By Susan Rupe
January 20, 2020
The U.S. life
insurance industry is still feeling the effects of a low-growth decade,
according to EY’s 2020 US and Americas Insurance Outlook.
How can insurers
reverse this trend of low growth while dealing with new challenges like the
emergence of fintech and climate change-related risks? Ed Majkowski, EY
Americas insurance sector and advisory leader, shared some insights with
InsuranceNewsNet.
Between 2013 and
2018, compound annual growth rate in life insurance premium growth has been
1.7%, the EY report said. Gross written premium grew from $661 billion in 2013
to $718 billion in 2018.
The report said in
terms of assets under management, life insurers have not attracted the level of
inflows that retirement accounts and mutual funds have. Still, there is broad
industry consensus that large market segments are currently neglected or
underserved.
Multiple studies
have found that there is a considerable life insurance coverage gap for
Americans. While a significant portion of middle-class customers have not saved
enough for retirement, the industry has fallen short in communicating the
importance and value of its products. A return to profitable growth has to be
at the top of the strategic agenda for life insurance executives for both the
near and longer terms.
Life insurers must
take action on four fronts in order to reverse 10 years of low growth, the EY
report said. Those four fronts include:
·
Deliver financial wellbeing.
·
Win the war for talent.
·
Achieve operational excellence and cost efficiency.
·
Manage persistent regulatory pressures and focus on customers’
best interests.
“Life insurers must
continue to focus on providing top quality products that have very strong
benefits and very good value proposition,” Majkowski said. The EY report
recommended insurers focus their efforts on showing consumers how life
insurance products can provide retirement security and figure out how to make
their products simpler to understand and less expensive.
The report also
predicted advisory services and fee-based models are likely to grow, while
commission-driven product sales are likely to shrink. Subscription models are
likely to gain traction, as well, with consumers paying for access to advisors
and more flexible product features that they can turn on and off as their needs
dictate. This evolution reflects the need for insurers to shift from
product-centric business models to value propositions founded on
customer-centricity.
The life insurance
industry also is challenged to revamp its workforce, the report said.
Significant numbers of workers, including agents, will retire in the near
future. Meanwhile, more administrative and back-office tasks will be handled by
bots, artificial intelligence and machine learning. On top of all that, life
insurers are losing talent to banks and asset managers, primarily due to
compensation
What can the
industry do to attract and retain talent?
“You have to keep
retraining your existing workforce while bringing in new talent,” Majkowski
said. “I think the life insurance industry is one of the best industries in the
world, and I actually think it’s a pretty fun and great place to work. But
young people coming out of school would rather work for some of the big
technology firms out there. So the industry has to continue to recruit and
retrain and get their existing workforce to become more digital.”
Life insurers must
make the customer service seamless, Majkowski said. “Customers expect an
omnichannel experience where they are able to go online to call your call
center or talk to an individual and kind of feel the same message. That’s hard
to pull off; it’s a very hard pivot.”
The EY report
recommended insurers must bring their costs down and make their processes more
efficient to fund transformation and growth initiatives. Insurers must also
develop plans to simplify and reduce the costs of managing legacy systems on an
ongoing basis as those aren’t going to be fully replaced any time soon. In
addition, the report said insurers are selling closed books of business that
are too burdensome to manage or engaging third-party administrators and
spinning off businesses.
Regulatory issues
continue to pressure life insurers, the report said. Recent regulatory actions
and proposals indicate that customers’ best interest will remain a major focus
area, one that will require considerable management attention for insurers and
intermediaries. Insurers’ commitment to maintain their fiduciary duty is also
under increasing scrutiny.
Susan Rupe is
managing editor for InsuranceNewsNet. She formerly served as communications
director for an insurance agents' association and was an award-winning
newspaper reporter and editor. Contact her at Susan.Rupe@innfeedback.com. Follow her
on Twitter @INNsusan.
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