201203 LOMA Resource: Industry in 10 Years


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Article discussing longer term implications of the current challenges facing the industry and likely structural changes that will occur over time. Technology, talent management, operations and service differentiation are all discussed.

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201203 LOMA Resource: Industry in 10 Years

  1. 1. By Jennifer C. Rankincover focus10 March 2012 RESOURCEWhat’s Ahead?Our Industry in 10 YearsWhat will the insurance sector belike 10 years from now? Resourceturned to some seasoned industryexecutives for answers.
  2. 2. www.loma.org 11t the end of 2011, Resource askedinsurance industry leaders to sharetheir thoughts on what the yearahead holds for sales and profitabil-ity, structural change, informationtechnology, and customer service, publishingtheir predictions in January (see “Forecast2012”). Here, we bring you their answers tothree questions with a longer time horizon:What do you think our industry will be likea decade from now? What opportunities doesthe future hold? Will the industry be drast-ically different and, if so, how will it be different?The executives who answered thesequestions are a cross section of the boardof directors of LL Global, the umbrellaorganization for insurance industry tradeassociations LOMA and LIMRA, plus otherkey industry players. They are:Neal Baumann, global insurance leader,DeloitteBenjamin Qiao Bujia, FSA, general manager,corporate planning department, Huatai Life, a JV betweenACE Life Assurance and Huatai Insurance GroupThomas P. Burns, CLU, ChFC, chief distribution officer,Allianz LifeSteve M. Callahan, CMC®, ChFC, CLU, FFSI, FLHC,FLMI, senior consultant and practice development director,Robert E. Nolan CompanyMichael R. Fanning, executive vice president,U.S. insurance group, MassMutualDoug French, managing principal, insurance actuarialadvisory services practice, Ernst & YoungPeter A. Golato, CLU, ChFC, senior vice president,individual protection, Nationwide FinancialW. Kenny Massey, FICF, LLIF, president and CEO,Modern Woodmen of AmericaPaul Rutledge, FSA, president, SCOR Global Life AmericasTim Stonehocker, executive vice president, individualand AIC, Ameritas LifeCraig W. Weber, senior vice president, insurance, CelentBAUMANN: Deloitte believes there could be noticeable shifts onseveral dimensions. For example, we would expect to see moreconsumer-centric business models, with simplified and easierto understand products. We expect to see successful moves intesting the prevailing conventional wisdom that‘life insurance is sold and not bought’. We wouldexpect to see some noticeable shifts in stream-lining key dimensions of the operating model—focused essentially on reaching new heights ofoperating efficiency and delivering a different-iated customer experience. And we expectto see noticeable movement from a con-solidation perspective.BUJIA: A decade from now, the core businessmodel and service of our industry will bewell established [in China]. More protec-tion rider products will be available forcustomer choice. The annuity business willenjoy certain tax preferential treatment andour industry will be acknowledged as retire-ment service experts. On the distribution side,Web-based sales will become a major channel.Individual general agents will be able tosell the products of multiple life companies.The bank channel will be mainly focused on qualifiedannuity business, which enjoys preferential tax treatment.Immediate annuity products will become popular. Entry stan-dards for agents will be much higher than current standards.BURNS: Amid volatile markets and an uncertain retirementsystem in the U.S. (lack of defined benefit plans, solvency ofSocial Security, etcetera) the life insurance industry has a tre-mendous opportunity to serve as the face of safety and securityfor retirement savings. By laying the groundwork now throughcontinued product education and sharing our insights aboutthe future of retirement, we can help people prepare for thechallenges that tomorrow can bring. We expect to see con-tinued convergence between traditional channels. This willresults in fewer “fixed only” insurance agents replaced by moreregistered reps and registered investment advisors using insur-ance products for a portion of their business. We believe therewill be a growth in the fee-based platform, using annuities toprovide income solutions for 401(k) and other retirementfunding alternatives.CALLAHAN: First and foremost, the changing nature of themarket demographics as the shift continues towards greaterethnic diversity amplified by continued high rates of legalimmigration. Buyer profiles and economics as well as cul-tural expectations and even language shift along with thesedemographics, bringing with them a challenge for carriers tobe able to effectively deliver upon. Multilingual agents, mate-rials, and service centers will become increasingly import-ant depending upon what markets a carrier chooses to pursue.Companieswithout asocial [media]presence by2022 willeffectivelybe out of thelife insurancemarket from ashare growthperspective.
  3. 3. 12 March 2012 RESOURCEBenjamin Qiao BujiaHuatai LifeNeal BaumannDeloitteThomas BurnsAllianz LifeSteve CallahanRobert E. NolanCompanyMike FanningMassMutualEven product design will be affected as theneeds of different cultures and generationsbring with them a different desired featureset. Already, the shift from asset accum-ulation to income streams has dramaticallyimpacted product design and focus as SPIAsstart to lead the way materially over otherproducts and only universal life (UL) sees anyreal growth on the life side.By the year 2022, themix of cultures and ages will be broad enough torequire carriers to have successfully bridged thegap in providing individualized attention andsolutions to each of the targeted market segments.Which brings up the importance of beingincreasingly more effective in identifying andtargeting the ideal and most profitable marketsegments, while at the same time being willingto walk away from other less profitable or evenunprofitable ones. With market segmentationas a key need, and greater insights into behav-ioral risk factors another, the growth in theuse and complexity of analytics will continuewell past 2022, and will become foundationalto all aspects of a carrier’s value proposition—from product design, through selected distribution method,to service standards and mode. Companies not already onthe analytics band wagon should quickly regroup and strate-gize about the value of the long term role this combinationof technology and intellectual capital will provide, as manycompetitors have already taken the leap and are well investedin analytical warehouses and advanced, even predictive,selection tools.Distribution, while greatly facilitated by the internetand online interaction, needs analysis, illustration, and evensubmission will become more prevalent, there will remain arole for the individual agent given the width of the genera-tional constituents in the market in 2022—Baby Boomers on the retirement income spec-trum of the lifecycle will continue to demandproducts with guarantees as the youngerGen Y enter the market and start researchingand buying online. This brings up anothermajor change underway in the industry—the integration of an online social mediapresence into the marketing, sales and evenoperations areas. The next large generationof life insurance buyers is Gen Y, and theygrew up living online, which means theirpurchasing behavior will vastly differ fromtoday’s Baby Boomers. Companies withouta social presence by 2022 will effectively beout of the life insurance market from a sharegrowth perspective, and will taper along withBaby Boomers expiring absent an urgentcatch-up effort. Social networking, and col-laborating with the distribution channel toassist them in providing a controlled presence,is a key to successfully adapting to the relianceupon the online communities for opinions,research, and service experiences. By 2022,social media and the Web will be an integral and almostprimary marketing investment and strategy in serving bothdistribution and consumers directly.Products will have had to shift to greater flexibility whilestill providing simplicity and clarity of understanding. Com-plex product bases with riders layered on top to cover a varietyof individual needs will need to gradually be phased out andreplaced by a more simplistic approach to coverage componentsthat can be assembled into individualized solutions. And thesesolutions have to have conversion and migration options builtin to allow change to the elements of coverage as the insuredgoes through life event changes and takes on different rolesOver the next10 years,all financialinstitutionswill haveto adapt towhat is likelygoing to be anincreasinglyintense andcomplexregulatoryenvironment.
  4. 4. www.loma.org 13www.loma.org 13Peter GolatoNationwideFinancial ServicesKenny MasseyModern Woodmenof AmericaCraig W. WeberCelentDoug FrenchErnst & YoungTim StonehockerAmeritas LifePaul RutledgeSCOR GlobalLife Americasand responsibilities. Hand in hand with product simpli-fication comes greater standardized regulation across thestates, as the needs for transparency, clarity, and stabilitydrive stronger compliance with cash flow testing, solvency,suitability, and disclosure. Distributors and carriers alike willneed to be prepared to disclose the intricacies of both productdesign and composition as part of the sales process.Technologically, the Web will provide a seamless presencethroughout life’s activities in 2022, putting the power of vastamounts of information as well as opinions at the fingertips ofevery individual. Companies will need to invest in compliancesystems, reputation monitoring solutions, and online contentmanagement to ensure staying competitive with those carri-ers willing to invest in a dynamic Web presence. Consider theimpact of Progressive’s Flo, whose fan page on Facebookalready has millions of followers, more so than manycompanies themselves. This kind of creative leveraging of theWebwillbecomethefoundationforbuildingouttheonlinesalesand service components of the 2022 carrier.What opportunities demand action?n Leverage social media to build awareness, serve customers,protect reputation, and expand market access.n Invest in technologies that will integrate with the commod-itization of SaaS and Cloud solutions for the industry.n Simplify products while looking at ways to more easilyintegrate a variety of features that allow age, time, or eventdriven conversion options.n Integrate advanced analytics into all decision-makingprocesses across the company, investing in the ability to lookacross functional silos at the data as a whole in determiningeverything from pricing to sales and delivery methods.n Seek ways to simplify the risk assessment process, focusingon cycle time compression while maintaining book ofbusiness integrity.n Invest in the front-line staff, providing stronger tools,scripts, training, authority, and discretion in order to com-pete on the basis of service experience over product price.n Contemplate global expansion, block of business salesor swaps, and selective acquisitions as a way to create acoherent market value proposition that optimizes productportfolio and company strengths.n Return to the basics of Porters management strategies,environmental scanning, and focusing on that which canbe done with the least investment to the most advantageover competitors.Distractions abound as the economy continues to com-press profit potential and challenge leaders to find alternativesolutions. In finding these solutions, while looking to the bottomline, keep an eye on the future. Be there before your competitors.FANNING: Ten years from now, I don’t expect our industry tobe drastically different, but I do think it will continue to evolve.The biggest changes will likely come in the sales and serviceprocesses. Technology will enable us to do things a lot moreefficiently, particularly in the underwriting side of the business.I can see us someday being able to deliver a policy very soonafter a potential customer submits an application. As mentionedearlier, social media is starting to change the way we all connectwith our customers, and I would expect even more dramaticchanges in the future. In some ways, though, I see what peoplefundamentally value most in this industry remaining the same.The economic conditions and volatility of the past few yearshave shown that people demand security and stability from theirfinancial provider, and that’s why financial strength, qualityproducts, excellent customer service and a knowledgeable,trusted financial professional will always be essential. If you haveall those, and you’ve harnessed technology to the point whereyou can deliver a seamless experience for the customer, you’ll beamong the winners in our industry.
  5. 5. 14 March 2012 RESOURCEFRENCH: Over thenext 10 years, allfinancial institutionswill have to adapt towhat is likely goingto be an increasinglyintense and complexregulatory environ-ment. A more regu-lated market will driveenhanced consumerism and will result inmore transparency and disclosure around com-pensation and commissions. Companies willbe forced to make their products less complexand more understandable to the consumer.Inefficiencies in distribution will need to be addressed, andcompanies looking to stay competitive will make significantinvestments in technology, particularly with the importanceof online presence continuing to rise. And for any organizationto effectively address these concerns, management will haveto adopt a more active approach than they traditionally didin the past. Those who continue to be passive and reactive willlose market share. The companies that will succeed will bethose who are more nimble and innovative, adapting to achanging environment.GOLATO: Ten years from now, life insurance will still be soldby agents, but there will be more avenues for growth; trans-actional products may find a niche in on-line sales and we maysee non-traditional carriers enter that market. Service will bea key differentiator for carriers and technology will makeunderwriting less intrusive for customers, even at largerface amounts.MASSEY: We must gain the high ground morally in the mindof the public. [We must] be better at self policing our salespractices at the sales level, be quick at the corporate [level] atstanding behind our product promises and representations, andbe an industry that is for the customer, not for corporate profits.RUTLEDGE: Based on history, it takes more than a decade tomove the big ship of life insurance. However there are forces atwork both domestically and internationally that will manifestthemselves in the upcoming decade and have lasting effects onour business. How U.S. regulators respond to global regulatoryand accounting changes is still unknown but we’re moving inthe direction of convergence.Changing the way we account for insurance contracts frombook value to fair value will drastically affect the cost of capitaland could force the industry to merge and consolidate fasterthan we had expected. It could also have a significant impact onthe types of products and services we offer, pos-sibly to the detriment of the public. The propos-als being debated favor simple, commodity-likeproducts, and may diminish or even precludethe availability of long-term guarantees that arevalued by the public and lie at the heart of thelife insurance business.The industry is at a tipping point. If it movesin a direction that preserves the balance sheetand aligns with public policy we’ll have a busi-ness that is viable a decade from now. If not, theunintended consequences are hard to discernbut will certainly diminish the industry’s abilityto continue to provide guarantees and value tothe public.If the industry is not weakened by regulation and account-ing regimes, it has a bright future with regard to protectionand savings products in general.The aging of the customer base provides opportunities forthe industry but only if regulators and life insurers are opento innovations in products and in ways to connect with thecustomer base.I think there are opportunities for both growth andefficiencies in distribution, especially when the potential oftechnology is more fully realized. Also, to the extent that prod-ucts become simpler and less complicated, other marketingvenues will become more effective so insurers will be less reliantontheroleofthecurrentagencysystems.Thiswilllettheindustrytake advantage of opportunities in the middle market.STONEHOCKER: A decade from now, we will be delivering ourservices with greater technology and fewer people. We will havefewer companies so will probably still be serving fewer people.We will see more companies focused on the asset accumu-lation side and failing on the protection side. Our tax laws willbe different so our products will adjust. Mutuals will make acomeback as we are seeing today.WEBER: I think our industry will have refined its value propo-sitions to customers significantly. Right now, the insurancesales process is still designed to match customer needs to anexisting suite of products, and we can’t always articulate thereal value we’ve provided, other than raw insurance coverage.I consider this to be a missed opportunity. People buy insurancefor all kinds of reasons, and in the next decade we’ll developsome insights into the many different value propositions thatresult in a sale. Increasing our sophistication in understandingconsumer behaviors will give us better efficiency and bettercustomer satisfaction, and that will improve our fundamentalsin a powerful way. wOther Views on Industry’s Future, page 16I think ourindustry willhave refinedits valuepropositionsto customerssignificantly.