The sluggish U.S. economy is just one of the many challenges confronting the life and annuity industry in its pursuit of organic growth, according to 2013 Life Insurance and Annuity Industry Outlook.
Insurers face enormous challenges in the year ahead, and not just because the pace and durability of the U.S. economic recovery is uncertain, said Rebecca Amoroso, Vice Chairman U.S. Insurance Leader Deloitte LLP in the report. Indeed, for carriers to expand their business and improve their profitability over the long term, they should keep their eyes focused beyond the short-term obstacles they may come across in terms of the business climate.
Low interest rates are one of the biggest hurdles confronting the industry, forcing carriers to reconsider long-term commitments to policyholders with guaranteed income products. Such economic conditions may make consumers wary about discretionary spending and slow life insurance and annuity growth as they address more immediate financial priorities, such as mortgage, consumer and student debt.
To improve the top and bottom line, Deloitte created a list of issues life insurers and annuity writers must focus on.
Highlights from the report include:
- Heightened Regulatory Scrutiny: Carriers must prepare for full ORSA implementation, and possible changes in their tax treatment, while regulators examine existing practices for possible consumer harm, especially use of captives.
- Opportunities from Healthcare Reform: Nimble insurers will make smart choices in the new healthcare distribution ecosystem forming around private exchanges and the bundled products they will offer.
- Reconfiguring Asset Allocation: Insurers will have to mine yield from a wide array of alternative asset classes, adopting more sophisticated portfolio strategies -- even in the face of increased risk and the potential for higher capital requirements. This may cause insurers to outsource management of their more exotic investments to third parties.
- Bolstering Direct-to-Consumer Options: In the scramble for growth, insurers can no longer ignore the opportunity to expand into new markets and reach consumers directly, as the distribution matrix continues to evolve.
- Upgrading Technology Infrastructure: In 2013, carriers will adapt new mobile and tablet driven technologies, as they also begin to break out from legacy core systems into the cloud.
- Solving the Talent Paradox: Unemployment may have seen record highs, but insurers still cannot find enough qualified advanced talent, such as underwriters, actuaries, advanced data analysts, requiring them to adopt new and more creative talent strategies. An ageing and under qualified workforce will mean that looking internally for talent will become far more common.
- Cracking the Code on Retirement: With only 30% of Americans secure about their retirement funding, carriers need to overcome trust and product education issues to make solid connections with customers and help close the gap. Taking a more holistic approach to product development should be a priority.
- Product Simplification: To penetrate underserved markets, carriers are investing in creating basic products that can be delivered through retail outlets, in bundled form and through simplified issue over the web.
- Placing Bets on New Segments: In a slow growth domestic economy, carriers will need to find pockets of growth in new places, including emerging markets, group annuity sales, faster-growing US states, and micro-targeting underinsured cohorts through predictive modeling and advanced analytics.
- Increased M&A Deal Flow: As the economy improves, and carriers restructure and sell non-core assets, expect an increase in transaction volume and improved valuations.
Deloitte said senior executives should begin to assess how these challenges may affect their ability to generate growth and profitability, and added that each issue also is a potential opportunity, depending on the carrier chooses to address the challenge.
Each course of action has its own risks and rewards, but perhaps the one certainty is that doing nothing is rarely an option, Deloitte said. Even carriers that consider themselves successful under their own version of the status quo should evaluate the potential vulnerabilities of their business models in a rapidly evolving economy and insurance marketplace.