In 2013, in spite of such factors as demographic, macroeconomic and regulatory pressures, life insurers are responding by transforming their strategies, products and services, according to Ernst & Young's new Global Insurance Center US Outlook.
"Successful players are introducing or re-positioning product offerings that are attractive to consumers and profitable to insurers," according to Doug French, principal, Financial Services and Insurance and Actuarial Advisory Services at Ernst & Young. "Insurers are reexamining and strengthening the customer value proposition by leveraging technology to improve business models and gain a competitive advantage. By restructuring operations to respond to the converging forces of demographics, consumer needs and product distribution, they can communicate and engage with customers on their terms."
Ernst & Young has identified five market forces that are of key importance to US life and annuity insurance companies in 2013:
- Rethink business strategy for a sustainable competitive advantage: As the competitive landscape changes, new players are entering the market, the largest carriers are gaining market share and distributors are consolidating. To obtain a sustainable advantage, carriers are evaluating books of business in terms of their ability to generate profits and diversify risks, regardless of the macroeconomic environment. Meanwhile, regulators are evaluating suitability standards that could alter distributor and insurer sales practices. The goal for many companies is a balanced product portfolio, in which no single line dominates the business.
- Respond to consumer needs and changing distribution to grow: The average household expenditure for life insurance has declined 50% in the last decade; therefore, insurers should consider new offerings of simpler products, such as term and whole life insurance, to younger consumers through digital marketing and mobile distribution strategies. Insurers need to reexamine the value proposition to consumers, addressing the converging forces of demographics, consumer needs and product distribution. Greater attention must be accorded the risk transfer and savings needs of young people, while continuing to build a case for retirees and pre-retirees. The investment in these areas will present significant growth opportunities in 2013.
- Transform products to adapt to economic challenges: In the face of unrelenting interest-rate pressure, business strategy needs to change. Many life insurers have responded by de-risking and redesigning products, writing down certain lines of business and increasing reserves on a fair-value basis. A renewed focus on asset management and wealth management, rather than on costly and risky guarantees, also seems likely; and improving capital and risk management still remains a priority.
- Harness "Big Data" for sustainable advantage: Business and regulatory demands–and the need for fundamental long-term process changes–are driving investments in IT infrastructure, digitization, predictive modelling and consumer analytics. Sophisticated modelling techniques will require investing in talent to deliver these capabilities, at a time when demand for this talent is high. The cio can be a strategic partner helping prioritize resource allocation for maximum competitive impact.
- Position the business for tax, regulatory and accounting change: Insurers need to stay attentive to tax changes as the government seeks new sources of revenue. As regulatory forces challenge the industry, there is potential for increased regulation by the Federal Reserve to improve risk management and possible action by the Consumer Financial Protection Bureau to expand its scope of review from banking to insurance products. Proposed US and international accounting standards will have a significant impact on life insurance business models. Organisations must review their policies, processes and controls to ensure that systems, IT capabilities, data and people are capable of implementing the new requirements.
For a copy of the 'US Life Insurance Industry 2012 Outlook' report, visit" target="_blank">www.ey.com/insurance">visit www.ey.com/insurance.
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