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Presentation provided to several life insurance companies on the major trends and economic factors influencing the life insurance industry.
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Industry Overview:Trends and Strategies
Prepared For:
Life Insurance Industry
Prepared By:
Steve CallahanPractice Development Director
R. E. Nolan Company, Inc.August 2008
© Robert E. Nolan Company, Inc. www.renolan.com Page 2
Industry Overview: Trends and Strategies
Topics§ Key Economic Trends..………………………………………. 3§ Industry Trends………………………………………………... 11§ Market…………………….……………………………………. 19§ Customers………..……………………………………………. 32§ Products………………………….…………………………….. 40§ Distribution……………………..………………………………. 59§ Technology………………………….………………………….. 66§ Summary…………………………….…………………………. 73
© Robert E. Nolan Company, Inc. www.renolan.com
Real GDP Growth,* 2000-2009F
*Yellow bars are Forecasts.Source: Blue Chip Economic Indicators, Vol. 33, No 3 (March 10, 2008), pp. 2-3.
Slow economic growth is forecast for 2008Recession
then Recovery?
© Robert E. Nolan Company, Inc. www.renolan.com
Inflation Rate (CPI-U, %) 1990 – 2009F
*12-month change March 2008 vs. March 2007 Sources: US Bureau of Labor Statistics (historical rates); Blue Chip Economic Indicators, Mar. 10, 2008 (forecasts); Ins. Info. Institute.
Inflation:• 2.2% in 2007 • Accelerating to 4.0% in 2008 • Likely decline to 2.4% in 2009
© Robert E. Nolan Company, Inc. www.renolan.com
U.S. Unemployment Rate: Recent Quarterly History and Forecast
Sources: Blue Chip Economic Indicators (3/07 and 3/08); Insurance Info. Inst.
Rising unemployment:• increase the policy lapse rate • Make new sales more difficult• Show value of flexible life policies
© Robert E. Nolan Company, Inc. www.renolan.com
The Most Recent Five Years of the S&P 500
** **
**
********
Want more control over the chart? Try our Interactive Chart.
© Robert E. Nolan Company, Inc. www.renolan.com
The Stock Market Became Much More Volatile Nearly 10 Months Ago
‘07 ‘08
© Robert E. Nolan Company, Inc. www.renolan.com
Annual Average Interest Rate of 10-Year U.S. Treasury Note Since 1980
*As of April 18, 2008, from http://www.bloomberg.com/markets/rates/index.htmlSource: http://federalreserve.gov/releases/h15/data/Annual/H15_TCMNOM_Y10.txt
© Robert E. Nolan Company, Inc. www.renolan.com
ROE: L/H vs. P/C vs. Fortune 500 In low double digits, subject to CATs
Source: Insurance Information Institute; Fortune. 2007 insurer data are for stock insurers only.
L/H and P/CROE Crossovers
© Robert E. Nolan Company, Inc. www.renolan.com
L/H Industry NI & NWP 1998-2007
Source: NAIC Annual Statements, p.4, line 35, from National Underwriter Highline Data.
$18.0 $20.9 $22.2
$9.8$4.1
$26.6$32.2
$35.9 $36.2$32.0269.9 272.6
303.4
479.1508.6 500.2
531.2 528.1583.6
616.7
$0
$100
$200
$300
$400
$500
$600
$700
$0
$10
$20
$30
$40
$50
$60
$70
$80
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007L/H Net Income L/H Net Written Premiums
SurrendersDisabilityExpenses
© Robert E. Nolan Company, Inc. www.renolan.com
Annuities
Page 13
Direct Premium Trends, 1995-2007
NAIC changed its definition of group annuity premiums
Life
A&H
© Robert E. Nolan Company, Inc. www.renolan.com
Ordinary Life Insurance Lapse Rates1996-2006
Sources: NAIC Annual Statements, p. 26 line 15, from National Underwriter Highline Data.
Was the spike recession related?
© Robert E. Nolan Company, Inc. www.renolan.com
Quarterly Change vs. Same Quarter Prior Year Individual Life Applications, 1999-2007
Source: MIB Life Index, Annual Reports for 2001, 2002, and 2003, plus monthly releases
9/11 effect
“XXX” regulation
21 straight quarters of fewer applications than the year-earlier quarter; down again so far in 2008
© Robert E. Nolan Company, Inc. www.renolan.com
Individual Life Product Trends Since 1976
Source: LIMRA. *LIMRA’s annualized premium calculation includes 10% of single premiums but excludes (a) excess (dump-in) premiums on universal and variable universal life plans and (b) large-case corporate-owned life insurance.
Product Market Share, by Annualized Premium*
Rise in UL market share: • STOLI? • “No lapse” guarantees? • Indexed UL?
Term would be more if premiums
hadn’t come down so
much
© Robert E. Nolan Company, Inc. www.renolan.com
Term Life Insurance Rates
Source: Accuquote; Insurance Information Institute Forecast for 2008.
On average in 2008, premium rates for term life insurance are expected
to fall 1% from rates in 2007
$500,000 20-year level term for 40-year-old male nonsmoker
© Robert E. Nolan Company, Inc. www.renolan.com
Individual Annuity Sales, 1999-2007
$122.0$137.0
$111.0$117.0
$129.0$133.0
$137.0
$160.6$184.2$42.0
$53.0$74.0
$103.0$89.0
$88.0$80.0
$75.6$72.8
$0$25$50$75
$100$125$150$175$200$225$250$275
1999 2000 2001 2002 2003 2004 2005 2006 2007
Variable Fixed
Source: LIMRA International, as reported in National Underwriter, L&H, March 24, 2008, p. 8.
Fixed annuity fading
$ Billions
Variable sales:• 2006 +17%. • 2007 +15% vs ‘06
© Robert E. Nolan Company, Inc. www.renolan.com
Key Market Trends§ Boomers starting to cash in their retirement driving higher demand for
asset management / payout products– Significant shift from accumulation to decumulation
§ Graying of America driving need for more retirement oriented products– Decreases in death rates should make life insurance cheaper, annuities
more valuable§ Increased ethnic diversity of markets
– More than a quarter of the U.S. population Hispanic or Asian by 2020§ Worksite market undergoing increased opportunities
– Poorly served market with dynamic change impacted by aging workforce§ Continued consolidation of small to medium sized companies
– Searching for economies of scale and expanded market share§ Global expansion continues at an accelerated rate
– Particularly in underdeveloped markets like China and India
© Robert E. Nolan Company, Inc. www.renolan.com Page 21
Industry moving to decumulation stage
© Robert E. Nolan Company, Inc. www.renolan.com Page 22
§ The most significant growth opportunity is the aging population– A global opportunity that exists across all of the developed countries
§ By 2010 the size of the market opportunity will be significant– There will be some 78 million people over age 60 in U.S. alone
§ Retirement of these “baby boomers” will shift invested assets– Funds will be redirected to retirement income purposes– Over $30 trillion in total expected to shift in the U.S. alone by 2010– Shift results in a move from accumulation to decumulation, or “payout”
§ Insurance companies have products positioned to meet payout needs– Diverse line of options: variable annuities, life, long term care– Backed by actuarial and modeling skills able to develop new products
§ This market shift could represent the biggest period of growth ever seen– Competition is high: banks, securities firms, asset management companies
• Advisors indicated 65% would solve with mutual funds, only 26% with annuities– To win, insurers must offer client focused solutions, not products
Aging Market Key Source of Organic Growth
© Robert E. Nolan Company, Inc. www.renolan.com Page 23
Populationshifting toolder ages
© Robert E. Nolan Company, Inc. www.renolan.com
Retirement Savings Goals - Progress by Age
Source: MetLife Employee Benefits Trends Study (2006)
62% 61% 48%Haven’t started, significantly or somewhat behind
© Robert E. Nolan Company, Inc. www.renolan.com Page 25
Coming from the retiring generations
© Robert E. Nolan Company, Inc. www.renolan.com Page 26
© Robert E. Nolan Company, Inc. www.renolan.com Page 27
Significant growth in Hispanic population bringingservice and operations challenges
Doubling
© Robert E. Nolan Company, Inc. www.renolan.com Page 28
§ Rapid growth in demand for segment aware products – Products meeting Hispanics and Asians specific needs growing in importance– As market size grows, product and service voice will grow as well
§ Tremendously underserved market currently addressed casually– Translation of existing materials into native languages does not meet the
unique cultural needs of the different markets
§ Increasing notice by large carriers attempting to address the market– Recruiting of agents directly from the markets to be served– Innovative product designs taking into account culturally unique needs– Service centers staffed by individuals from within the different cultures
§ All carriers should be aware of the demographic changes in their markets– What is rate of change for key market areas – How is agent force composition aligned with their local market changes– What changes in product, sales, and service are needed to match changes
Ethnic Markets Bring New Opportunities
© Robert E. Nolan Company, Inc. www.renolan.com Page 29
© Robert E. Nolan Company, Inc. www.renolan.com Page 30
Mergers and Acquisitions Will ContinueSigns point to a very strong mergers & acquisitions trend that started 2007§ Over ½ polled insurance executives (56%) expect to pursue an M&A§ Large mergers and acquisitions are pressuring mid-size firms
– Likely to see consolidations among mid size firms§ Creates a balance to the complexity of innovation and organic growth§ For some, it is more cost effective to acquire existing in-force than build up
Of those pursuing mergers and acquisitions (56%), the primary goals are:§ Achieve economies of scale and expense efficiencies (36%)§ Enter new markets via products, customers or geography (10%),§ Acquire new distribution channels (6%), and§ Enhance operational capabilities (4%).
Others are divesting themselves to focus on core businesses§ Broader financial services firms exiting small life insurance operations
Which segment of the industry appeals most to insurance executives§ Life (23%), P&C (17%), Agencies/brokers (14%), Reinsurers (7%), Health (6%).
© Robert E. Nolan Company, Inc. www.renolan.com Page 31
Globalization Key Source of Organic Growth§ International expansions underway
– Emerging markets where local economies growing or people underserved– Korea and Japan represent the first and second largest markets
§ Significant attention on China, Asia’s third largest insurance market– China will become world’s leading source of insurance premiums w/i 10 yrs– Chinese regulators have recently licensed a number insurers as “Pension
Companies” to serve their dramatically growing retirement market
§ Taiwan has developed a new system of retirement savings– Allows major insurance companies to establish pension plans
§ India is also attracting attention, even though market is relatively small– Most analysts expect their market will grow at 15% a year– Current growth rate in Europe, by comparison, is 5.5% a year
§ Non emerging markets also under consideration as sources of growth– Mexico, Turkey and Russia are being considered as growth opportunities– Almost every country is conceptually a target for some company’s products
© Robert E. Nolan Company, Inc. www.renolan.com Page 33
Consumer Satisfaction Trends Down for L&A
Life satisfaction dropped ’03 - ‘06
Health remainssignificantly lowerand has also dropped
© Robert E. Nolan Company, Inc. www.renolan.com Page 34
Life and Annuity Satisfaction Levels
© Robert E. Nolan Company, Inc. www.renolan.com Page 35
Over a 50% drop in lapse rate based on satisfaction
Customer Satisfaction Linked to Lapse Rate
© Robert E. Nolan Company, Inc. www.renolan.com Page 36
Satisfaction Level by Type of ServiceSomewhatSatisfiedSatisfied
Not At AllSatisfied
Very Satisfied
Never UsedNo Response
In person still most preferred
IVR’s not well liked
© Robert E. Nolan Company, Inc. www.renolan.com Page 37
Consumer’s Preferred Service Method
Has technology improved customer service significantly in last 5 years?20062005
Preference when short on time
Method used
Over 60% Somewhat to Strongly Disagree last 2 years
Phone still preferred service method
© Robert E. Nolan Company, Inc. www.renolan.com Page 38
Most Important Aspect of Customer Satisfaction
2005 2006
One stop shopping, or all problems solved in one call, greatest source of satisfaction
© Robert E. Nolan Company, Inc. www.renolan.com Page 39
Source of Customer Service Frustration
Despite outsourcing, accents and language issues lowest in source of frustrations
Wait time & first call resolution, or once and done, greatest source of service frustrations
2005 2006
© Robert E. Nolan Company, Inc. www.renolan.com Page 41
Product Development Trends§ Product Simplification to offset complexity introduced by innovation
– Improved clarity and simplification of readability– Design simplicity reducing complexities and improving understanding– Assured suitability of the insurance products for the clients
§ Regulation driven changes – Commission disclosures and replacement scrutiny– Suitability requirements– Anti money laundering (AML) in conjunction with growth in privacy laws
§ Underwriting use of genetic testing– Costs? Allowable? Public policy? – Moral and legal obligation to share results with applicant?
§ Terrorism, Natural Disasters and Pandemics (like the Avian flu)– Is the industry ready? Is there adequate capacity?
• According to recent studies and analysis, the answer appears to be yes
© Robert E. Nolan Company, Inc. www.renolan.com Page 42
© Robert E. Nolan Company, Inc. www.renolan.com Page 43
Primary Source of New Product Failure
ProductComplexity
Insufficientcompensation
UncompetitivePricing
Unappealingfeatures andbenefits
Too slowto market
Top reasonfor failureWhat attributes do successful
companies have?1. A disciplined approach to the
sourcing, evaluation and translation of ideas into product design, implementation and rollout.
2. A well thought out, well documented and well understood, repeatable product development process
3. A clear and unrelenting focus on understanding the needs of their distributors and customers
© Robert E. Nolan Company, Inc. www.renolan.com
Market Share by Product Line
Page 44
UL‘05 ‘06 ‘07
VL‘05 ‘06 ‘07
VUL‘05 ‘06 ‘07
Term‘05 ‘06 ‘07
Whole Life‘05 ‘06 ‘07
© Robert E. Nolan Company, Inc. www.renolan.com Page 45
Term and UL Sales to Individuals 65+
ULBILLIONS
© Robert E. Nolan Company, Inc. www.renolan.com
Growth Rate by Life Product Type 2007
Page 46
Versions of UL are the fastestgrowing product
© Robert E. Nolan Company, Inc. www.renolan.com
Distribution of UL Sales by Structure
Page 47
© Robert E. Nolan Company, Inc. www.renolan.com
Distribution of VUL Sales by Structure
Page 48
© Robert E. Nolan Company, Inc. www.renolan.com Page 49
Typical Shelf Life by Product
Average time to market on a new product is 10-13 months• Start building next version right after each introduction
© Robert E. Nolan Company, Inc. www.renolan.com
Product Development Progress by Structure
Page 50
Maintenance ModeHopeful Star
Growth Mode
Maturing
Unproven
© Robert E. Nolan Company, Inc. www.renolan.com
Indexed UL - The Hopeful Star
Page 51
Sales went from $65M in 1998 to $512 in 2007 (10 years)• Sales doubled 2003 to 2005 after no-lapse guarantee introduced• Fastest growing product in the UL portfolio, over 1/3 of market share
Only 25 to 30 carriers in the market, yet not a registered product• Top 5 hold 75% of the market sharev Aviva (38%), AEGON & National Life (11%), AIG & Allianz (8%)
• Top 10 hold 97.5% of the market sharev Old Mutual, Pacific Life & Midland (5%), Conseco & Lafayette (2½%)
• Last quarter fastest growersv National Life (33%), AIG( 21%), and AVIVA (19%)
Despite success, still less than 10% of total UL sales• Average issue age is in the mid-60’s• Lots of optional “riders”
© Robert E. Nolan Company, Inc. www.renolan.com
UL Enhancements – The Proven Winner
Page 52
• Sales remain strong and market share is approaching 50%• 46% of UL’s market share is UL with Secondary Guarantees (ULSG)
• Product development efforts include• 2001 CSO by 1/1/09, with 30% done beginning of 2008 vs 25% in 2006
v Moving very slow, biggest product development focus in 2008• No lapse guarantees
v Some companies countering by offering low cost term without guarantees• Riders remain an area for innovation
• Most popular area of UL development is combination products• Pension Protection Act of 2006 has opened door of opportunity• UL / LTC where the LTC coverage is in the UL premium• UL / LTC where LTC is accelerated death benefit with rider charge• UL / CI bundling where the critical illness is paid in a lump sum• UL / DI combo to provide mortgage protection, compete with term
© Robert E. Nolan Company, Inc. www.renolan.com
Sample of Common UL Riders & Features
Page 53
Disability Waiver Premium / Monthly Deductions
Accelerated Benefits with Critical Illness Waiver of Surrender ChargesAccidental Death Guaranteed InsurabilityGuaranteed Value Children’s TermLTC Rider/Nursing Home Salary IncreaseLiving Needs Benefit Charitable Giving BenefitEstate Tax Repeal Life Paid-UpCaring for Today Benefit Additional InsuranceSupplemental Term Return of PremiumGuaranteed Survivor Protected Pour-InCost of Living Increase Change of InsuredAlternative Cash Value Overloan ProtectionLiquidity Rider Maturity Extension
© Robert E. Nolan Company, Inc. www.renolan.com
Variable Product Trends – A Mixed Bag
Page 54
• Variable Life• Sales up 7% in 2007
v Largest growth is in brokerage channel, other channels flat to slightly ahead• Product Development two-pronged
v Providing more fund alternatives to choose from (consumer choice key)v Guaranteed Benefits (GMIB, GMWB, GMAB, etc.)
• Variable Universal Life undergoing investment in product features• Cash Accumulation VUL largest segment of VUL market• Adding in UL style death benefit guarantees (GMWB & GMAB)• Incorporating variable annuity style product features• Creating portfolio structured investments – Lifestyle and Lifecycle• Overloan protection riders
• Variable Annuities grew 15% in 2007 to over $184 billion• 2007 Q4 to 2006 Q4 showed a 17% jump, reaching $48.2 billion• 10th consecutive increase in current year versus prior year same quarter
© Robert E. Nolan Company, Inc. www.renolan.com
Traditional Products – Stable Returns
Page 55
• Whole life• Sales relatively flat, growing only 3% in 2007• Agency and direct marketing channels source of growth• All other channels declined
• Term Life• Sales up 5% in 2007 based on annualized premium, 6% based on face• Term still represents 20% of the life insurance market• Traditional term a staple for agents – price first, then ratings & service• Most popular areas of Term development is in simplification
v Simplified Issue termv Dial-a-term (adjustable term face based on changing needs)v Riders
• Return Of Premium (ROP) term becoming very popularv More and more companies entering this market due to simple conceptv Price for lapse rates, state hurdles, reserve & 7702 issues, interstate compact
© Robert E. Nolan Company, Inc. www.renolan.com
Individual Annuity Sales by Channel in 2007
Source: LIMRA International, as reported in National Underwriter, L&H, March 24, 2008, p. 41.
Many PPGAs and bank agents are not licensed to
sell variable products.
$ Billions
© Robert E. Nolan Company, Inc. www.renolan.com
Life Settlements a New Wildcard§ Life Settlements represent a secondary market for life insurance
policies that allow insureds to cash-in while still alive§ About 60% of top insurance executives expect the secondary market
for life insurance to be significantly larger in 5 years than it is today– About 33% moderately larger; 2%, about the same size; and 5%, smaller
§ About 52% said they would root life settlements out, and 12% said they would let it occur but would want to see them rooted out
– The other 36% said they would want to participate in a growing market§ Life Settlements are not STOLI (Stranger Owned Life Insurance)
– Some say the effort to equate Life Settlements and STOLI is really a desire to stop the Life Settlement business.
§ Life Settlements will grow rapidly for a few years, then consolidate as volume stabilizes.
– One well-known private equity fund is using trusts to make $250 million in life settlements per month
Page 57
© Robert E. Nolan Company, Inc. www.renolan.com Page 58
Voluntary Worksite Product Growth Accelerating
Increasing growth rate
Life and Disability largest segments
© Robert E. Nolan Company, Inc. www.renolan.com Page 60
Changes in Life Insurance Distribution§ Decline in full-time affiliated agents (LIMRA estimates)
– In 1989: about 262,000 – In 2001: about 178,000 <-84,000> <-32%>– In 2004: about 160,000 <-18,000> <-10%>
§ More than ¾ of independent agents began careers as affiliated agents– A drop in affiliated agents represents a future drop in independent agents
§ Stockbrokers and banks wrote – About 40% of new individual annuity premium – Less than 10% of new individual life premium
§ Insurers are currently working to design products for banks and brokers– Target is wirehouses and bank reps– Examples include simplified issue, guaranteed issue and single premium
§ Growth in alternative channels needs to match decline in primary agents– Failure to grow channels will result in a drop in sales over time
© Robert E. Nolan Company, Inc. www.renolan.com
Channel Market Share 1983-2006
Page 61
• Growth in independent agents• Flattening decline in career• Slight downturn in “other”
© Robert E. Nolan Company, Inc. www.renolan.com Page 62
Agents are Source of Competitive Advantage
Implication is clear:Agent/broker service is clear differentiator and a competitive advantage, more than price.
© Robert E. Nolan Company, Inc. www.renolan.com Page 63
Traditional Touchpoints Remain Key to Field
Service and supportremain more important than commissions
© Robert E. Nolan Company, Inc. www.renolan.com Page 64
Web Tools Table Stakes for Channel Growth
© Robert E. Nolan Company, Inc. www.renolan.com Page 65
Quoting and Managing Client Relationships
© Robert E. Nolan Company, Inc. www.renolan.com Page 67
Investments: Internet, Analytics, Admin
The Top 3 Investments1. Agent Portals2. Actuarial / Analytics3. Admin System
© Robert E. Nolan Company, Inc. www.renolan.com Page 68
Influence of the Internet§ Internet has become an increasingly important communication channel
– Most consumers’ purchasing process is “Web Influenced”– Search engines like Google and Yahoo! are critical channels for insurers – More insurers are embracing search engine optimization
§ The college-bound “Millennial” generation born between 1982 and 2000– Represent the next mass affluent group. – Financial institutions will need new marketing approaches to reach them– Companies will have to invest heavily in mobile and web channels
§ Pure online sales are growing, but still account for less than 15% – “While 100% online sales are unlikely to exceed 30% in any area, the Web
will be a major influencer for nearly all sales within five years,”
§ Agent’s use of and dependence on the internet has grown tremendously– 90% have the ability to download product forms, illustrations, and materials– 80% can get pending business, client values, and commission information – 50% use e–signatures and e–applications.
© Robert E. Nolan Company, Inc. www.renolan.com Page 69
Increased Use of Predictive Analytics§ Brings greater precision to pricing and risk assessment
– Data mining paired with sophisticated algorithms find patterns and trends.– Trends are used to forecast future behaviors and events.– Subjective judgment is replaced by statistically sound empirical data.– From basic demographics to behavioral factors like finances or commute time
§ Understanding and targeting specific customer needs by– Enhancing the understanding and targeting of microsegments of the market
• Customized, one-to-one customer centric approach to service– Retaining existing customers through elasticity of services and support.
§ Strengthening distribution– Match selling methods and needs of multiple channels (Know your agents)– Better identify, assess, understand, and serve clients (Know your clients)– Leverage web portals to allow distributors to use (Enable your agents)
© Robert E. Nolan Company, Inc. www.renolan.com Page 70
Policy Admin System Sales Continue
AdminServer and Accenture best in class
© Robert E. Nolan Company, Inc. www.renolan.com Page 71
Still, Legacy Systems Remain In Place§ Some technologies are making it easier to revitalize legacy systems
– Further slowing the pace of change in the industry– SOA, Web services, and other technologies make it more plausible
§ Wrapping and extending legacy systems remains a viable option– It is not going to become unpopular anytime soon – Carriers need to realize is that they’re mortgaging their futures doing this– These technologies carry a higher total cost of ownership in the long term
§ Advances have expanded viability, usefulness and accessibility by– Enabling processing of significantly larger volumes of data,– Increasing capacity for handling a wider variety of variables
• From basic demographics to behavioral factors like finances or commute time– Enhancing precision of forecasts providing deeper operational insights.
© Robert E. Nolan Company, Inc. www.renolan.com Page 72
Financial Services Offshoring§ Well established and accepted by most as a competitive necessity
– Some still wait on the sidelines, unwilling or unable to get started
§ For those who have offshored for several years, fatigue is setting in– Slowing growth and drop-offs in savings levels and quality
§ The development of financial services offshoring at an inflection point– Winners and losers will now be determined rapidly in competitive industry – Immediate challenges depend on size, experience, and offshoring maturity
§ Major players need to be offshoring at a much greater scale and soon– Must institutionalize their offshoring operations while managing them well – Embed best practices into their organization’s culture– Focus on aggressively expanding scope and head count– Continue to streamline their systems and processes
§ Those new to offshoring have chance to adopt emerging best practices– No time to waste: Offshoring is maturing rapidly – Companies slow to act may expose themselves to undue competitive risks.
© Robert E. Nolan Company, Inc. www.renolan.com Page 74
Four Major Trends in Insurance§ Active and informed consumers will drive competition
– Expectations of service and convenience will rise, in part due to technology– Nontraditional operators will be rewarded for excelling at service– Customer centric service and convenience will drive competition
§ Technology will virtualize the value chain and lower barriers to entry– Web based insurance service components allow modularizing value chain– Barriers to entry fall as companies enter the market by assembling modules– There will be numerous virtual companies comprised solely of web services
§ Products will be dynamic and provide consistent performance– Global market will require products to be flexible and able to adapt– Near realtime underwriting interaction will be available via sensor networks– Enlightened privacy regulations will facilitate while still protecting
§ Industry standards will be affirmed globally with coordinated regulations– Consumer and business protection will become geographically independent– Automation driven efficiency will lead to industry standardizations
© Robert E. Nolan Company, Inc. www.renolan.com Page 75
Industry Implications§ Market Demographics Impact : Aging and Ethnicity
– Aging shift of funds from accumulation to decumulation products– Operational impacts of serving ethnically diverse cultures
§ Mergers and Acquisitions– Consolidations of operations– Closed block sales– New market entries
§ Increased regulations– Demands for more predictive reporting and analytical systems– Greater controls over processes with audits and systematized standards
§ Product shifts– Annuities, settlements, and investment related products on rise– Payout stage brings demands for annuitization and financial management
© Robert E. Nolan Company, Inc. www.renolan.com Page 76
Strategic Initiatives to Address Trends§ Technology Enabled Distribution
– Services key, portals and automation continue
§ Differentiation based on Service– Consolidations, integrations, optimizations to drive expense margins– Enhanced focus on customer centric service delivery– Continued expansion of web based services
§ Increased, but Targeted, Investments in Technology– Analytical tools usage for risk management, marketing and sales will grow– BPM and SOA will become game changers– New systems implementations continue while legacy systems persist– Portals, automation, and e-services
§ Discrete and Selective Use of Outsourcing– Selective outsourcing for economies of scale a critical competitive edge– Insourcing and onshoring opportunities will grow for core operations areas
Robert E. Nolan Company
Helping Insurers Solve Business Challenges Through People, Process, and TechnologyFor Over 30 Years
Industry Update:Life and Annuities