201201 LOMA Resource: Forecast 2012 - A Closer Look


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Life insurance in-depth industry forecast looking at the year ahead in terms of the major trends and strategies that will come into play.

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201201 LOMA Resource: Forecast 2012 - A Closer Look

  1. 1. ResourceFor Insurance & Financial Services Management®April 2011 CopyGoesHereResourceFor Insurance & Financial Services Management®January 2012NY Life Unit Using LOMA CoursesCybersecurityCouncilFC_Jan_2012.indd 1FC_Jan_2012.indd 1 12/19/2011 12:53:17 PM12/19/2011 12:53:17 PM
  2. 2. Now that you’ve gotten the big picturefrom the C-suite, it’s time to delve intothe particulars. Here, a seasoned industryconsultant does just that.By Steve M. Callahan,CMC®, ChFC, CLU, FFSI, FLHC, FLMISenior Consultant and Practice Development DirectorRobert E. Nolan Companycover focus18 January 2012 RESOURCE018-025_Forecast_A_Closer_Look.indd 18018-025_Forecast_A_Closer_Look.indd 18 12/19/2011 12:18:16 PM12/19/2011 12:18:16 PM
  3. 3. www.loma.org 19he life and annuity industry relies upon economicconditions to define growth and performance outlooks,withparticularemphasisonunemploymentrates,whichtend to define the buying population, and interest rates,which intertwine to define product competitivenessand company earnings. Projections for 2012, therefore, must takeinto account the expected economic environment. Specifically,Recent White House estimates average unemployment at ninepercent, dropping to 8.5 percent in 2013 and not reaching anormal range of five percent until 2018Overall economic growth is expected to rise to a projected 2.6percent (from an estimated 1.7 percent in 2011)The Federal Reserve’s “Maturity Extension Program andReinvestment Policy” announced in September 2011 intendsto rely upon the poor economic conditions to keep Fed Fundsrates at zero percent until 2013, translating to lower short-termrates as wellThese conditions all lead to lowerconsumer confidence, greater sensitivityto volatility, and a demand for strongerguarantees, all in an environment whereinsurers face rate compressions, reservedemands, low earnings, and increasedcompetition. What is the result? Givenindividual life insurance and annuity pre-miums tend to track disposable personalincome (DPI) over time, projected to runat approximately 2.6 percent in 2012, industry growth expecta-tions for 2012 are likely to run in that range. Despite the increasein DPI, consumer confidence is likely to remain low, generatingresistancetogrowth.Furthercomplicationswillresultfromchangesintheallocationofdiscretionaryspendingtohealthinsuranceandretirement income products, with the health insurance impactlagging the retirement income intensity by a few years.Lastly, the downward pressure on interest rates will cre-ate an assortment of challenges for insurers as the durationincreases. With 10-year treasury yields dropping from four per-cent to slightly over two percent, the pressure has intensified. Inresponse, insurers have attempted to adjust to lower interestrates, dropping from five percent to three percent in 2010, withcontinued drops likely as older products roll over into newer lines.Even with these changes, current portfolio yields have not beenfully impacted. The size of existing portfolios combined withone-time actions adjusting credit spreads and booking mortgagefees have diluted the impact of the low rates. These low interestrates, expected to continue into 2013, will continue to dete-riorate portfolio yields, accelerating spread compression. As aresult, reserves, specifically on new business, will continue toincrease based on the use of enhanced adequacy analysis andcash flow testing. On the life side, many products are already attheir guarantee level, which generates problems since the com-pany’s earnings rate may be below the guaranteed rate, drivingdecisions towards potentially more risky investments in the over-all portfolio. Constrained by these variables with little room tomaneuver, earnings are likely to remain low throughout 2012.Regardless of demographic and economic changes, lifeinsurance remains a critical need, as over 58 million householdsindicated they do not have enough life insurance according toa recent LIMRA study. Demographically, the age 60 and overmarket continues to be the only segment with sustained andmaterial increases in life insurance apps, while the age 0 to 44market continues an extended trend of declining apps, all whilethe 45 to 59 market hovers barely above the growth line. Thesedynamics lend themselves to further defining the products thatwill prove most appealing in the near term. In this context, wholelife continues to provide stability and a consistent performance,and remains unlikely to be negatively affected by economicconditions. Over the past 10 years, whole life has been the onlyproduct to produce positive premium growth for all but two ofthose years, and is the only product to have produced positivegrowth all of the last six years. Even more notable is the slightincreasefromapolicycountperspective,whichhasonlyoccurredtwice since 1990. Conversely, term has continued to experiencea decrease in premium and policy count, although there is aclear shift to and growth in term universal life (UL) products.This shift is consistent with the continued growth in popularityof UL products, expected to represent over 40 percent of the lifeinsurance market by 2013.Challenges have arisen with the secondary guaranteescombined with many UL products, of most significance beingthe National Association of Insurance Commissioners (NAIC)review of reserve adequacyfor these guarantees, butcompanies have alreadystarted adjusting in advanceof any findings or problemsby lowering the guarantees,increasing the degree ofhedging, and increasingthe cost of insurance whereappropriate—a fine balancewith the need for minimalimpact on persistency andretaining competitiveness.Similarly, lifetime guaran-teed UL, although a higherreserves risk product, con-tinues to show growth forthe companies that keptthe product, even when 40percent of their competitorsdropped it. Given consumerdemands, versions of ULSTEVE CALLAHANwww.loma.org 19a decrease in premium and policy count, although there is aclear shift to and growth in term universal life ((UL)) prp oducts.This shift is consistent witithh ththe continued growth in populariityof UL products, exexppected to represent over 40 percent of the lifeinsurance maarkrket by 2013.Challennges have arisen with the secondary guaranteescombinedd with many UL products, of most significance beingthe Natitional Association of Insurance Commissioners (NAIC)revieww of reserve adequacyfor thhese guarantees, butcomppanies have alreadystartted adjusting in advanceof anny findings or problemsby llowering the guarantees,incrreasing the degree ofheddging, and increasingthe cost of insurance whereapppropriate—a fine balancewitth the need for minimalimppact on persistency andretaaining competitiveness.Simmilarly, lifetime guaran-teedd UL, although a higherreseerves risk product, con-tinuese to show growth forthe companies that keptthe prproduct, even when 40percennt of their competitorsdroppeed it. Given consumerdemandds, versions of ULRegardless ofdemographicand economicchanges,life insuranceremains acriticalneed.018-025_Forecast_A_Closer_Look.indd 19018-025_Forecast_A_Closer_Look.indd 19 12/19/2011 12:18:39 PM12/19/2011 12:18:39 PM
  4. 4. 20 January 2012 RESOURCEthat include guarantees will continue todominate new life insurance sales in 2012.An increasingly popular and innovativeoption is indexed UL, which provides agood upside but does not link directly tointerest rates. This line has shown tremen-dousgrowth—representingover25percentof UL sales in 2011—and is expected tocontinue to grow. Combining indexed ULwith secondary guarantees represents aneven more appealing product, althoughthat combination runs the risk of theNAIC task force onreserves. As a product,though, indexed UL isseen as a key source ofcompetitive growth aslong as interest ratesremain low. Whilevariable universal life(VUL) has also shownperiods of growth as apercentage of a lowerbase, market volatilityand consumer con-fidence continue tocreate swings in popu-larity; in fact, much ofthe VUL sales in 2011came from corporate-owned life insurance(COLI) products.At a macro level,it is worth noting thatannuities have rep-resented the greatersource of premium as well as profits fordecades, with life insurance falling from ahigh of nearly 29 percent in 1996 to a lowof 17.5 percent in 2010. Taking that a stepfurther,basedonarecentLIMRAresearchstudy, over 29 million Americans control-ling over US$ 880 billion in retirementassets will retire over the next five years,creating a tremendous market demandfor income generating vehicles like annui-ties. Carrying over from prior years and acontinued popularity, variable annuities(VAs) with high interest rates are suffering.Innovative approaches to address the dis-intermediation include an auto-balancingfeature that moves the money from equityto fixed income based investments onmarket declines and then shifts themback as markets start to improve. Alter-natively, VAs can have an inherent hedgebuilt into them by structuring the fundsto be more in line with a balanced fundsapproach that reduces equity exposuresto risk and volatility. Both approaches arebeing taken on new annuity offerings tobalance the need for competitive returnswith company risk mitigation. The finaladjustmentbeingtakenisagradual decrease in ratespaid that will impact mar-ket share, persistency, andprofit as well.Increases in retir-ing populations havedriven up the demandsinglepremiumimmediateannuities (SPIAs) as con-version to income hastaken precedence overasset accumulation. Thistrend is likely to continuethroughout 2012 as thesearch for a guaranteed,oratleastlow-risk,incomestream is pursued bythose holding materialamounts of accumulatedassets. Not surprisingly,similar to the life mar-kets, indexed annuitieshave proven a source ofsignificant growth, having captured over45 percent of the fixed annuity market in2011, with estimates of having a recordyear in 2012. Note that this refers to thefixed indexed annuity. Registered indexedannuities, those sold by broker-dealers,have almost disappeared in terms of mate-rial sales. The challenge, as pointed outby ING, an early leader in this market,is that the minimum guaranteed interestrate required was too high for the currentinterest rate environment. For the mostpart, the registered indexed annuity willlikely be shelved until such a time asinterest rates return to a higher level.VA sales returned better than themarket in 2011 on average and as a resultbenefited from their 6th consecutivequarter of positive growth, with the lastthreequartersallinthedoubledigits.Whenavailable, the guaranteed life benefits areselected nearly 90 percent of the time, rein-forcing the growing demand for security aswell as the pricing complexity that comeswith providing it. As expected in a lowinterest rate environment, fixed annuitiescontinue to decline as they continue toprove unable to meet consumer needsand expectations. There was sales growthin 2011, but with ING pulling out of themarket, and excluding the debate overthe status of the registered annuity Infla-tion Guard by John Hancock, registeredindexed annuities are unlikely to beplayers in 2012.Structural ChangeTakingmergersandacquisitionsfirst,despiteasurfaceappealfortheopportunity,thereislimited immediate interest within the U.S.One major player, Allianz, views prices astoohighrelativetotheunderlyingvalueanddoes not see the market opening up until atleastaftertheriskcapitalrulesareresolved.Forothers,acombinationoflowreturns,lowinterest rates and excess capital combine todrivedownthepotentialreturnonexpense(ROE). Yet it may be an issue of timing orlocation, as another study indicates close totwo-thirds of surveyed executives expect tobe involved in a merger or acquisition overthe next two years, backed by a good dealof cash on the balance sheets. Still, fromanhistoricalperspective,thesuccessrateofmergershasbeenrelativelylow,withgreatervalue attributed to stock buybacks, retiringdebt, and organic growth.True structural change will come fromacceleration in globalization, which bringsfinancial, political, economic, and culturalchallenges requiring careful due diligenceand collaborative management. Despiterelatively slow cross-border activity lately,itisexpectedthatthepacewillpickuponaninternationalbasis.Astherateofglobaliza-tionaccelerates,therewillbeanincreaseininterest rates. This line has shown tremen-dousgrowth—representingover25percentof UL sales in 2011—and is expected tocontinue to grow. Combininingg ininddexed ULwith secondary guaararantees represents aneven more appepeaaling product, althoughthat combinaattion runs the risk of theNAIC taskk force onreserves. AAs a product,though, iindexed UL isseen ass a key source ofcomppeetitive growth aslong as interest ratesremmain low. Whilevarriable universal life(VVUUL) has also shownpeeriods of growth as apeercentage of a lowerbase, market volatilityaand consumer con-fiidence continue tocrreate swings in popu-laarity; in fact, much ofthhe VUL sales in 2011caame from corporate-owwned life insurance(COOLI) products.AAt a macro level,it is wworth noting thatannuitities have rep-resenteded the greatersource off prp emium as well as profits fordecades, withh life insurance falling from abuilt into them by structuring theto be more in line with a balancedapapprproaoachc that reduces equity expto risk and volati ility. BoBothth approachbeing taken on new annuity oofferibalance the need for competitivee rwith company risk mitigation. Thadjustmentbeingtakgradual decrease inpaid that will impacket share, persistencprofit as well.Increases ining populationsdriven up the desinglepremiumimmannuities (SPIAs) aversion to incomtaken precedenceasset accumulationtrend is likely to cothroughout 2012 asearch for a guaraoratleastlow-risk,instream is pursuethose holding maamounts of accumassets. Not surprisimilar to the lifekets, indexed annhave proven a sousignificant growth, having capturee45 percent of the fixed annuityy mmaAnotherstructuralchange in2012 will be agradual shiftin distributionmethods andchannels.018-025_Forecast_A_Closer_Look.indd 20018-025_Forecast_A_Closer_Look.indd 20 12/19/2011 12:19:07 PM12/19/2011 12:19:07 PM
  5. 5. www.loma.org 21international mergers and acquisitions, inparticular U.S. firms acquiring a presencein emerging or developing markets. Dealswill involve swaps and divestitures withEuropean firms to balance out books ofbusiness, and there will be active pursuitof investments in the Asian insuranceindustry in recognition of the opportunityit represents.Another structural change in 2012 willbe a more gradual shift in distributionmethods and channels to new platformsandapproaches.TheinevitableintegrationofsocialnetworkingsiteslikeFacebookandLinkedIn with advanced communicationstoolslikeTwitterandYouTube,crossingintothe realm of GPS and mobile platforms,togetherputthepowerofmassmediainthehands of the individual. This is, as manyhave discovered, a double-edged swordin terms of the empowerment of consum-ers to comment back and communicatedissatisfaction equally as broadly, raisingthe bar on the sales dialogue and trustedadvisorrelationship.Italsoimposesuponorenables, depending upon your perspective,more proactively engaging specific seg-ments with individualized messages, morerelevant information, and a personalbrand presence. This change comes withnew requirements for compliance, manyunclearly defined, making it a competitivefrontier at this point. Still, the structureof distribution will alter even though thenecessity of an agent or advisor will remaina key component of sales and service.The internal equivalent of the struc-tural change in distribution will involvethe recruiting, training, motivating, andincenting required to appeal to potentialGen Y producers. Research conductedby Maddock Douglas identified Gen Yentrepreneurs as having a different set ofvalues and motivators than the traditionalagent. This key source of talent is middleaged, parents, nearly equal in gender split,wanting to run their own business, andcoming from a background more offinancial planning and investments thanlife insurance. Impatience and autonomycombine with the need to be involved inprofitability analysis, expanded businessand services, working against a growthplan, and succession planning whileachieving a work-life balance.Other structural changes are moremundane in that they have occurredthrough the years: organizational shifts toaddress new regulatory demands, realign-ment to customer bases, integration of ana-lytics at an enterprise level, and a constantflux of technologically driven alterationswill persist through 2012.New TechnologiesBuzzwords abound, and new technologiesare proliferating daily as extensions andoffshoots of existing ones incorporate newfeatures or enhance functionality. Thechallenge with answering this questionis the word “new”, as many if not all ofthe technologies that would benefit ourindustry have been around in some form—perhaps less elegant than today, but stillaround. So let’s define new as recent, andhelp as generate profitable growth, reduceexpenses, or enhance service.Tablet computing in conjunction withcustom developed apps that link to agencyand home office systems put tremendoushorsepower in the hands of the sales agent.Incorporate predefinedsales tracks, quotingsystems, training vid-eos, scenario responses,expense tracking, andeven videoconferencingand suddenly the man-agement of a field forceand the availability ofinformation and toolsare amplified tremen-dously. Transitioningto electronic apps withsignature pad (versusdigital signature) apps,click to apply, jet reviewtable based apps, andaccess to a variety ofquoting engines as wellasallthenecessaryformsgives the average agenta distinct advantage over a less equippedcompetitor.An old technology—but one yet to bewell implemented by many companies—isa holistic customer relationship manage-ment (CRM) system that crosses productsilos, integrates letters, voice and email,and provides a profitability view of a clientbased on all coverage purchased alongwith family members and durations,includingbreaksincoverage.Thiswouldbeversus the more common single instancesin legacy systems. In order to effectivelydeliver service as a competitively differ-entiating advantage, a single view of thecustomer is critical to fully understandingtheir relationship with the company andthe various interactions they may have hadwith an auto claim, a health claim, a policyloan,anemailchangingonebeneficiary,aswell as supplemental information incorpo-rating location data and demographics tobetter inform the customer service agent.Attempts to do this with legacy systemshave proven less than ideal, as haveattempts to integrate coverage informationinto phone or email based managementsystems. Whatever the solution, this is trulya critical need for advancing the qualityof service differentiation.Cloud computingcan have an immediateimpact in the context ofsales force managementand extended CRM tothe field, particularlygiven the availabilityof access via tabletsand iPads. While thereremain security concernsabout core applicationsand potential exposures,thereexistsagreatoppor-tunity to leverage cloudcomputing’s ability toprovide all the function-ality of CRM, field man-agement, lead tracking,sales reporting, and evensimplified data entry(like enrollments) alongwww.lw.loma.osingstednortive,seg-moreonalwithmanyitiveturethemainruc-olveandntialctedn Yet ofonalddleplit,ande ofhanomyd inindustry have been around in some formperhaps less elegant than today, but stillaround. So let’s define new as rececenentt, aandndhelp as generatee pprorofifitable growth, reduceexpenses, oror enhance service.Tablblet computing in conjunction withcustomom developed apps that link to agencyandd home office systems put tremendoushoorsepower in the hands of the sales agent.InIncorporate predefinedssales tracks, quotingsystems, training vid-eos, scenario responses,expense tracking, andeven videoconferencingand suddenly the man-agement of a field forceand the availability ofinformation and toolsare amplified tremen-dously. Transitioningto electronic apps withsignature pad (versusdigital signature) apps,click to apply, jet reviewtable based apps, andaccess to a variety ofquoting engines as wellasallthenecessaryformsggives the average agentg g pbetter inform the customer serviceAtA tempts to do this with legacy shave provenn lelessss than ideal, aattempts to integrate cooveverage inforinto phone or email basedd managsystems. Whatever the solution, tht isa critical need for advancing thheeof service differentiation.Cloud compcan have an immimpact in the consales force managand extended CRthe field, particgiven the availof access via tand iPads. Whileremain security coabout core appliand potential expthereexistsagreattunity to leveragecomputing’s abiprovide all the fuality of CRM, fielagement, lead trsales reporting, ansimplified data(like enrollments)s)Predictivemodeling hasbeen around awhile, butis gainingground slowlyin the life andannuityindustry.018-025_Forecast_A_Closer_Look.indd 21018-025_Forecast_A_Closer_Look.indd 21 12/19/2011 12:19:51 PM12/19/2011 12:19:51 PM
  6. 6. 22 January 2012 RESOURCEwith instant messaging to the home officeor other agents, cloud based storage fordevice independence, and installation ofselect software as a service (SaaS) solutionswithin the cloud that benefit from variableuse pricing, nonstandard hardware plat-forms, and geographic dispersion.Predictive modeling as a category ofsolutions has been around awhile, butis gaining ground slowly in the life andannuity industry. Submission patterns,profitability analysis, agent projects, andthe simpler applications are becomingmore common. A more advanced usewould be generalized linear modeling(GLM) for underwriting purposes, result-ing in a less expensive, more accurate, andmore granular risk decision. It could alsobeusedtodevelopmoregranularratesthatcan drive higher competitiveness by targetmarket segments as well as assist in the set-ting of economic reserves and capital.Social media, and in particular theleveraging of YouTube, Facebook, Linke-dIn, and Twitter to create a collaborativeset of forums for communicating with ormessaging to customers, creating corpo-rate personalities that build brand identity(like Flo), obtaining in effect free focusgroup and customer feedback, extendingspecial offers and information immedi-ately upon availability versus relying uponcampaigns or emails, providing agentbranded presences in their local marketsthat enhance their reputation and abilityto sell and serve, and a variety of otheralready accomplished as well as some notyet accomplished community based activi-ties that personalize the insurance owner-ship experience in a positive way. There isalsotheopportunitytoharvestinformationabout individuals to assist in better timingcommunications and offerings to eventsas well as to connect to those with sharedinterests or possible leads.Virtual learning centers developedusing avatars and virtual classrooms bysubject matter as well as a “break room”for cross-class collaborations. Properlydeveloped, the classes can provide con-tinuing education (CE), and can integratea simulated personal experience thatincludesblackboards,videos,tests,surveys,and even videoconferencing as part of thetraining process. The virtual classroomdoes not have to focus on employees oragents; it can even offer customers trainingon safety, like teen drivers, or related topicsas an added value service.Other older tech-nologies are still worthmentioning just to keeptop of mind for thosethat have not had theopportunity to imple-ment and benefit fromthem. Customer andAgent Portals that allowfortheexchangeofinfor-mation, prospectus, let-ters, statements, email,chat, and forms are stillnot as prevalent as theyshould be in terms offull functionality. Com-panies can save a greatdealundertheauspicesof“goinggreen”withtheseportals while improvingservice, saving time,and saving money. Theother dated technologythat I still see many companies lacking iscall center management and schedulingsoftware that allows the integration of ablending of call and transactional servicessothateventdrivenspikes(calls)canbeload-balanced with time-driven work (writtentransactions). Centers that have integratedscheduling software have been able tobenefit from material improvements inresponse times as well as staff savings andservice improvements.Service DifferentiationGiven low interest rates, principle basedreserverequirements,regulatoryoversight,common mortality tables, and severaldecades of product innovation, one couldarguethatweareatthepointapproachinganearlycommoditizedproductsetthatstandson the legs of brand distinction and servicedifferentiation. What about product? Ingeneral, the minor differences tend to blurtogether as the purchaser focuses on hisneeds, his research, his family and friends,and his agent or advisor. Yes, there aredifferences,butgenerallyspeakingthesimi-larities far outweigh the differences to thepoint that other factors carry more weight.Simply put, companiesfocusing on product dif-ferentiation as their pri-marystrategywillrapidlyfindthemselveslagginginsales and market share.Brand distinction ismeasuredbyrecognition,industry ratings, wordof mouth, advertisinginvestment, reputation,and perceived perfor-mance. Brand certainlyplaysaroleincreatinganadvantage;however,eventhe less known regionalmay come out ahead ifits ratings, stability, oreven reputation are thesame or better. With theworld at his fingertips,today’s purchaser is ableto quickly find out anextensiveamountofinformationaboutanycompany—andwilltendtorelyonthatmorethan advertisements or flyers.For effective service differentiation,two equally important customers must beconsidered—the agent and the purchaser.Agent relationships brings the business tothedoor,andrepresentsanentirelyseparatedimension of service as a differentiator—companies must recognize that the servicethey provide their distributors on oftenthe most seemingly trivial of requests canquickly translate into losing business to acompetitor. Yet it is surprising the numberof companies that miss this point as theyengage in customer experience projectsor voice of the customer efforts, bypassingdistributors and focusing on purchasers. Inaworldofservicedifferentiation,bothmustbe considered.Continued on page 24fficeforn ofionsableplat-y ofbutandrns,andminguselingsult-andalsothatrgetset-thenke-tiveh orpo-ntityocusdingedi-pongentketsilitya simulated personal experience thatincludesblackboards,videosos,,teteststss,ssurveys,and even videococonfnferencing as part of thetraining pprorocess. The virtual classroomdoes notot have to focus on employees oragentsts; it can even offer customers trainingon ssaafety, like teen drivers, or related topicsas an added value service.Other older tech-nnologies are still worthmentioning just to keeptop of mind for thosethat have not had theopportunity to imple-ment and benefit fromthem. Customer andAgent Portals that allowfortheexchangeofinfor-mation, prospectus, let-ters, statements, email,chat, and forms are stillnot as prevalent as theyshould be in terms offull functionality. Com-panies can save a greatdealundertheauspicesof“goinggreen”withthesepop rtals while improvingsservice, saving time,annd saving money. Theothher dated technologythatt I still see many companies lacking iscall ccene ter management and schedulingsoftwaree that allows the integration of ablending off cacall and transactional servicesdifferentiation. What about productgenerarall, tthehe minor differences tend totogether as the puurcrchah ser focuses onneeds, his research, his ffamamily and frieand his agent or advisor. YeYes, theredifferences,butgenerallyspeakiningtheslarities far outweigh the differenceces topoint that other factors carry more wewSimply put, comppafocusing on producctferentiation as theirmarystrategywillrapfindthemselveslagginsales and market shaBrand distinctiomeasuredbyrecogniindustry ratings, wof mouth, advertiinvestment, reputatand perceived permance. Brand certaplaysaroleincreatinadvantage;however,ethe less known regimay come out aheaits ratings, stabilityeven reputation aresame or better. Withworld at his fingertoday’s purchaser isto quickly find outextensiveamountofinformationabououtcompany—andwilltendtorelyonthahatmthan advertisements or flyers.For effective service didiffferentiatFor effectiveservicedifferentiation,two equallyimportantcustomers mustbe considered –the agent andthe purchaser.018-025_Forecast_A_Closer_Look.indd 22018-025_Forecast_A_Closer_Look.indd 22 12/19/2011 12:20:12 PM12/19/2011 12:20:12 PM
  7. 7. 24 January 2012 RESOURCEService is a critical source of dif-ferentiation based on two key factors: itis hard to do, and it is hard to replicate.If a company can achieve deliveringfirst-rate, low-cost customer service, com-petitors will be hard pressed to replicate itwithout a lot of time, hard work, and falsestarts. Why? The quality of service deliv-ered originates with a company’s cultureandpermeateseverypersondeliveringcus-tomerservice.Itisbasedonhumanbeingsunderstandingtheneedsofeachcustomermicro-segment, whether generational orethnic or situational or otherwise defined,and knowing how to individualize theservice given that micro-segment. Andonce you make your competitive differ-encebaseduponyouremployees,youhavemoveditoutsidetherealmoftechnologicalor mechanical solutions.That is not meant to downplay theimportant role technology plays in deliv-ering quality service. There remains theneed for responding in the manner bestsuited to that specific customer whetherby a personal telephone call as preferredby earlier generations or online changeswithchatforthetech-savvy,andanywherein between. And, in the language spokenor read by your customer, and withoutbreaching a cultural standard.How is this achieved? First and fore-most, the most significant investmentcompanies can make is in their people,developing their ability to fully under-stand and engage customers as uniqueindividuals, empowering them to solveproblems without escalation, enablingthem to address customer requests on aonce-and-donebasis,andrewardingthemwith recognition, training, flexibility, anda rich work environment. A pleasant andinformed, competent voice may not beas efficient as a recorded message, but itwill likely leave the customer with a goodfeeling about the company.Next, working with the staff, segmentthe customers as finely as possible, deter-mine differing service preferences, andthen develop the common solution setof call centers, Web services, interactivevoiceresponse(IVR)systems,mobileapps,and agent support tools made availablein a manner that addresses customers’needs when, how, and where they prefer.All while focusing on relevance, conve-nience, simplicity, speed, accuracy, andfollow-through.Ultimate KeyIn his opening address at the recentLIMRA Annual Meeting, Bob Kerzner,president and CEO of LL Global, dis-cussed the true systemic challenge facingthe industry, which is hidden amid allthe critically relevant and immediateeconomic, regulatory, and competi-tive distractions. The vision: Achievinggrowth by leveraging technology toinnovatively change the way insurance iscommunicated, sold, and serviced. Thebarrier: The chaos of challenges currentlychurningthroughtheindustrydemandingimmediate resolution and taking up all ofmanagement’sbandwidth.Thetechnologyis available, the need is clearly researched,there is a tremendous diversity of marketstobeserved,andtheindustryhassurvivedthegreatrecessionandisstillhealthy.Theproblem:Whatislackingisthewherewithalto define, focus, innovate, and deliverthe solutions.Considering how fast 2011 has comeand nearly gone, it is likely that 2012 willpass just as quickly. And at the end, howmuch innovation will have been accom-plished given all the intellectual capitaland management bandwidth? It will havemore than likely all been expended onimmediate needs including:Minimizingtheimpactoftheeconomy,political issues, financial performance,and regulatory shifts on the ability toprofitablydeliverreliableproductsthatconsistently meet consumer needsSustaining current products in a man-nerthatisnotdetrimentaltoconsumersconcurrent with the introduction ofnew products that do not trade offlong-term security and risk mitiga-tion for sales appeal and short termperformanceMeeting new reserving and capitalrequirements along with enhancedreporting while operating in one of themost challenging economic environ-ments in decadesPricingtoallowforincreasinglifespansthatfarexceedthoseinitiallyintendedtobecoveredbylifeinsuranceorannuities,balancing consumer protections withadequate high-probability marginsAddressingtheneedsofanincreasinglydiversified market that crosses genera-tions and cultures, bringing expecta-tions of more personalized productsand servicesDeveloping a strong talent pool thatblends new entrants into the industrywith experienced veterans while lever-aging strengths, balancing differingvalues, and building collaborationRebuilding a declining distributionresulting in fewer apps of higher facevalues getting written, driven by thedramatic reduction in agents from145,000 National Association of Insur-ance Agents and Advisors in the 1980sto under 50,000 todayCompeting effectively in a dynamic,tough, and highly competitive marketoffering consumers more alternatives,distractions, complexities, and chal-lenges to the industry’s credibilityProtectingthebrandfromanonslaughtof new sources of technologicallyenabledtarnishingandincreasingrisksof unintentional non-complianceNowonderinnovationistheindustry’sgreatest challenge. After addressing theabove, little is left for shaping and deliver-ing strategically innovative solutions.Yet innovation remains the ultimatekey, It will only be through innovationthat a cost-effective and profitable solu-tion will be found to change the fact that“58 million U.S. households believe theydo not have enough life insurance” andto provide risk-appropriate solutions tothe “29 million Americans controllingUS$ 881 billion of retirement assets,”according to LIMRA.018-025_Forecast_A_Closer_Look.indd 24018-025_Forecast_A_Closer_Look.indd 24 12/19/2011 12:21:27 PM12/19/2011 12:21:27 PM
  8. 8. www.loma.org 25Make Documents Work for You in 2012View from HylandThe name of the game in 2012 is operational efficiency. Amonglife insurers, reducing the costs of everyday business processescontinues to play a part in keeping up profitability.Many insurance companies have legacy imaging systems thatno longer meet their needs. Document-based processes still taketoo long and require too much manual intervention.Newbusinessapplicationprocessingiskeytogettingmoneyinthe door faster. As branch offices send in applications and checks,many life insurers are still manually matching balance sheets,policies and check amounts. While an imaging system capturesandstoresthisinformation,anenterprisecontentmanagement(ECM)solutiongoesbeyondthattoautomate many of the tasks that follow: assign-ing each document the correct policy number,matching up the information, and sending it ontothenextstepwithoutanymanualintervention.Only the exceptions require quick review andtroubleshooting by staff, so instead of looking athundreds of policies, they only have to look ata few. New applications process more quickly,money comes in faster, and customer serviceimproves.As companies evolve, they require solutionsthat do the same, offering them more scalability,more flexibility and more customization. ECMoffers life insurers much more than simple scan-ning and indexing. Make ECM part of yourstrategy to meet the demands you’ll face in 2012 and beyond.To learn more, visit Hyland.com/Insurance.Use of New Technology ExpectedView from MajescoMastekMajescoMastek expects life, health and annuity carriers to con-tinue to create new methods of evaluating modern technologyand even explore different modes for the utilization of those offer-ings. Carriers have realized that modern web based applicationscan be delivered via ASP and “private cloud” modes and havestarted to think outside the box when it comes to mission criticalapplications like new product development and policy adminis-tration. Various business models are now being explored wherecarriers can “greenhouse” new insurance or annuity productsby placing their model office in a “private cloud” environment.This minimizes the investment costs while giving the carrier theopportunity of exploring, learning and testing a new platform.“If the summer of 2011 is any indication of next year, theindustry is in for an exciting year” says Erik Stockwell, SeniorVice President of MajescoMastek. “Our life and annuity salesteam here in North America experienced an extremely high levelof activity coming from the carrier community in all forms ofcreative RFIs, RFPs, demonstrations and even proof of conceptexercises. The dialogues are centered around core policy admin-istration replacements to drive down costs on all fronts.”For more information, visit www.majescomastek.com.Interest Rate Challenges SeenStudy from ConningAnalysis of life insurers’ assets and investments in 2010 revealsan industry in recovery from the credit crisis but facing a newand longer-term set of challenges from the lowest interest ratesseen since the 1950’s, according to a new study by ConningResearch & Consulting. “Our analysis of life insurers’ invest-ment profile through 2010 and into 2011 indicates that theirappropriate response to the credit crisis —increasing cash and sovereign debt holdings —now exposes insurers to other risks, especiallyin light of our current expectations about along-term low interest rate environment,”said Mary Pat Campbell, analyst at ConningResearch & Consulting. “The Federal Reserve’sAugust decision in favor of long-term low inter-est rates creates a real strategic problem for lifeinsurers. In addition to the obvious issue of lowreturns on an asset portfolio composed primar-ily of fixed income securities, the low interestrate environment may cause other problemswith regulatory requirements and hedgingprograms. Approaches to dealing with thischallenge will require greater sophisticationthan ever before.”The Conning Research study, Life Insurance Industry Invest-ments: Investigating Interest Rate and Sovereign Risk analyzeslife industry investments for the period 2006-2010 for the indus-try as a whole and for four underwriting market peer groups.Further, the study also provides detail regarding the industry’sposition at the start of 2011 and analyzes how the prolongedlow interest rate environment and other challenges may influenceinsurers’ strategic investment decisions in the future. “Looking atthe industry through 2011 and beyond, the Fed’s commitment toa long, low-rate environment is compounded by the downgradeof U.S. sovereign debt,” said Stephan Christiansen, director ofresearch at Conning. “Insurers must attend to their risk profilesand consider their options. Looking forward, with emergingdynamic capital and risk analysis requirements, our modelingshows that lower interest rates may have particularly perni-cious effects on capital charges relating to some asset classes insupport of particular annuity products.Thereport isavailableforpurchasefromConningResearch& Consulting by calling (888) 707-1177 or by visiting the com-pany’s website at www.conningresearch.comOther Forecast Views018-025_Forecast_A_Closer_Look.indd 25018-025_Forecast_A_Closer_Look.indd 25 12/19/2011 12:21:53 PM12/19/2011 12:21:53 PM