201201 Nolan Newsletter: Industry Trends - A Closer Look

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Built from the forecast research, this brief article provides a highlight of the major trends and implications for life and annuit industry in 2012

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201201 Nolan Newsletter: Industry Trends - A Closer Look

  1. 1. The Nolan Newsletter
  2. 2. The Nolan NewsletterPeople, Process, and TechnologyTable of ContentsThe BraveNew MobileWorld..........................................................................2Is Your Operation Ready for Mobile?................................................................3David Gutwald Joins the Nolan Company.....................................................5Health Insurance: Change in an Uncertain Market......................................6A Framework for Managing Mobile Technologies.......................................9Thin Margins, Lower Fees, and Channel Shifts..........................................11How Versus Why................................................................................................12The Simple Logic of Mobile Technology......................................................13No One Said It Would Be Easy.........................................................................142012 Bank Performance Study.......................................................................17Life and Annuity Industry Outlook: Planning for Success in 2012.........18Mobile Technology: Bank on the Unexpected...............................................22Improving Self-Dispatch with New Tools.................................................24A Toast to the New Year.................................................................................26Nolan Events........................................................................................................27First Quarter 2012Vol. 39 No. 1
  3. 3. 18Steve CallahanPractice Development Directorsteve_callahan@renolan.comAt the start of 2011, the industry and economy werereaching the end of several tumultuous years. The comingmonths were seen with great uncertainty. At that timeI wrote an article titled “Achieving Success in the NewNormal” for Nolan’s first quarter newsletter; employing the much-usedphrase “New Normal” to describe the material shift in economic conditionsseemingly here to stay. As far as accuracy goes, the year panned out justabout as expected.Entering 2012,it is again timeto project how the life and annuity industrymight perform. It is with humorous transparency that I have to admit that,in doing the research, I came across Lake Superior State University’s 2012List of Banished Words (www.lssu.edu/banished/current). Holding position#7 on the list? “The New Normal” which, according to LSSU, is banishedbecause:“…it is often used to justify bad trends in society and to convincepeople that they are powerless to slow or to reverse those trends…More often, it is used to describe the sorry state of the U.S.economy…Robert Brown, Raleigh, North Carolina.”Last year, Nolan Chairman and CEO Dennis Sullivan wrote anintroduction to this quarterly newsletter titled “Troubled by the NewNormal?” and it included these comments:“Are you as tired of hearing the phrase “new normal” as I am?The "new normal" is just another catchphrase that makes for goodheadlines and negative articles lamenting the glass as being halfempty. You have two choices in business: accept mediocrity or finda solution to a better way.”Dennis was right and perhaps his straightforward point helped put “newnormal” in its rightful place on a list of banished words.Whatever the label, 2012 brings many of the same challenges that,even with mild economic improvement, are equally difficult to deal withthis year as last. Unemployment, a direct impact to available buyers, willcontinue to be an issue. Projections suggest it may take until 2018 to returnto around 5% (taken from late 2011 White House estimates). Combined
  4. 4. 19with expected economic growth under 3% and Fed Funds rates holding at 0%for the year, the pressure on earnings will remain intense as investment spreadscontinue to compress, especially as older portfolios mature and are replaced bylower returns. Amplifying the pressure is increased regulation, the impact ofenhanced adequacy analysis, and cash flow testing.No surprise to industry leaders, 2012 will bring strife coupled with toughdecisions and measured trade-offs, even as economic conditions graduallyimprove. Consumers face lost asset value, investment uncertainty, unclearhealthcare costs, and an increased need for retirement income as Baby Boomersfind themselves with materially less than expected. All the while, as LIMRAresearch indicates, there remain over 58 million households underinsured. Thenet result is an industry that finds itself:• Dealing with inforce blocks of business offering guaranteed rateshigher than portfolio earnings;•for stable and affordable life and annuity products with integratedguarantees; and• Managing expense pressures that primarily consist of technologydemands and workforce costs, while delivering on constant increasesin service expectations.Wise leaders know that sustainable growth is best achieved by a strategicfocus on developing innovative sources of additional revenue; the top line offersthe greatest opportunity for leverage. Still, the tendency for short-term expensereduction continues to drive some decisions, particularly in stock companiesfacing shareholder demands. Unfortunately, at this stage, more often than notadditional reductions end up cutting more organizational muscle than actualsurplus. Companies are already running lean due to several continuous years ofprocess improvements, outsourcing, streamlining, vendor consolidations, andorganizational flattening.What alternatives exist to offset the pressure for expense reduction and createa sustainably profitable business? First, companies must recognize the strategicvalue of intellectual capital as the foundation of innovation and world-classservice, an oft-missed reality when budget cutting time comes around. Marketgrowth and consumer loyalty will come fromsales and service experiences morethan product features. Remember, insurance and annuities are still sold and notpurchased, which means the intermediaries between carrier and client—likeagents and service representatives—can direct attention towards the total valueproposition versus simple price or feature trade-offs.
  5. 5. 20With that in mind, a number of factors should be thoroughly reviewed forpotential inclusion in a life and annuity carrier’s 2012 action plans:• Evaluating global opportunities to swap books of business,selectively acquire or divest subsidiary lines, or enter into unexploredinternational markets;• Developing innovative solutions targeted at the over 29 millionLIMRAresearch, control over $880 billion in assets;•established channels while at the same time creating alternativebuying opportunities to reach untapped or underserved marketsegments;• Investing in service operations to improve the knowledge, skills,and resources available to front-line staff, enabling them to deliverexceptional service that in turn creates a competitive advantage; and• Imposing a rigorous discipline in determining where to invest time,money, and resources, and then incorporating multiple go / no-gomilestones along with a hard validation of return on those chosen.Some of these factors may be easily dismissed at the surface, such as theregional carrier who immediately dismisses the global opportunities arena.However, it would be wise to keep an eye out before becoming a target ofinterest to an international company which does employ this strategy. Similarly,expending material effortson redesigning term life products,forexample,wouldbe inconsistent with the second factor given the real potential is in universal lifeand retirement annuities. Better yet, via the third factor; find a way to affordablydeliver coverage to the underserved middle market utilizing new technologiesin conjunction with trusted advisors cost effectively.Thedrumbeatforcompetitiveadvantagebeingachievedbyexcellingatservicecontinues to beat louder and louder—companies failing to hear this demandwill miss the chance to build market loyalty through individualized, exceptionalservice experiences. Lastly, sifting through myriad new technologies, balancingthese needs with legacy systems demands, and determining how to optimizethe ever-limited technology budget to maximize impact on business value willrequire even greater attention than ever. This is especially true as the visualappeal of all the options can be overwhelming. Rigor, discipline, and focus mustbe applied to carefully select and then stay the course through implementationof the chosen solutions.
  6. 6. 21In his opening address at LIMRA’s 2011Annual Meeting, Bob Kerzner clearlystated the industry’s greatest challenge given all of the above: innovativelychanging the way insurance is communicated, sold, and serviced. In 2012 thefocus must move towards true innovation despite the chaos of challenges andcompeting resource demands. Time moves fast. 2013’s market leaders will bethose who find a way to look to the future while tending to the present; no smalltask.By the way, being a persistent Type-A, I took some time to see if I was theonly colleague to fall prey to catchphrase use.While Iadmit it is a bit ofa stretch,one much esteemed top executive, known for being ahead of the knowledgecurve, used the term “Cone of Uncertainty” in 2008, a phrase at Position 6 onTime Magazine’s 2011 Top 10 Buzzwords. Having been three years ahead of thecurve, he should be in the catchphrase hall of fame.Interested in greater detail on the life and annuity industry’s 2012 forecast?Take a look at the January 2012 edition of LOMA Resource Magazine for“Forecast 2012: A Closer Look.” I would be pleased to provide additionalinsights and background on the projections, as well as ideas on how best toaddressthe challenges our industry faces. Please contact me at steve_callahan@renolan.com. I would enjoy the exchange.

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