Technological advances will help insurers build upon recent improvement in annuity and life insurance sales to tap new markets and face competition from alternative business models, according to the 2015 EY US life-annuity insurance outlook.
"With a rise in consumer confidence and personal wealth, prospects for 2015 are generally upbeat," said Doug French, Principal, Financial Services and Insurance and Actuarial Advisory Services at Ernst & Young LLP. "Yet these opportunities are not evenly distributed across the industry. To break into underpenetrated markets with new product solutions and advice models, insurers will need to leverage new technology advances in distribution, underwriting and customer service."
EY believes U.S. life-annuity insurers that better understand and accept forces of change are in a position to seize competitive opportunities. Specifically, successful insurers in 2015 should focus on the following seven issues:
1. Reposition distribution strategies to expand market opportunities. Digital and Internet-based technologies will continue to alter consumer expectations and behavior. Consumers are increasingly purchasing insurance and savings products online. To succeed in this evolving environment, insurers should reposition their products to fit new distribution models and customers’ online use and expectations.
2. Embrace digital as the new storefront. The rapid pace of change in online access to insurance products challenges insurers to present a consistent digital customer experience. Successful insurers will use a digital presence to outgrow their competitors, increase self-service capabilities, reduce business risk and enhance productivity.
3. Develop simplified products to expand customer markets. Insurers are reaching beyond the high-net-worth market to the mass affluent and middle market, where simplified products with modular riders tend to be more successful. More simplified base products and riders create a more acceptable risk profile for the insurer, while addressing current consumer concerns.
4. Transform back-office systems and processes. Operating efficiency will continue to be a concern as interest rates remain low. Insurance companies must simplify their systems, processes and structures to attain the agility and speed that competitive pressures and customer preferences demand. An organization-wide transformation may take years to finalize, but companies that reach this goal will be more agile and adaptable to changing market and stakeholder needs.
5. Enhance data security. Data gathered in underwriting life insurance can be especially sensitive. New IT practices such as cloud computing have increased the risk of a data breach, and regulators have been paying more attention to security. Insurers must enhance their security efforts and develop enterprise-wide processes to control and monitor their third-party providers.
6. Adjust to new competition from alternative capital sources. Large investment firms have become active acquirers and are using their capabilities to become full-service, multi-line insurers, reshaping the competitive landscape. While traditional insurers may not have an investment advantage over these firms, they will need to exploit their distribution channel advantages, financial strength and capabilities to maintain and increase their market share.
7. Proactively address the uncertain regulatory environment. Multiple legislative and regulatory bodies implemented new regulations in the immediate aftermath of the financial crisis, creating demands on the industry and pressures to respond to inquiries from a variety of agencies. With regulatory pressures likely to increase through the next three to five years, companies must focus on future laws and regulations and develop associated plans. This step will provide insurers’ senior management with a single set of tools for oversight, testing and reporting to key stakeholders.
The complete 2015 EY US life-annuity insurance outlook may be found at ey.com/insurance.