A recent report from the Deloitte Center for Financial Services reveals that the industry has to keep working on areas such as targeting underserved markets, simplifying products and launching new distribution programs. Today, in the middle and the long term, the life insurance and annuities industries are going to be:
- Experiencing new avenues for expansion
- Operating in a state of perpetual limbo in terms of regulations and legislation
- Staring at a transformation in talent with millennials and an aging insurer workforce
- Transitioning from a paper form business into a digitalized business
- Dealing with cyber security risks, in terms of potential liability and harm to their reputation
- Growing due to mergers and acquisitions
The report's outlook for 2015 reveals that in the short-term, there should be a more favorable environment for growth in the U.S. because of the economic recovery and the chance that the Federal Reserve will raise interest rates in the second half of the year. Deloitte is also projecting an increase on both net household wealth and real disposable personal income over the next two years. This may signal an improvement in sales for life insurance and annuity products when combined with a falling unemployment rate, Deloitte says.
For the longer-term or the bigger picture, Deloitte recommends that insurers focus on these five things to stay competitive:
1. Transforming for growth
Insurers should make products that are simpler to understand and more consumer-friendly. Moreover, they must improve methods to attract and engage clients through traditional and new channels, and communicate more effectively the value proposition that they offer.
With another Deloitte report citing 38 percent of consumers as saying that they don't know anything about annuities (and one quarter saying the same about life insurance!) educating the public on the role and value of life insurance and annuities is vital to acquire new clients. The graphic below illustrates the different avenues that insurers need to take to see sales growth and reach more clients.
Also, a new generation of products and distribution channels should help meet market expectations. Carriers should refocus marketing and advertising strategies to rebrand the business. For example, the report calls for insurers to be portrayed not just as product sellers, but as long-term partners on whom consumers can count to help them meet evolving financial needs over time.
Becoming more customer-centric and figuring out who the consumer is, what their needs are, and tailoring the products to those clients, should help educate the insurance consumer and make the products more attractive to them.
2. Addressing longevity risks
There's a big opportunity for insurers and carriers to provide more products and advice to the ever-increasing aging population in the U.S. such as improving health care, helping consumers generate sufficient savings and income for retirement. "However, because of the long-tail nature of the risk and the uncertainty of investment markets, figuring out how to profitably design and underwrite longevity-related policies could also be their most formidable challenge," says the report.
This is where educating consumers about how the annuity industry can be part of their retirement planning comes to play. While demand for longevity coverage is likely to soar, insurers need to be careful when designing and distributing such products to meet economic targets and reduce the long-term risk. The graphic below illustrates baby boomers' confidence in retirement, according to the Pew Research Center and Deloitte's "Meeting the Retirement Challenge" report. (Click on the image below to enlarge)
Insurers need to manage consumers' expectations and product features as mortality trends play out, "rather than just treating longevity policies as a one-time product sale and hoping their assumptions turn out to be profitable."
