200808 Life Industry: Trends and Developments Influencing Industr7

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Presentation provided to several life insurance companies on the major trends and economic factors influencing the life insurance industry.

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200808 Life Industry: Trends and Developments Influencing Industr7

  1. 1. Industry Overview: Trends and Strategies Prepared For: Life Insurance Industry Prepared By: Steve Callahan Practice Development Director R. E. Nolan Company, Inc. August 2008
  2. 2. © Robert E. Nolan Company, Inc. www.renolan.com Page 2 Industry Overview: Trends and Strategies Topics § Key Economic Trends..………………………………………. 3 § Industry Trends………………………………………………... 11 § Market…………………….……………………………………. 19 § Customers………..……………………………………………. 32 § Products………………………….…………………………….. 40 § Distribution……………………..………………………………. 59 § Technology………………………….………………………….. 66 § Summary…………………………….…………………………. 73
  3. 3. © Robert E. Nolan Company, Inc. www.renolan.com Page 3 Key Economic Trends
  4. 4. © Robert E. Nolan Company, Inc. www.renolan.com Real GDP Growth,* 2000-2009F *Yellow bars are Forecasts. Source: Blue Chip Economic Indicators, Vol. 33, No 3 (March 10, 2008), pp. 2-3. Slow economic growth is forecast for 2008 Recession then Recovery?
  5. 5. © Robert E. Nolan Company, Inc. www.renolan.com Inflation Rate (CPI-U, %) 1990 – 2009F *12-month change March 2008 vs. March 2007 Sources: US Bureau of Labor Statistics (historical rates); Blue Chip Economic Indicators, Mar. 10, 2008 (forecasts); Ins. Info. Institute. Inflation: • 2.2% in 2007 • Accelerating to 4.0% in 2008 • Likely decline to 2.4% in 2009
  6. 6. © Robert E. Nolan Company, Inc. www.renolan.com U.S. Unemployment Rate: Recent Quarterly History and Forecast Sources: Blue Chip Economic Indicators (3/07 and 3/08); Insurance Info. Inst. Rising unemployment: • increase the policy lapse rate • Make new sales more difficult • Show value of flexible life policies
  7. 7. © Robert E. Nolan Company, Inc. www.renolan.com The Most Recent Five Years of the S&P 500 ** ** ** ******** Want more control over the chart? Try our Interactive Chart.
  8. 8. © Robert E. Nolan Company, Inc. www.renolan.com The Stock Market Became Much More Volatile Nearly 10 Months Ago ‘07 ‘08
  9. 9. © Robert E. Nolan Company, Inc. www.renolan.com Annual Average Interest Rate of 10-Year U.S. Treasury Note Since 1980 *As of April 18, 2008, from http://www.bloomberg.com/markets/rates/index.html Source: http://federalreserve.gov/releases/h15/data/Annual/H15_TCMNOM_Y10.txt
  10. 10. © Robert E. Nolan Company, Inc. www.renolan.com ROE: L/H vs. P/C vs. Fortune 500 In low double digits, subject to CATs Source: Insurance Information Institute; Fortune. 2007 insurer data are for stock insurers only. L/H and P/C ROE Crossovers
  11. 11. © Robert E. Nolan Company, Inc. www.renolan.com Page 11 Key Industry Trends
  12. 12. © Robert E. Nolan Company, Inc. www.renolan.com L/H Industry NI & NWP 1998-2007 Source: NAIC Annual Statements, p.4, line 35, from National Underwriter Highline Data. $18.0 $20.9 $22.2 $9.8 $4.1 $26.6 $32.2 $35.9 $36.2 $32.0269.9 272.6 303.4 479.1 508.6 500.2 531.2 528.1 583.6 616.7 $0 $100 $200 $300 $400 $500 $600 $700 $0 $10 $20 $30 $40 $50 $60 $70 $80 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 L/H Net Income L/H Net Written Premiums Surrenders Disability Expenses
  13. 13. © Robert E. Nolan Company, Inc. www.renolan.com Annuities Page 13 Direct Premium Trends, 1995-2007 NAIC changed its definition of group annuity premiums Life A&H
  14. 14. © Robert E. Nolan Company, Inc. www.renolan.com Ordinary Life Insurance Lapse Rates 1996-2006 Sources: NAIC Annual Statements, p. 26 line 15, from National Underwriter Highline Data. Was the spike recession related?
  15. 15. © Robert E. Nolan Company, Inc. www.renolan.com Quarterly Change vs. Same Quarter Prior Year Individual Life Applications, 1999-2007 Source:MIBLifeIndex,AnnualReportsfor2001,2002,and2003,plusmonthlyreleases 9/11 effect “XXX” regulation 21 straight quarters of fewer applications than the year-earlier quarter; down again so far in 2008
  16. 16. © Robert E. Nolan Company, Inc. www.renolan.com Individual Life Product Trends Since 1976 Source: LIMRA. *LIMRA’s annualized premium calculation includes 10% of single premiums but excludes (a) excess (dump-in) premiums on universal and variable universal life plans and (b) large-case corporate-owned life insurance. Product Market Share, by Annualized Premium* Rise in UL market share: • STOLI? • “No lapse” guarantees? • Indexed UL? Term would be more if premiums hadn’t come down so much
  17. 17. © Robert E. Nolan Company, Inc. www.renolan.com Term Life Insurance Rates Source: Accuquote; Insurance Information Institute Forecast for 2008. On average in 2008, premium rates for term life insurance are expected to fall 1% from rates in 2007 $500,000 20-year level term for 40-year-old male nonsmoker
  18. 18. © Robert E. Nolan Company, Inc. www.renolan.com Individual Annuity Sales, 1999-2007 $122.0 $137.0 $111.0 $117.0 $129.0 $133.0 $137.0 $160.6 $184.2$42.0 $53.0 $74.0 $103.0 $89.0 $88.0 $80.0 $75.6 $72.8 $0 $25 $50 $75 $100 $125 $150 $175 $200 $225 $250 $275 1999 2000 2001 2002 2003 2004 2005 2006 2007 Variable Fixed Source: LIMRA International, as reported in National Underwriter, L&H, March 24, 2008, p. 8. Fixed annuity fading $ Billions Variable sales: • 2006 +17%. • 2007 +15% vs ‘06
  19. 19. © Robert E. Nolan Company, Inc. www.renolan.com Page 19 MARKETS
  20. 20. © Robert E. Nolan Company, Inc. www.renolan.com Key Market Trends § Boomers starting to cash in their retirement driving higher demand for asset management / payout products – Significant shift from accumulation to decumulation § Graying of America driving need for more retirement oriented products – Decreases in death rates should make life insurance cheaper, annuities more valuable § Increased ethnic diversity of markets – More than a quarter of the U.S. population Hispanic or Asian by 2020 § Worksite market undergoing increased opportunities – Poorly served market with dynamic change impacted by aging workforce § Continued consolidation of small to medium sized companies – Searching for economies of scale and expanded market share § Global expansion continues at an accelerated rate – Particularly in underdeveloped markets like China and India
  21. 21. © Robert E. Nolan Company, Inc. www.renolan.com Page 21 Industry moving to decumulation stage
  22. 22. © Robert E. Nolan Company, Inc. www.renolan.com Page 22 § The most significant growth opportunity is the aging population – A global opportunity that exists across all of the developed countries § By 2010 the size of the market opportunity will be significant – There will be some 78 million people over age 60 in U.S. alone § Retirement of these “baby boomers” will shift invested assets – Funds will be redirected to retirement income purposes – Over $30 trillion in total expected to shift in the U.S. alone by 2010 – Shift results in a move from accumulation to decumulation, or “payout” § Insurance companies have products positioned to meet payout needs – Diverse line of options: variable annuities, life, long term care – Backed by actuarial and modeling skills able to develop new products § This market shift could represent the biggest period of growth ever seen – Competition is high: banks, securities firms, asset management companies • Advisors indicated 65% would solve with mutual funds, only 26% with annuities – To win, insurers must offer client focused solutions, not products Aging Market Key Source of Organic Growth
  23. 23. © Robert E. Nolan Company, Inc. www.renolan.com Page 23 Population shifting to older ages
  24. 24. © Robert E. Nolan Company, Inc. www.renolan.com Retirement Savings Goals - Progress by Age Source: MetLife Employee Benefits Trends Study (2006) 62% 61% 48% Haven’t started, significantly or somewhat behind
  25. 25. © Robert E. Nolan Company, Inc. www.renolan.com Page 25 Coming from the retiring generations
  26. 26. © Robert E. Nolan Company, Inc. www.renolan.com Page 26
  27. 27. © Robert E. Nolan Company, Inc. www.renolan.com Page 27 Significant growth in Hispanic population bringing service and operations challenges Doubling
  28. 28. © Robert E. Nolan Company, Inc. www.renolan.com Page 28 § Rapid growth in demand for segment aware products – Products meeting Hispanics and Asians specific needs growing in importance – As market size grows, product and service voice will grow as well § Tremendously underserved market currently addressed casually – Translation of existing materials into native languages does not meet the unique cultural needs of the different markets § Increasing notice by large carriers attempting to address the market – Recruiting of agents directly from the markets to be served – Innovative product designs taking into account culturally unique needs – Service centers staffed by individuals from within the different cultures § All carriers should be aware of the demographic changes in their markets – What is rate of change for key market areas – How is agent force composition aligned with their local market changes – What changes in product, sales, and service are needed to match changes Ethnic Markets Bring New Opportunities
  29. 29. © Robert E. Nolan Company, Inc. www.renolan.com Page 29
  30. 30. © Robert E. Nolan Company, Inc. www.renolan.com Page 30 Mergers and Acquisitions Will Continue Signs point to a very strong mergers & acquisitions trend that started 2007 § Over ½ polled insurance executives (56%) expect to pursue an M&A § Large mergers and acquisitions are pressuring mid-size firms – Likely to see consolidations among mid size firms § Creates a balance to the complexity of innovation and organic growth § For some, it is more cost effective to acquire existing in-force than build up Of those pursuing mergers and acquisitions (56%), the primary goals are: § Achieve economies of scale and expense efficiencies (36%) § Enter new markets via products, customers or geography (10%), § Acquire new distribution channels (6%), and § Enhance operational capabilities (4%). Others are divesting themselves to focus on core businesses § Broader financial services firms exiting small life insurance operations Which segment of the industry appeals most to insurance executives § Life (23%), P&C (17%), Agencies/brokers (14%), Reinsurers (7%), Health (6%).
  31. 31. © Robert E. Nolan Company, Inc. www.renolan.com Page 31 Globalization Key Source of Organic Growth § International expansions underway – Emerging markets where local economies growing or people underserved – Korea and Japan represent the first and second largest markets § Significant attention on China, Asia’s third largest insurance market – China will become world’s leading source of insurance premiums w/i 10 yrs – Chinese regulators have recently licensed a number insurers as “Pension Companies” to serve their dramatically growing retirement market § Taiwan has developed a new system of retirement savings – Allows major insurance companies to establish pension plans § India is also attracting attention, even though market is relatively small – Most analysts expect their market will grow at 15% a year – Current growth rate in Europe, by comparison, is 5.5% a year § Non emerging markets also under consideration as sources of growth – Mexico, Turkey and Russia are being considered as growth opportunities – Almost every country is conceptually a target for some company’s products
  32. 32. © Robert E. Nolan Company, Inc. www.renolan.com Page 32 CUSTOMERS
  33. 33. © Robert E. Nolan Company, Inc. www.renolan.com Page 33 Consumer Satisfaction Trends Down for L&A Life satisfaction dropped ’03 - ‘06 Health remains significantly lower and has also dropped
  34. 34. © Robert E. Nolan Company, Inc. www.renolan.com Page 34 Life and Annuity Satisfaction Levels
  35. 35. © Robert E. Nolan Company, Inc. www.renolan.com Page 35 Over a 50% drop in lapse rate based on satisfaction Customer Satisfaction Linked to Lapse Rate
  36. 36. © Robert E. Nolan Company, Inc. www.renolan.com Page 36 Satisfaction Level by Type of Service Somewhat SatisfiedSatisfied Not At All Satisfied Very Satisfied Never Used No Response In person still most preferred IVR’s not well liked
  37. 37. © Robert E. Nolan Company, Inc. www.renolan.com Page 37 Consumer’s Preferred Service Method Has technology improved customer service significantly in last 5 years? 20062005 Preference when short on time Method used Over 60% Somewhat to Strongly Disagree last 2 years Phone still preferred service method
  38. 38. © Robert E. Nolan Company, Inc. www.renolan.com Page 38 Most Important Aspect of Customer Satisfaction 2005 2006 One stop shopping, or all problems solved in one call, greatest source of satisfaction
  39. 39. © Robert E. Nolan Company, Inc. www.renolan.com Page 39 Source of Customer Service Frustration Despite outsourcing, accents and language issues lowest in source of frustrations Wait time & first call resolution, or once and done, greatest source of service frustrations 2005 2006
  40. 40. © Robert E. Nolan Company, Inc. www.renolan.com Page 40 PRODUCT
  41. 41. © Robert E. Nolan Company, Inc. www.renolan.com Page 41 Product Development Trends § Product Simplification to offset complexity introduced by innovation – Improved clarity and simplification of readability – Design simplicity reducing complexities and improving understanding – Assured suitability of the insurance products for the clients § Regulation driven changes – Commission disclosures and replacement scrutiny – Suitability requirements – Anti money laundering (AML) in conjunction with growth in privacy laws § Underwriting use of genetic testing – Costs? Allowable? Public policy? – Moral and legal obligation to share results with applicant? § Terrorism, Natural Disasters and Pandemics (like the Avian flu) – Is the industry ready? Is there adequate capacity? • According to recent studies and analysis, the answer appears to be yes
  42. 42. © Robert E. Nolan Company, Inc. www.renolan.com Page 42
  43. 43. © Robert E. Nolan Company, Inc. www.renolan.com Page 43 Primary Source of New Product Failure Product Complexity Insufficient compensation Uncompetitive Pricing Unappealing features and benefits Too slow to market Top reason for failureWhat attributes do successful companies have? 1. A disciplined approach to the sourcing, evaluation and translation of ideas into product design, implementation and rollout. 2. A well thought out, well documented and well understood, repeatable product development process 3. A clear and unrelenting focus on understanding the needs of their distributors and customers
  44. 44. © Robert E. Nolan Company, Inc. www.renolan.com Market Share by Product Line Page 44 UL ‘05 ‘06 ‘07 VL ‘05 ‘06 ‘07 VUL ‘05 ‘06 ‘07 Term ‘05 ‘06 ‘07 Whole Life ‘05 ‘06 ‘07
  45. 45. © Robert E. Nolan Company, Inc. www.renolan.com Page 45 Term and UL Sales to Individuals 65+ UL B I L L I O N S
  46. 46. © Robert E. Nolan Company, Inc. www.renolan.com Growth Rate by Life Product Type 2007 Page 46 Versions of UL are the fastest growing product
  47. 47. © Robert E. Nolan Company, Inc. www.renolan.com Distribution of UL Sales by Structure Page 47
  48. 48. © Robert E. Nolan Company, Inc. www.renolan.com Distribution of VUL Sales by Structure Page 48
  49. 49. © Robert E. Nolan Company, Inc. www.renolan.com Page 49 Typical Shelf Life by Product Average time to market on a new product is 10-13 months • Start building next version right after each introduction
  50. 50. © Robert E. Nolan Company, Inc. www.renolan.com Product Development Progress by Structure Page 50 Maintenance Mode Hopeful Star Growth Mode Maturing Unproven
  51. 51. © Robert E. Nolan Company, Inc. www.renolan.com Indexed UL - The Hopeful Star Page 51 Sales went from $65M in 1998 to $512 in 2007 (10 years) • Sales doubled 2003 to 2005 after no-lapse guarantee introduced • Fastest growing product in the UL portfolio, over 1/3 of market share Only 25 to 30 carriers in the market, yet not a registered product • Top 5 hold 75% of the market share v Aviva (38%), AEGON & National Life (11%), AIG & Allianz (8%) • Top 10 hold 97.5% of the market share v Old Mutual, Pacific Life & Midland (5%), Conseco & Lafayette (2½%) • Last quarter fastest growers v National Life (33%), AIG( 21%), and AVIVA (19%) Despite success, still less than 10% of total UL sales • Average issue age is in the mid-60’s • Lots of optional “riders”
  52. 52. © Robert E. Nolan Company, Inc. www.renolan.com UL Enhancements – The Proven Winner Page 52 • Sales remain strong and market share is approaching 50% • 46% of UL’s market share is UL with Secondary Guarantees (ULSG) • Product development efforts include • 2001 CSO by 1/1/09, with 30% done beginning of 2008 vs 25% in 2006 v Moving very slow, biggest product development focus in 2008 • No lapse guarantees v Some companies countering by offering low cost term without guarantees • Riders remain an area for innovation • Most popular area of UL development is combination products • Pension Protection Act of 2006 has opened door of opportunity • UL / LTC where the LTC coverage is in the UL premium • UL / LTC where LTC is accelerated death benefit with rider charge • UL / CI bundling where the critical illness is paid in a lump sum • UL / DI combo to provide mortgage protection, compete with term
  53. 53. © Robert E. Nolan Company, Inc. www.renolan.com Sample of Common UL Riders & Features Page 53 Disability Waiver Premium / Monthly Deductions Accelerated Benefits with Critical Illness Waiver of Surrender Charges Accidental Death Guaranteed Insurability Guaranteed Value Children’s Term LTC Rider/Nursing Home Salary Increase Living Needs Benefit Charitable Giving Benefit Estate Tax Repeal Life Paid-Up Caring for Today Benefit Additional Insurance Supplemental Term Return of Premium Guaranteed Survivor Protected Pour-In Cost of Living Increase Change of Insured Alternative Cash Value Overloan Protection Liquidity Rider Maturity Extension
  54. 54. © Robert E. Nolan Company, Inc. www.renolan.com Variable Product Trends – A Mixed Bag Page 54 • Variable Life • Sales up 7% in 2007 v Largest growth is in brokerage channel, other channels flat to slightly ahead • Product Development two-pronged v Providing more fund alternatives to choose from (consumer choice key) v Guaranteed Benefits (GMIB, GMWB, GMAB, etc.) • Variable Universal Life undergoing investment in product features • Cash Accumulation VUL largest segment of VUL market • Adding in UL style death benefit guarantees (GMWB & GMAB) • Incorporating variable annuity style product features • Creating portfolio structured investments – Lifestyle and Lifecycle • Overloan protection riders • Variable Annuities grew 15% in 2007 to over $184 billion • 2007 Q4 to 2006 Q4 showed a 17% jump, reaching $48.2 billion • 10th consecutive increase in current year versus prior year same quarter
  55. 55. © Robert E. Nolan Company, Inc. www.renolan.com Traditional Products – Stable Returns Page 55 • Whole life • Sales relatively flat, growing only 3% in 2007 • Agency and direct marketing channels source of growth • All other channels declined • Term Life • Sales up 5% in 2007 based on annualized premium, 6% based on face • Term still represents 20% of the life insurance market • Traditional term a staple for agents – price first, then ratings & service • Most popular areas of Term development is in simplification v Simplified Issue term v Dial-a-term (adjustable term face based on changing needs) v Riders • Return Of Premium (ROP) term becoming very popular v More and more companies entering this market due to simple concept v Price for lapse rates, state hurdles, reserve & 7702 issues, interstate compact
  56. 56. © Robert E. Nolan Company, Inc. www.renolan.com Individual Annuity Sales by Channel in 2007 Source: LIMRA International, as reported in National Underwriter, L&H, March 24, 2008, p. 41. Many PPGAs and bank agents are not licensed to sell variable products. $ Billions
  57. 57. © Robert E. Nolan Company, Inc. www.renolan.com Life Settlements a New Wildcard § Life Settlements represent a secondary market for life insurance policies that allow insureds to cash-in while still alive § About 60% of top insurance executives expect the secondary market for life insurance to be significantly larger in 5 years than it is today – About 33% moderately larger; 2%, about the same size; and 5%, smaller § About 52% said they would root life settlements out, and 12% said they would let it occur but would want to see them rooted out – The other 36% said they would want to participate in a growing market § Life Settlements are not STOLI (Stranger Owned Life Insurance) – Some say the effort to equate Life Settlements and STOLI is really a desire to stop the Life Settlement business. § Life Settlements will grow rapidly for a few years, then consolidate as volume stabilizes. – One well-known private equity fund is using trusts to make $250 million in life settlements per month Page 57
  58. 58. © Robert E. Nolan Company, Inc. www.renolan.com Page 58 Voluntary Worksite Product Growth Accelerating Increasing growth rate Life and Disability largest segments
  59. 59. © Robert E. Nolan Company, Inc. www.renolan.com Page 59 DISTRIBUTION
  60. 60. © Robert E. Nolan Company, Inc. www.renolan.com Page 60 Changes in Life Insurance Distribution § Decline in full-time affiliated agents (LIMRA estimates) – In 1989: about 262,000 – In 2001: about 178,000 <-84,000> <-32%> – In 2004: about 160,000 <-18,000> <-10%> § More than ¾ of independent agents began careers as affiliated agents – A drop in affiliated agents represents a future drop in independent agents § Stockbrokers and banks wrote – About 40% of new individual annuity premium – Less than 10% of new individual life premium § Insurers are currently working to design products for banks and brokers – Target is wirehouses and bank reps – Examples include simplified issue, guaranteed issue and single premium § Growth in alternative channels needs to match decline in primary agents – Failure to grow channels will result in a drop in sales over time
  61. 61. © Robert E. Nolan Company, Inc. www.renolan.com Channel Market Share 1983-2006 Page 61 • Growth in independent agents • Flattening decline in career • Slight downturn in “other”
  62. 62. © Robert E. Nolan Company, Inc. www.renolan.com Page 62 Agents are Source of Competitive Advantage Implication is clear: Agent/broker service is clear differentiator and a competitive advantage, more than price.
  63. 63. © Robert E. Nolan Company, Inc. www.renolan.com Page 63 Traditional Touchpoints Remain Key to Field Service and support remain more important than commissions
  64. 64. © Robert E. Nolan Company, Inc. www.renolan.com Page 64 Web Tools Table Stakes for Channel Growth
  65. 65. © Robert E. Nolan Company, Inc. www.renolan.com Page 65 Quoting and Managing Client Relationships
  66. 66. © Robert E. Nolan Company, Inc. www.renolan.com Page 66 TECHNOLOGY
  67. 67. © Robert E. Nolan Company, Inc. www.renolan.com Page 67 Investments: Internet, Analytics, Admin The Top 3 Investments 1. Agent Portals 2. Actuarial / Analytics 3. Admin System
  68. 68. © Robert E. Nolan Company, Inc. www.renolan.com Page 68 Influence of the Internet § Internet has become an increasingly important communication channel – Most consumers’ purchasing process is “Web Influenced” – Search engines like Google and Yahoo! are critical channels for insurers – More insurers are embracing search engine optimization § The college-bound “Millennial” generation born between 1982 and 2000 – Represent the next mass affluent group. – Financial institutions will need new marketing approaches to reach them – Companies will have to invest heavily in mobile and web channels § Pure online sales are growing, but still account for less than 15% – “While 100% online sales are unlikely to exceed 30% in any area, the Web will be a major influencer for nearly all sales within five years,” § Agent’s use of and dependence on the internet has grown tremendously – 90% have the ability to download product forms, illustrations, and materials – 80% can get pending business, client values, and commission information – 50% use e–signatures and e–applications.
  69. 69. © Robert E. Nolan Company, Inc. www.renolan.com Page 69 Increased Use of Predictive Analytics § Brings greater precision to pricing and risk assessment – Data mining paired with sophisticated algorithms find patterns and trends. – Trends are used to forecast future behaviors and events. – Subjective judgment is replaced by statistically sound empirical data. – From basic demographics to behavioral factors like finances or commute time § Understanding and targeting specific customer needs by – Enhancing the understanding and targeting of microsegments of the market • Customized, one-to-one customer centric approach to service – Retaining existing customers through elasticity of services and support. § Strengthening distribution – Match selling methods and needs of multiple channels (Know your agents) – Better identify, assess, understand, and serve clients (Know your clients) – Leverage web portals to allow distributors to use (Enable your agents)
  70. 70. © Robert E. Nolan Company, Inc. www.renolan.com Page 70 Policy Admin System Sales Continue AdminServer and Accenture best in class
  71. 71. © Robert E. Nolan Company, Inc. www.renolan.com Page 71 Still, Legacy Systems Remain In Place § Some technologies are making it easier to revitalize legacy systems – Further slowing the pace of change in the industry – SOA, Web services, and other technologies make it more plausible § Wrapping and extending legacy systems remains a viable option – It is not going to become unpopular anytime soon – Carriers need to realize is that they’re mortgaging their futures doing this – These technologies carry a higher total cost of ownership in the long term § Advances have expanded viability, usefulness and accessibility by – Enabling processing of significantly larger volumes of data, – Increasing capacity for handling a wider variety of variables • From basic demographics to behavioral factors like finances or commute time – Enhancing precision of forecasts providing deeper operational insights.
  72. 72. © Robert E. Nolan Company, Inc. www.renolan.com Page 72 Financial Services Offshoring § Well established and accepted by most as a competitive necessity – Some still wait on the sidelines, unwilling or unable to get started § For those who have offshored for several years, fatigue is setting in – Slowing growth and drop-offs in savings levels and quality § The development of financial services offshoring at an inflection point – Winners and losers will now be determined rapidly in competitive industry – Immediate challenges depend on size, experience, and offshoring maturity § Major players need to be offshoring at a much greater scale and soon – Must institutionalize their offshoring operations while managing them well – Embed best practices into their organization’s culture – Focus on aggressively expanding scope and head count – Continue to streamline their systems and processes § Those new to offshoring have chance to adopt emerging best practices – No time to waste: Offshoring is maturing rapidly – Companies slow to act may expose themselves to undue competitive risks.
  73. 73. © Robert E. Nolan Company, Inc. www.renolan.com Page 73 SUMMARY
  74. 74. © Robert E. Nolan Company, Inc. www.renolan.com Page 74 Four Major Trends in Insurance § Active and informed consumers will drive competition – Expectations of service and convenience will rise, in part due to technology – Nontraditional operators will be rewarded for excelling at service – Customer centric service and convenience will drive competition § Technology will virtualize the value chain and lower barriers to entry – Web based insurance service components allow modularizing value chain – Barriers to entry fall as companies enter the market by assembling modules – There will be numerous virtual companies comprised solely of web services § Products will be dynamic and provide consistent performance – Global market will require products to be flexible and able to adapt – Near realtime underwriting interaction will be available via sensor networks – Enlightened privacy regulations will facilitate while still protecting § Industry standards will be affirmed globally with coordinated regulations – Consumer and business protection will become geographically independent – Automation driven efficiency will lead to industry standardizations
  75. 75. © Robert E. Nolan Company, Inc. www.renolan.com Page 75 Industry Implications § Market Demographics Impact : Aging and Ethnicity – Aging shift of funds from accumulation to decumulation products – Operational impacts of serving ethnically diverse cultures § Mergers and Acquisitions – Consolidations of operations – Closed block sales – New market entries § Increased regulations – Demands for more predictive reporting and analytical systems – Greater controls over processes with audits and systematized standards § Product shifts – Annuities, settlements, and investment related products on rise – Payout stage brings demands for annuitization and financial management
  76. 76. © Robert E. Nolan Company, Inc. www.renolan.com Page 76 Strategic Initiatives to Address Trends § Technology Enabled Distribution – Services key, portals and automation continue § Differentiation based on Service – Consolidations, integrations, optimizations to drive expense margins – Enhanced focus on customer centric service delivery – Continued expansion of web based services § Increased, but Targeted, Investments in Technology – Analytical tools usage for risk management, marketing and sales will grow – BPM and SOA will become game changers – New systems implementations continue while legacy systems persist – Portals, automation, and e-services § Discrete and Selective Use of Outsourcing – Selective outsourcing for economies of scale a critical competitive edge – Insourcing and onshoring opportunities will grow for core operations areas
  77. 77. Robert E. Nolan Company Helping Insurers Solve Business Challenges Through People, Process, and Technology For Over 30 Years Industry Update: Life and Annuities

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