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From
January 2010 Resource
Forecast for
2010: Cautious Optimism
Most companies are predicting 2010 sales
growth, premium growth and profitability to be modest to flat compared to 2009.
By Jennifer C. Rankin and Ron Clark
Insurers are slowly emerging from the financial crisis and recession and are
cautiously optimistic about the year ahead.
It’s against this backdrop that
Resource
asked insurance industry leaders to share their thoughts on what the year ahead
holds for sales, profitability, technology and customer service. The executives
who participated in our annual forecast included a cross section of the LL
Global board of directors plus several industry analysts. They are:
Steve M.
Callahan, CMC®,
ChFC, CLU, FFSI, FLHC, FLMI, senior consultant and practice development
director, Robert E. Nolan Company
Esfand E.
Dinshaw, LLIF, president,
annuities, Midland National Life
Peter A. Golato, CLU,
ChFC, senior vice president, individual protection, Nationwide Financial
Services
W. Kenny Massey, FICF,
LLIF, president and CEO, Modern Woodmen of America
Eileen C. McDonnell,
executive vice president and CMO, Penn
Mutual Life
Dayton H. Molendorp,
CLU, chairman, president & CEO,
OneAmerica Financial Partners
Karen Pauli, research
director, TowerGroup
L. John Pearson, CLU,
chairman, Baltimore Life
Elaine A. Sarsynski,
chairman and CEO, MassMutual
International LLC—International and Retirement Services
Nicolas Schimel,
chief executive officer, Union Financière de France
Craig W. Weber,
senior vice president, Celent
Here’s what they had to say:
1. SALES
What is your
prediction for sales, premiums and profits for our industry as a whole in
2010? What products look particularly strong or weak?
CALLAHAN:
As goes the market, so go market based products. With the dramatic drop in the
S&P from its highs by almost 40 percent (52 percent for the Life and Health
Insurance Index June 2008 to June 2009), and with interest rates continuing at
historically low, almost nonexistent, levels, the appeal for variable products,
both annuities and life, dried up most of the year as buyers shifted to whole
life and term to preserve their assets. The hedging and risk management
techniques, combined with unexpectedly underpriced guarantees linked to the
variable products, put many insurers at an extremely high exposure level that
will continue to wash out over the duration of 2009 and into 2010. In response,
most reinsurers exited the variable market, while many insurers either stopped
writing variable guarantees or, more commonly, selected some combination of
increased fees, reduced guarantees, and/or restricted asset allocations, all in
an attempt to reduce market exposure and capital drain.
And, with the exception of
MetLife, whose VA sales have increased 11 percent through 3Q09, the industry has
suffered a 23 percent decline through 3Q09 versus 3Q08. Yet sales do not
directly or immediately translate to profits, as MetLife’s recently announced
US$ 1.4 billion in investment losses and third quarterly loss indicates. Even
with the market returning slowly to better times, a return to profitability will
take care and time. Specific to the variable products, positive press combined
with well established brands and continued improvement in the market will likely
cause them to inch up. Yet the increase is likely to be a gradual one due to two
key inhibitors. First, there are fewer, less wealthy, and much more cautious
buyers available for purchasing variable products. Second, feeding the concerns
of the cautious, the changes in fees, features, and guarantees undertaken by
insurers compound the reluctance to dive back into this market.
Similar to the "flight to
quality" during the tech bubble burst of the mid 2000s, consumers have
tended towards permanent and term products during these difficult market times,
with, for example, an eight percent increase in agency sales through September
2009 versus the same timeframe in 2008. Companies with products that, during
significant real estate and market declines, are able to either show no change
in any intrinsic value, like term, or an actual increase in value, like
permanent insurance, are appealing to the consumer’s desire for safety,
security, and stability. Building on the appeal of term products, companies are
introducing modified term plans that approximate dial-a-term (select a face) and
term/UL combos that allow flexible durations, issue ages, steps in face, and
premium payments. In fact, for some, the appeal of permanent plans has been
enough to initiate actual increases in the amounts being paid into their cash
value permanent plans. Along these same lines, fixed deferred and immediate
annuities have taken over a good share of the market lost by variable products,
growing to 40 percent of total annuities in 2008 and expected to reach 50
percent of total annuities in 2009. That said, total annuity sales are expected
to remain flat across the two segments in 2009.
A product set that is garnering a
great deal of attention is the indexed annuity and indexed universal life set.
Focusing first on the indexed annuities, given the market volatility, and a
primary shift away from indexed annuities, there has also been over 11 percent
year to year growth in indexed annuities amounting to US$ 7.5 billion. Hidden
behind this rather innocuous growth rate is the tumultuous nature of the
competitive landscape, with some companies up over 75 percent in sales and
others down almost 60 percent, shaking up the rankings tremendously on a product
showing growth. In the indexed universal life arena, year on year growth is slow
at one percent across the 33 existing carriers, building momentum for 2010 as
product designs are continuously refined. The rapid feature set change and
growth is typical for a new product concept going through rapid innovation
cycles that change competitive profiles rapidly. Another trend below the radar
with this product set is the tripling of bank distribution’s share of the
market over the past year, bringing this channel up to over 12 percent of the
total sales as of 3Q09. Innovation, growth, and channel competitiveness make
this product one to watch with care, along with the trials and tribulations of
the 151A ruling that would make this an SEC regulated product. The implications
of either vacating or delaying the ruling due to the need to measure the overall
costs and impacts will accelerate indexed product sales as they become the
innovation of choice.
Combo long-term care (LTC) plans
are also growing in appeal as the aging Baby Boomers look for a solution to
their need to work longer than planned while still insuring, cost effectively,
against the cost of long term care. These plans bundle an LTC rider on top of
either a cash value based life plan or an annuity that create a funding vehicle
for the LTC rider. There are several appeals to these plans, including bundling
so that the costs are lower, tax advantages, flexibility, and broader coverage.
It also addresses the aging of the workforce, which is a critical need.
New sales volume for life will
likely continue the 20-plus quarters of quarter on quarter downward trend, with
group life trending up as voluntary workplace markets improve. On the other
hand, there is a significant spike up in the rate of new app sales growth in the
60+ market, while the 45 to 59 market shows very slight year on year growth in
the two percent range, and the 0 to 44 market is actually shrinking at a slow
rate. Recent attention has expanded beyond Baby Boomers to recognize the
tremendous opportunity presented by the underserved middle market, with focused
product and distribution techniques being developed to specifically target this
market’s needs using the workplace as the common medium for linking the
structure together.
For 2009, total inforce premium
will probably shrink as lapses hold at a higher level paired with accessing
funds through withdrawals, loans, and partial surrenders. These shifts clearly
impact the investment portfolio performance of insurers. While a loss like 2008’s
US$ 50+ billion is unlikely in 2009, a return to profitability may not yet be in
the cards despite market upturns over the last quarter. A combination of
portfolio commitments, increased reinsurance costs, increased reserving demands,
lower returns, and the cost of guarantees are all combining to make the return
to profitability a gradual one. That said, insurers have been effective in
cutting their operating expenses by nearly 30 percent from a high of US$ 155
billion in 2007, which helps make the transition to profitability easier and
shows effective leadership under market duress.
DINSHAW:
Expect individual life insurance sales to increase by five to 10 percent. People
will be attracted to guarantees and death benefits. Do not expect premium
financing sales to return. Fixed annuity sales will remain strong as people have
been burned by equities. Some rebound in variable annuity sales but overall
demand will be low. Profits will be challenged primarily due to variable annuity
guarantees and investment portfolios. Investment portfolio challenges (corporate
bonds, commercial mortgages etcetera) will limit capital. Companies will be
trying to build capital by retaining profits.
GOLATO:
Most companies are predicting 2010 sales to remain flat to down compared to
2009. Premium growth and profitability will likely follow that same trend.
Consumers are going back to the basics of life insurance protection, which means
they are looking for low-cost coverage to protect their families. Simplified
issue products are getting a lot of attention in the market and products that
will be strong sellers in 2010 include those with guarantees. Universal and term
life will remain strong sellers. We hope that variable products will return to
favor as the markets recover and we expect whole life to hold steady. In the
last few years, the trend for advisors has been to sell more fixed life products
and fewer variable products. It will be interesting to see how this plays out as
things hopefully continue to stabilize.
MASSEY:
We predict a three to five percent increase in life sales with annuities being
flat after a tremendous increase during 2009. Variable annuity and mutual fund
sales will experience a 20 to 25 percent increase.
MCDONNELL: I expect sales will be up slightly over
2009 due to slow but continued improvements in the economy. Profits will be
hampered by sustained low interest rates and pressure on sales, putting even
greater emphasis on cost controls. We are likely to continue to see lower face
amount policies and a trend to cheaper/lower premium policies such as term
insurance. Other products that look particularly strong are whole life,
guaranteed universal life and indexed universal life. Variable life sales will
continue to lag.
MOLENDORP:
I believe sales will be a challenge in 2010. Lower interest rates will impact
fixed annuity sales, while variable annuities will be stronger but still tied to
guaranteed living benefits. I expect whole life insurance to continue to be
strong, given guarantees. Universal life sales will be flat to down. PPA LTC
asset based products will grow. [Editor’s Note: The Pension Protection Act of
2006 (PPA) extends the Health Insurance Portability and Accountability Act’s
favorable treatment of combination life and long term care policies to
combination annuity and long-term care (LTC) contracts]. I also expect 401(k)
and 403(b) plans to be stronger than 2009. Group life and long-term disability
(LTD) will be challenged with a stronger move toward voluntary benefits. I
expect profits to be somewhat stronger as capital losses diminish and companies
realize gains on previously written-down assets, but returns will remain
depressed as companies hold more capital and carry more debt. Low interest rates
will reduce profitability as spread compression increases. We may also see a
rise in disability claims given persistent unemployment.
PAULI:
While there will be improvement in 2010 in sales, premiums and profits, all
these indicators will still be negative. Each quarter in 2009 has been a bit
better than the one before. However, first quarter results were so horrific, all
of this is simply a matter of degrees of poor performance. Products with
guarantees will be the preferred products. This represents a shift away from
straight accumulation products (e.g. variable annuities). Retiring Baby Boomers
want guaranteed income products including variable and fixed annuities.
Consumers definitely want products that are easy to understand. Complex products
that cannot be detailed in layman’s terms will not sell well.
PEARSON:
Overall, 2009 was a poor year for our industry, particularly for companies
selling large face amount and registered products. Sales were substantially
better for Baltimore Life, however. When times are tough, middle market
consumers are interested in protecting their assets and they value the
guarantees we can provide. I think the industry has now made it past the bottom
of the downturn, and we should soon start to see a move back toward sales
growth. Registered products should improve as the market stabilizes, while fixed
and guaranteed products will continue to do well.
SARSYNSKI:
Prospects for the retirement services industry are definitely improved for 2010
compared to this year, driven by improved equity markets and the resulting
positive impact on assets under management (AUM) and revenue. Cash flow
continues to be positive for the industry and stronger firms will continue to
benefit from the flight to quality. More sponsors will likely switch providers
than over the past two years, which were marked by record low levels of sponsor
turnover. The expected increase is a result of a generally improving business
climate that will cause sponsors to revisit their retirement plan providers and
by increased levels of fee and plan performance benchmarking. Providers who can
help sponsors (along with their advisors) fulfill their fiduciary obligations
and help their participants achieve retirement success will gain from the
increased activity.
SCHIMEL:
Expect average sales and premiums, but good profits, for the industry as a
whole. Sales of products having a death benefit or guaranteed minimum benefit (GMB)
should be strong, as will variable annuities. Sales of universal life, except
certain offers, and fixed annuities will be weak.
WEBER:
I think insurers should expect a "back to the basics" year in 2010.
2009 left a bad taste in everyone’s mouth, and I expect consumers will remain
cautious for the foreseeable future. That points to simpler products like term
insurance, where the coverage is easy to explain and risks are low. In terms of
profitability, results will be mixed. But low expectations for investment
results suggest that carriers need to be more careful than ever about the risks
they write
2. ECONOMIC CLIMATE
How do you
think our indus-
try will be affected in 2010 by the current economic situation? Will there be
consolidation, downsizing or
something else?
CALLAHAN:
Not surprisingly, the economics of 2010 will drive many of the insurer
decisions. Based on a review of nationally available statistics, the relevant
economic indicators for 2010 include the annualized quarterly change in GDP for
2010 remaining under three percent; best-case estimates for unemployment over
eight percent, with pessimistic estimates at 10+ percent; inflation, given high
levels of unemployment, remaining in the low two percent range; home prices
continuing down to flat due to an explicit and a hidden oversupply; rate of
foreclosures rising, indicating there remains significant loan risks; and net
rate of return on general accounts for insurers staying in the +/- six percent
range.
While there will be some degree
of improvement, it is relatively minor compared to the material negative impact
over the last few years, which will draw out the time to recovery. Companies are
benefiting from the recent market turns combined with the expense control and
governance/risk management investments made the last two years, which will carry
over into 2010 and amplify any additional recovery efforts. There is also the
concern that additional losses driven specifically by the direct origination
commercial real estate assets in insurer portfolios will exacerbate investment
performance, increase operational pressure, and potentially even negatively
impact ratings.
An interesting turn in the market
has been the general findings by Moody’s and A.M. Best that the mutual
insurers have ended up being better capitalized as well as more resilient to the
market swings. This despite the governance created by SOX required for publicly
traded companies (but not mutuals) intended to help manage some of the risks of
these last few years. In response, companies worldwide are integrating stronger
practices for managing credit exposures, regulatory capital levels, hedging
techniques, foundational risks (basis, gap, and volatility), and the cost of
specific product features like guarantees. An overall increase in focus on risk
management has been the clear, self selected outcome of the
recent difficulties.
Likely insurance buyer impacts
relevant to insurers due to these factors include a good chance that many
employees will face salary reductions up to 50 percent; the loss of home and
retirement account values forcing people to work longer; lapses by count and by
face remaining at their 10 year (excluding 2002 blip) highs; policy loan levels
and rates remaining a critical factor in portfolio performance; and guarantees
and price points becoming an even greater factor in decision making.
Dealing with these consumer and
market issues will require a great deal of focus, flexibility, and attentiveness
to detail. Companies that have managed to navigate through the market storms
have already shown a proficiency in focusing on risk management and operational
expense demands that will now need to be translated into coordinated product,
investment, and distribution optimization.
There are clearly two other
primary trends that will play a major role, although in different ways, in 2010
and beyond. The first is the globalization of our industry, with particular
attention to the opportunities and competition that exists in China, India, and
Russia to name three of the more recent, and prevalent, markets. Dealing with
national economic issues and international competitors emphasizes the importance
of focus, vision, and mission. Companies will need to divest noncore and/or
nonperforming businesses diligently and without hesitation to free up the
necessary resources. This leads to selective M&A activity that will increase
as some insurers sell lines or segments that other insurers need to gain
geographic or operational economy of scale. This M&A activity will extend
beyond national borders, as large U.S. players continue to selectively expand
internationally, and the international players do the same.
The second trend acts as an
umbrella across all other issues, and is in the realm of regulatory oversight.
There is no doubt that the level of national and state attention will continue
to increase as the intensity of attention turns to transparency, product fee
structure, solvency, suitability, and commissions. Included in this category are
the debates on a national office of insurance, mark to market challenges, the
complex transition to IFRS, the insufficient availability of reinsurance, and
new capitalization demands. Each of these items brings with it additional
challenges that demand care and attention, which translates into a drain on
expert resources that could be optimally utilized helping with organic growth.
Balancing the ability to address these umbrella needs with not exceeding expense
limitations or missing a market opportunity will be the challenge for next year’s
leaders.
DINSHAW:
Tepid economic growth is the forecast. Expect significant downsizing and capital
building. Do not expect acquisitions due to lack of capital.
GOLATO:
Several companies have taken action to improve their own capital position as
opposed to allocating capital to fund acquisition opportunities. Their responses
have been mostly with respect to product price adjustments. We see these trends
continuing with a new focus on distribution efficiency improvements to maximize
sales opportunities and minimize expenses. We also see an increased emphasis on
the role of third party
marketers and aggregators.
MASSEY:
There is still concern for commercial real estate, but we feel there will be
very slow recovery of the economy with little improvement to unemployment rates.
Consolidation may see a small uptick, but 2011 may be the real year of
consolidation. We will be more conservative and cautious with our investments
and product development. Risk awareness and management will drive better
decisions for a strong future.
MCDONNELL:
While I see an economic improvement in 2010, there will be continued
consolidation of distressed companies and downsizing of surviving ones as
companies continue to refine their strategies and divest from businesses that
are underperforming, unsustainable, or distracting from their core competencies.
MOLENDORP:
I think the economy may well move sideways. Our industry is still susceptible to
market shocks. There may be some consolidation, but I think it will happen
gradually. We may well see continued downsizing.
PAULI:
The economic hangover will continue through the end of 2010. The effects will
ease up some by mid-2010 but this simply means that the negative numbers won’t
be as bad as they have been in 2009. Fundamentally, business and personal
financial resilience is gone. Layer uncertainty and distrust on top of that and
it does not portend an easing of the pressure on insurer premiums and new
business acquisition. There will definitely be consolidation as some insurers
merge for survival. Consolidation will also come through carriers moving away
from product lines they are not comfortable with.
PEARSON:
Capital is becoming more available and companies that are under duress will be
looking for partners. This will lead to some additional consolidation throughout
our industry.
SARSYNSKI:
Most strong [retirement plan] providers have adjusted to the economic
environment by concentrating on core competencies and managing expenses. Most
firms have worked to improve their balance sheets and capital positions. The
improving economy, coupled with provider efforts to stay solvent and
cost-efficient, will provide new opportunity for stronger providers to acquire
weaker firms. We expect this to result in a modest increase in consolidation
activity in 2010.
SCHIMEL:
I do see economic improvement during 2010, but the industry will remain
cautious. Europe will be dealing with the impact of Solvency II. The industry
will continue to consolidate.
WEBER:
We are already seeing signs of a broad, though weak, economic recovery. For
carriers that did not have exposure to highly troubled assets, including many of
the regional players, I see this as a year of great opportunity. They can afford
to invest in technology and process optimization and create differentiated
services, even though unit sales in most lines are likely to be flat. In a great
economy over two to three years, everyone can afford to throw money at problems.
But this year we will see meaningful differences in levels
of investment.
3.
TECHNOLOGY
What new
technologies have the greatest potential to help our industry and how can they
help?
CALLAHAN:
The industry is still faced with legacy applications and traditional processing
environments to a great extent, which will make investments in improving
operational effectiveness a continued focus. Despite efforts to the contrary,
the life insurance industry even lags its property/casualty sibling along the
new technology adoption and integration curve. Yet it is important, especially
now with the advent of so many appealing technologies, for companies to put in
place a disciplined portfolio management strategy for handling all technology
and infrastructure investments. This portfolio management structure needs to
provide an effective framework for the evaluation, selection, and implementation
determination of the key projects that will be pursued. Consider it as a
consolidation of RFP, PMO, ROI, and project management practices and tools.
Every investment of scarce technology resources has to pass a rigorous filter
containing all of these components before moving to the next stage.
While there is value in
mentioning how operational effectiveness and service differentiation at the
customer and agent level should remain at the top tier of evaluative criteria
for selecting technology investments, these must be taken in tandem with a good
dose of reality. Now more than ever it is important to emphasize that there is a
difference between appealing, even desired, technology and cost effective,
competitively enhancing solutions. The largest arena for this debate falls in
the Web 2.0/social networking bandwagon that has drawn so much attention, some
of it deserved and some of it less than ideal. A reality filter has to be
applied to any new technology that goes beyond asking customers if they would
"like" being able to chat online or look at a Facebook page. The more
relevant question is to what degree a given solution would influence buying
behavior as well as the tendency for the consumer to recommend the insurer to
someone else (the Net Promoter Score). Many consumers will express interest in a
given system or feature; yet when asked to rank its relevance in determining
where to do business, a question not typically asked, the answer is often
dismaying to the project owner.
DINSHAW:
Automation technologies that reduce expenses or provide faster processing are
important. Therefore, workflow, straight through processing, automated
underwriting and so on will be important.
GOLATO:
Life insurance companies will increasingly leverage technology, such as
iPipeline, as they continue to explore ways to control expenses and optimize
sales and underwriting process efficiencies. This means we’re going to see
more things like electronic delivery of routine customer and agent
communications, Web site enhancements to enable customer and agent self-service,
and enhancements like straight-through processing of life insurance new business
submissions.
MASSEY: The
Internet is still the great unconquered frontier.
MCDONNELL:
Some emerging technology advancements will significantly change our industry.
Virtual communications tools such as Skype can reduce travel expenses and make
remote communications more personal. Wireless technologies will provide the
ability to access tools and capabilities from any location and have the
potential to change the client/producer experience, especially at point of sale
and service. Workforce virtualization will allow firms to recruit beyond their
historical geographic boundaries and could lure diverse talent into our
industry.
MOLENDORP:
Technology that enables straight through processing to reduce administrative
costs and to improve both field and customer experience will become more
critical. New social networking technologies will get a lot of attention but
will only be useful to the extent they support the larger strategy.
PAULI:
The new technologies will be the use of social media for marketing and customer
communications. However, the true business use of social media will take some
time to mature. Internal use of blogs and tweets has already started to be
tested by leading insurers. This will grow in importance and acceptance for the
next three years. The really important technologies are not new as much as
under-utilized. Analytics and models, data management and integration, business
intelligence and business process improvement. All of this is necessary in order
to gain better customer insight and to improve the customer experience. This is
very critical! Better customer insight not only improves customer experience,
but also allows carriers to
improve operational efficiency.
PEARSON:
New technologies have great potential to simplify the buying experience by
offering a shorter enrollment process and faster policy issue. In addition, the
use of social networking Web sites such as Facebook and Twitter shows great
promise in helping us reach out to our clients and prospects. LinkedIn is a
similar tool that will prove useful for agency managers in their recruiting
efforts. Many companies are actively developing new policies to support this
type of communication and advertising platform, and compliance issues regarding
these new tools will need to be thoroughly examined.
SARSYNSKI:
Technology that adds efficiency (and therefore reduces operating costs) will
have the biggest impact on our industry over time as [retirement] plan
fiduciaries increase their level of benchmarking and oversight and ensure the
services they are receiving are in line with the fees paid. Technology that
supports participant self service (nudging participants to wiser decisions on
savings rates and investments) will increase in importance as automated plan
designs continue to gain favor in the marketplace. Finally, technology that
simplifies the process as older plan participants begin to retire and transform
from the asset accumulation phase to the income phase will become increasingly
important.
SCHIMEL:
Smart phones will have an impact for customer relationships.
WEBER:
The current buzz is around mobile technologies, and we think there is some
potential there. But other, more established technologies are still
underutilized. For example, there is still a lack of automation and an
overreliance on paper in our industry. We like business process management
tools, whether they are stand-alone tools or built into core insurance systems,
for that reason.
Another area of immense promise
is analytics. For an industry built around long-term risk management concepts,
it is surprising how much opportunity there is to understand and manage risks
better through application of technology.
4. CUSTOMER SERVICE
How important
is customer service to our industry and how can it be improved?
CALLAHAN:
Earlier this year, Nolan put together a special report (and Webinar) on The New
Era of Service Differentiation. The gist of the report was to emphasize how the
delivery of customer service—where, when, and how the customer wants it—is
becoming the primary source of sustained competitive differentiation. In other
words, customer focus will be the foundation of future growth, particularly as
the market becomes more segmented and demanding. This strategic shift toward
service as a differentiator is based upon expectations for high service being
driven from outside the industry; the increasingly commoditized nature of
insurance products as products converge; and increased competition and tight
economics putting more pressure on margins and price.
As a result, service is
critically important as the differentiator in our industry whether you define
your customer as the end consumer/insured or the distribution channel/agent—by
the way, the answer is both.
Consider that even now, as we
recognize that many are being forced to work longer, we are faced with five
generations of insureds and even distributors. Each has a unique value system
and a preferred method of doing business, in general moving along the continuum
from low tech/high touch to high tech/low touch: GI, at 20 million; Swing, at 28
million; Boomer, at 78 million; Gen X, at 50 million; and Gen Y (Millennial), at
72 million.
In order for companies to address
this continuum effectively, there are several strategic implications. The first
and foremost is an ability to clearly identify these segments, including
subdividing them further based upon behavioral attributes, demographic
characteristics, and current company relationship information (tenure, products
purchased, premium payment patterns, and so on). For this, improved data mining
and modeling practices and tools are foundational. The second equally important
strategic implication is the ability to translate the identified segments into
either a market niche oriented strategy, focusing platforms and services on
customers that best fit a well-defined portion of the overall market, or a
broadscale approach intended to address the full range of customer needs.
The niche strategy allows a lower
cost structure, greater flexibility, and quicker speed of adaption, yet is
limited by breadth of opportunity. For the broader approach, optimal flexibility
within an effective cost structure that is able to address the diverse demand
for customer-driven service—in person, by phone, by the Web, by mobile device,
by mail—is required. Achieving this environment will require process,
technological, and human resource changes built upon flexibility, fast adoption
curves, and a modularized approach to products and services. Regardless of the
strategy selected, a balanced focus on the services that are table stakes for
any given segment with those that generate a competitive advantage must be
maintained, while avoiding the temptation to invest in services or features that
have "curbside appeal" but no comparative advantage.
DINSHAW:
Customer service between agents and clients is very important. From a company
perspective, solid, courteous service is a necessity. Service improvements
involve correct and consistent answers in a reasonable timeframe.
GOLATO:
Customers will become even more savvy and demand more customer-focused service
from their life insurance companies. Providing an outstanding customer
experience, from the sales process through any servicing issues, will be the new
way companies differentiate rather than on a price basis. Successful life
insurance companies—and more importantly, the financial professionals who sell
life products—that have a strong customer focus and who can identify and
respond to the unique need of each customer will be able to maintain customer
loyalty and generate more referrals enabling them to grow their business.
MASSEY: Our
industry is only about two things: sales and service. Service can be improved by
listening to the consumer. We must interact and communicate with them when and
where they want.
MCDONNELL:
Customer service is more important now, given the complexity of the products
developed and sold over the past few years. We need to provide clients with
faster, more insightful and engaging information to help them meet their
financial and protection needs. And because of marketplace clutter, this
information must be presented in a clear and concise manner. Technology will
continue to play a large role for producers to serve their clients (e.g.
electronic applications, Web-based underwriting capabilities, data mining and
client relationship management).
MOLENDORP:
Service is very important and needs to be considered through the entire customer
experience. To improve service, we must improve the advice model, invest in rep
training, improve administrative processes/speed to delivery, and improve access
to data/customer
information consolidation.
PAULI:
Customer service is what the whole industry is about. The above statement about
improving the customer experience holds true for this question. Customers need
to get service on their own terms, 7 by 24 by 365. And they need to have their
questions and concerns addressed in one contact, not playing telephone tag. They
also need to get service via their chosen method—it could be phone one day,
Internet the next and face-to-face with an advisor the day after that. The
experience needs to be uniform across all service points. These are all
challenging issues.
PEARSON:
Customers want and deserve individual treatment and attention, and we must
strive to make customer contact as personal and seamless as possible through all
levels of our organization. Leveraging technology is an ideal way to achieve
this goal. Offering convenient customer service Web sites with real-time chat
options can provide personal attention to online customers.
SARSYNSKI:
Service is probably the largest contributor to long-term success in the
[retirement plan] market. Service is the primary reason plan sponsors switch
from one retirement services provider to another. It is far more economical to
keep an existing customer than to acquire a new one. Firms that are achieving
positive net cash flow in the retirement industry are generally doing so by
meeting both their sales and retention goals and both of those are dependent on
providing excellent service. Service for the industry needs to improve in the
area of helping individuals prepare for retirement and transition from the
accumulation phase to the income phase. The retirement services industry is
currently only retaining about 10 percent of assets as participants make that
transition. Greater provider involvement in helping participants (directly or
through an advisor) in that transition is a need that once met, will result in
better prepared participants and improved provider retention rates.
SCHIMEL: Very
important as customers grow weary of poor service. While the quality of Web
services is a big thing, it’s still important to answer phone calls and keep
delays normal.
WEBER:
Historically the insurance industry has not had a great reputation for service,
but I think that is changing. There are now great examples of insurers who
consistently take care of their customers and provide the tools that agents and
customers need. The driver behind this change is an understanding that insurance
consumers are also consumers of many other types of products and services. They
know what good service entails, and they expect it from their insurer the same
way they expect it from retailers, utilities, and other types of service firms.
Borrowing the best ideas from other industries is always a good idea. And taking
the time to ask our customers what they really want is also critical.
5.
PROFITABILITY
How can our
industry increase its profitability over the long term?
CALLAHAN:
To increase industry profitability, there must be a recognition of the
structural changes that are occurring and their implications, which includes a
realization that past strategies and historical practices are unlikely to fit
with the new complexities of a globally competitive marketplace. As previously
stated, companies must focus on more flexible operational environments that are
able to individualize products and service delivery to an increasingly segmented
marketplace. Compressed margins combined with a shorter product lifecycle and
less ability to derive plan based advantages require the discipline of focused
strategies.
Achieving this focus requires the
reintroduction and institutionalization of the rigors of true multi-year
strategic planning a là Michael Porter. There is an increasing need for both
innovation and foundational change, including investments in a staged
replacement of traditional systems with modularized and more efficient
technologies combined with a stronger focus on rightsourcing non-advantageous
functions and services. With service as the driver, talent management reaches
the forefront of strategic consideration as up and coming generations attempt to
fill the void of retiring experts. The generational differences in the mix of
employees brings new challenges for training, tools, schedules, remote
operations, and self-directed teams combined with new benefit and compensation
systems that cover the complex needs of an increasingly diverse workforce.
In addition, the concept of
virtualized operations is both a necessity and practical, with global
competitors basing their ability to enter a market—our market—around this
approach in order to minimize fixed costs while maximizing flexibility. We must
be willing to transition toward that model, rethinking long-established
paradigms in order to meet market demands for innovation, speed to market,
flexibility, efficiency, modularized products, and differentiated service. These
will all be required to succeed in the fast approaching service based global
insurance industry.
DINSHAW:
Life insurance and annuities are necessary in most financial plans. Our product
is in demand. We need to reduce expenses (including distribution costs), invest
conservatively and price wisely. Loss leader products, aggressive investing and
bloated expenses have reduced overall profitability and capital levels.
GOLATO:
Overall operational simplicity, coupled with sensible pricing, will drive the
efficiency. Technology will continue to play a big part in improving
profitability, especially if more can be done in the area of underwriting. For
example, there are several technology-based tools available that ensure the
paramed process happens quicker, with fewer errors and while also being
cost-effective. And we’ve only just scratched the surface of what’s possible
in the future.
MASSEY:
Improve consumer trust and quit basing our future on low cost, low margin
products.
MCDONNELL:
Companies will be under pressure to raise prices on certain features such as UL
with secondary guarantees and variable annuities with living benefits. Creative
solutions, which allowed current pricing levels, are no longer viable. The
industry also needs to continue to invest in technology, toward straight-through
processing and greater operational efficiencies. Again, companies will need to
revisit their strategies on a consistent basis and divest from businesses that
are underperforming, unsustainable, or distracting from core competencies. More
"narrow and deep" business models will emerge.
MOLENDORP:
Improved distribution productivity and administrative efficiency will help, but
will be partly offset by the cost of increasing risk management, accounting,
compliance and actuarial talent demands.
PAULI:
Data and analytics that provide experienced, qualified workers with the
information they need to make decisions.
PEARSON:
Currently, there are vast unmet needs in the retirement market and the
underinsured middle market. We need to work harder to create products and
practices that will enable us to reach these segments. The trend toward industry
consolidation will also likely result in improved profitability in the coming
years. We must continue to use technology to enable more cost-effective
operations. Finally, in an industry where the average age of an agent is 56, it’s
important for all companies to look for both traditional and non-traditional
methods to
grow distribution.
SARSYNSKI:
There are just under 140 million working Americans, 71 million have access to a
retirement plan and 55 million participate. Only 13 percent are confident they
will have enough money for a comfortable retirement. We can improve the state of
the retirement system and ultimately our industry’s profitability by
concentrating on getting participation and savings rates increased, getting
participants into more appropriate investments while they accumulate and helping
them achieve their in-retirement needs.
SCHIMEL:
Offer more protection (death, disability and long-term care). Pass on to
customers capital constraints. Place value on advice and quality.WEBER:
There are two elements to profitability. The first is
improving the risks we write and how we price for those risks. The second is
improving operational efficiency. I think we have been cranking up our process
efficiency as an industry for a long time. The problem is that a five or 10
percent improvement, while good, is probably not aiming high enough. For almost
every process, I think insurers should be aiming for mid-double-digit
improvements in cost.
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