Article

strategic priorities persist

By Steve Callahan
Practice Development Director

The Life & Annuity industry has faced tremendous pressure over the past year, with economic and regulatory forces coming to bear to a degree not felt since the advent of universal life in the early '80s. Low to non-existent investment returns and immaterial interest rates, product guarantees that have kicked in unexpectedly, and capital drains have all combined to compress profit margins into, for many, material net losses. The unfortunate reality facing many in the financial roles of responsibility is a combination of the unpredictable and uncontrollable nature of these changes.

Not surprisingly, consumers have responded with the industry’s version of a flight to quality: variable sales have plummeted while term life and some versions of whole life have grown. Despite the flight to quality, confidence in the industry has fallen; many formerly top-rated companies have watched their ratings be reduced, further impacting consumer confidence. And while the recovery seems to be slowly building momentum, the industry’s return to profitability is likely to lag behind economic stability as consumers warily re-enter the market for investment-oriented products.

In 2005, with survey participants unaware of the pending financial crisis, our life and annuity survey identified five major trends that would impact industry and company performance:

1. Demographic shifts impacting consumer buying behavior
2. Improved effectiveness in translating strategies into action
3. Greater leveraging of distribution methods and channels
4. Use of service as a competitive differentiator

5. Focusing technology strategies on foundational platforms

As we finalize the analysis of our latest survey (see page 21), we see a similarity in the pattern of responses. Particularly given the economic environment, the need to address these five still-present trends has only intensified. The economic crisis has amplified the issues at hand, underscoring their urgency.

1. The demographic shift is exacerbated by technological advancements that require insurers to deliver service via a complex array of mechanisms previously nonexistent, with viral networking exponentially multiplying the impact of a negative service event.

2. Expense control—especially the governance of resource utilization, investment, and operational management—is more critical than ever in today’s world of minimized margins and commoditized products.

3. Distribution remains a critical element as the role of the advisor as a trusted link persists, yet the rate of retirement exceeds the rate of hiring; all compounded by generational demands for new access methods that many are less than comfortable with.

4. Commoditized products drive service as the competitive differentiator. It has become more evident that social networking, increased competition, and an increasingly demographically diversified market are combining to result in demands for  more customized services.  Insurers able to serve each segment in a customized manner will rapidly gain market share.

5. Technological foundations are rapidly shifting with the maturing implementations of STP and images and the growing acceptance of e-signatures. Things are shifting toward Web 2.0 collaborative mechanisms for appealing to, acquiring, and servicing customers.

More details on the reinforcing actionable strategies will be available in the coming weeks as the analysis is completed and the results published. The data provides preliminary insight into the growing need for a coherent, actionable, and focused set of strategies to help companies adapt to the rapidly evolving industry.

Make no mistake about it, change is upon us and it is irrevocable and inexorable in its pace and complexity. To become successful masters of our developing industry will require strategies developed collaboratively and applied consistently to fruition.