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An insurance executive's guide to navigating industry shifts

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The coming year will be one of continued disruption for the US life-annuity insurance market.

The industry will remain in flux thanks to ongoing trends, as well as new uncertainty. Customer demand will continue to evolve, digital technology will keep advancing and InsurTech innovations will gain further momentum.

Today’s low interest rate environment and slow growth aren’t going anywhere. Regulatory pressures on consumer protection, capital and cybersecurity will intensify. Of course, a new Republican president and a Republican-controlled Congress bring uncertainty, with potentially sharp shifts in the country’s economic and regulatory agendas.

Related: Annuities: Your go-to financial vehicle in a low-interest-rate environment

Despite the uncertainty, insurers will continue to draw on technology to improve cost efficiencies across their operations. These savings will help boost margins and free up funding for investments innovation and growth. With change coming from many directions, insurers need to stay focused on the customer while reassessing their competitive positioning in light of market trends. For some, 2017 will be a time to make brave strategic bets and rethink future plans.  

EY’s 2017 US Life-Annuity Insurance Outlook report outlines six strategic priorities that insurance executives should focus on to navigate the uncertainties and changes coming in the new year.

1. Prepare for regulatory change

Insurance executives should develop a strategy to comply with the new Department of Labor (DOL) fiduciary rules, but be prepared to make a rapid course correction. The DOL rules will impact nearly every aspect of their strategy, operations and distribution models. Adding to the complexity is the prospect that a new president and Congress may reassess and adjust — or even cancel — the new rules.

The regulatory landscape for life insurers has never been more complex. Thus, it’s important to confirm that internal systems can keep pace with regulatory change.

To keep up and comply with changing regulations, insurers will need to build advanced data management and analytics capabilities, extract more value from governance, risk and compliance systems, and synchronize their three lines of defense among business operations, oversight teams and independent auditors. New procedures will not be enough, as best-in-class firms will better monitor regulatory developments at all levels and then assess how well their employees are complying on an ongoing basis.


Use analytical tools to discover insights in data that will help you understand the needs of four generations of clients. (Photo: iStock)

2. Stay centered on the customer 

Understanding and addressing the diverse needs of four generations of clients requires advanced analytical tools to uncover usable customer insights hiding in reams of scattered data. In 2017, insurers should integrate their customer information systems across the enterprise and distribution channels to gain more complete pictures of their customers. Such views will help to identify new sales and product opportunities among new and existing clients.

Insurers also need to catch up with other financial institutions in meeting the rising expectations of customers, who are becoming more digitally connected, self-directed and better informed. Specifically, insurers will create digital platforms and mobile apps that simplify interactions, provide a more personalized service and offer better access to data.

Related: Astonishing tales of customer service

With margins under pressure and customer buying behaviors evolving, insurers should continue to evaluate their distribution approaches in 2017. Insurers will need to look for new ways to improve customer engagement and act more as advisors for their “financial health,” while experimenting with direct selling platforms designed for specific customer segments.

3. Re-evaluate strategies for a changing marketplace

With the industry in transition and a new administration taking office, now is an ideal time for management teams to assess their current market position and decide where they would like to be in the long term. Such an evaluation should include strategic, competitive and technological dimensions.

Future products, distribution and business strategies will be defined based on whether insurers want to serve clients at retirement, in retirement or as they approach retirement. Some insurers may decide they want to be the go-to insurer for millennials.

To improve their competitive positioning and cope with low interest rates and market strains in 2017, some insurers will explore M&A opportunities. In this chaotic environment however, life-annuity firms may have a hard time agreeing on the valuation principles for portfolios and products.

After making considerable progress in 2016, insurers will need to take further steps to cultivate their InsurTech capabilities in 2017. Some will build InsurTech into their business models through acquisitions and partnerships, while others will create internal innovation labs to weave InsurTech into the fabric of their businesses over the longer term. The right solutions will enable insurance companies to be nimble while also providing a rigorous compliance infrastructure.


The coming year will bring additional momentum around digital transformation that will impact efficiency and customer service. (Photo: iStock)

4. Take digital transformation to the next level

Technology will play a critical role in 2017 in helping insurance companies improve their efficiencies and better serve their customers. To take their digital transformation to the next level, insurers will use technology to:

  • Improve current business operations through back-office automation and the creation of digital interfaces to serve customers and distributors.
  • Get control of their data across the extended enterprise by organizing and integrating volumes of diverse data into accessible, consistent formats.
  • Prepare for the next phase of digital innovation by looking deeper into next-generation technologies such as artificial intelligence, blockchain and behavioral applications.

For this transformation to be successful, CEOs and management teams will need to nurture a culture of innovation that encourages new thinking and inspires collaboration.

5. Make cybersecurity a top strategic priority

Because they possess a tremendous amount of personal and health data, insurance companies have a responsibility to build robust data security systems. Specifically, they must secure their customer data and develop effective mechanisms and processes for threat detection and response. The first step is for insurers to assess whether they have the skills in place across their organizations.

Cybersecurity should be a continuous business activity because the challenges and requirements associated with cyber risk are constantly evolving. Ongoing cyber audits, stress tests, vulnerability scanning and war-gaming to assess staff responses are just some of the techniques insurers are using to verify that they have sufficient protections in place.

6. Close the talent gap

The transformation of life-annuity businesses will not be possible without new and necessary talent. Insurance companies need to rethink their strategies for attracting, developing and retaining talent if they are to succeed in a time that requires rapid evolution and bold advances. Now is the time for insurers to determine the skills they will need to drive their businesses forward. They must also ask which tasks, activities and functions are best accomplished by human talent and which by machines or robots.

Creating a culture of collaboration and teamwork will also be critical to achieve a transfer of technical and digital knowledge from seasoned professionals to new hires.

Disruption ahead

With Republicans now in control of the White House and both chambers of Congress, there is some likelihood of a major shift in policy direction that could re-define next year’s business environment for insurers. Whatever the outcome, the interplay of the economic, regulatory and technology shifts will disrupt the life and annuity business in 2017, resulting in changes that will be felt across the entire organization, from compliance, risk and asset management to product development, back-office operations and advisor roles.

See also:

5 of the top regulatory hurdles facing insurers in 2016

3 must-have digital technologies for today’s insurance agents

What every independent agent needs to know about cybersecurity

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