what’s going to determine how the industry moves forward.

The report recommends that insurers find a new data management infrastructure to break away from outdated, siloed systems, while also putting safety systems in place to thwart any cyber security attacks.

The report clearly states that the objective should be informational fluency, or the efficient management of information to capture and better understand consumer behaviors, effective design and distribution of products, as well as dealing more adeptly with evolving regulatory requirements. Then, take that comprehensive information fluency strategy and implement it in stages with milestones.

The report states that the potential payoff for such an investment is significant: improved market competitiveness, better customer relations, added responsiveness and reliability in compliance reporting and a more insightful enterprise risk management and decision-making are just some of the benefits.

The graphic below shows an example of a strategy to implement this process. 



4. Overcoming regulatory challenges

Deloitte’s report emphasizes that the industry will still face regulatory uncertainty in 2015 as “multiple overseers — state, federal and international — sort out new standards and launch probes of internal and external practices.” 

The report states that 2015 will see the first Own Risk and Solvency Assessment (ORSA) summary filing, which reflects a new wave of insurance regulation. Meanwhile, increased consumer protection activity is likely to continue and increase. And group supervision is likely to further strengthen, while supervisory colleges will keep oversight on the industry. The graphic below represents the regulatory hot spots for the coming years.



5. Upgrading capital management

The report unveiled that insurers will eventually have to show an improved understanding of capital consumption among different products across insurance, asset management and retirement planning to facilitate or justify capital deployment decisions and assess risk-adjusted returns. Also, effective capital management will help support growth needs.

Insurers should invest in a more integrated internal capital framework, such as institutions in the banking sector already have done, along with mechanisms that integrate people, processes, technology and governance.

Finally, Deloitte recommends taking these five pillars as an interconnected, multipronged effort to reshape the business, yet doesn’t provide the exact methods to achieve these goals. However, it is clear that they aim to usher insurers into the 21st century by cautioning that they should transform their business to adapt to the ever-changing world.

To see the full report, go here.

See also:

Is your business a digital transformer or digital follower?

Retirement account balances rise in tandem with economic gains


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