2015 Insurance Industry Outlook

Editor's Notes

1. --L&A insurers should think more creatively about how they market, design, and distribute their products, while becoming more customer-centric to excel in an increasingly technology-enabled, self-directed environment. --A key component is to develop both precision around who the consumer is, and specificity with regard to their needs, while developing tailored, simplified, and perhaps more flexible niche products that correspond to those individual requirements. --At the same time, customized delivery and service options should be offered that widen consumer choice while aligning with profitability expectations. --To lay the groundwork, carriers should rethink how they communicate with potential prospects. Too often, those outside the business, such as media financial pundits, are defining the industry’s image and value, often to the detriment of insurers. --Establishing more flexible and cost-effective business and operating models is table stakes for carriers not just to grow, but to survive in such a dynamic environment. --For example, more life carriers are likely to explore direct-to-consumer options, particularly to target younger, lower-income, and other underserved segments. --L&A carriers may also look to refocus marketing and advertising strategies to rebrand the business. Insurers should be portrayed not just as product sellers, but as a long-term partner on whom consumers can count to help them meet evolving financial needs over time.
2. --Life spans are increasing, while relatively few are covered by defined benefit pension plans, making long-term retirement income a prime consideration for consumers these days. --These trends could make longevity risks one of the biggest growth opportunities for life and annuity writers, but being able to deliver such long-term guaranteed income products in an uncertain investment environment make this perhaps one of the industry’s most challenging markets as well. --Some carriers have entered the market for longevity risk on a mass scale via pension risk -transfer deals, in which insurers take over defined benefit plans being run off by employers. This trend should continue for the next few years as more employers look to offload retirement obligations from their balance sheets. --Recent federal advisories should help facilitate the use of annuities for 401k and Individual Retirement Accounts. --However, others in the individual market have scrambled to make changes in their policy benefits and offer buyouts to consumers after underestimating their potential long-term liability. --Carriers going after this market segment should carefully consider how they design, model, and distribute such products to meet economic targets and reduce downside risk over the long term. They should also stay engaged with the customer to manage their expectations and product features as mortality trends play out, rather than just treat longevity policies as a one-time product sale and hope their assumptions turn out to be profitable. --Insurers could perhaps craft more hybrid products that account for a wider variety of consumer needs, such as combining life insurance, retirement income, and long-term care coverage in a single policy, while limiting longevity exposure by capping lifetime income benefits.