The results from EY's 2015 Life and Annuity Executive Survey show a range of challenges – some longstanding and some emerging – that are shaping the strategic agenda for the industry's senior leaders. The key findings from the survey highlight the five top concerns for the retail life and annuity sector from the perspective of top executives.
The survey is based on interviews conducted by EY's insurance consultants with CEOs and senior executives from 20 U.S. life insurance and annuity manufacturers, distributors and reinsurers. The objective of the survey is to understand the views and concerns — and to outline specific opportunities and challenges – across multiple areas including consumers, agents/advisors and other stakeholders.
At first glance, the key findings may appear daunting or look like a compendium of bad news. However, it is important to recognize how effective strategies to address these challenges may result in important and necessary opportunities for those who act in a timely and decisive fashion.
1. Ongoing macroeconomic sluggishness.
The global economy is still struggling to gain momentum as many countries continue to deal with the fallout from the financial crisis. Global growth in 2014 was lower than initially expected, according to the World Bank. Beneath the headlines, negative interest rates and devalued currencies trouble some major economies. Overall, global growth is expected to rise moderately to 2.8% in 2015, and average about 3.2% through 2017, according to the World Bank Group.
Although the U.S. and the UK are showing some improvement, financial malaise lingers in Europe and Japan. China is undertaking a cautiously managed slow down. Interest rates remain low, as do overall growth projections. Equity markets are highly volatile and fears about the next bubble run high. There appears to be little optimism amongst our respondents that an uptick in the US economy will fully benefit the insurance industry.
While it's not surprising that life and annuity executives express real concern across the full range of macroeconomic indicators, given the industry's unique vulnerability to many of these forces, we also heard concern about global demographics. According to one executive, significant demographic changes in the future will likely contribute to the macroeconomic "headwinds" stating, "that [Japan is] going to experience a 40% decline in population over the next 40 years. Think about the town you live in if 40% of the people left. What would this do to local businesses, manufacturing, etc.?"
The bottom line is the global economy will be an obstacle to growth for insurers, until the return of broad-based prosperity and wealth creation.
2. Fostering innovation in the era of permanent disruption.
In an industry that has never been considered highly innovative or particularly nimble, advancements in digital technology have made innovation an imperative. The pace of innovation must accelerate as competitive pressures increase. One executive described the situation this way:
"As an industry, we confuse innovation with product development…if we don't learn the difference… and don't learn how to become far more innovative much more quickly, we run the risk of being disintermediated by those that can run faster."
So where should innovation come from and what form should it take? Life and annuity executives cite four main areas:
- Product and market: the industry must develop offerings that reflect the real-world needs for consumers, from affordable annuities for the middle market to more sophisticated life and health policies that leverage the Internet of Things
- Sales and service: the focus will be on driving customer engagement with well-integrated and personalized meaningful digital experiences
- Operations: accelerated or automated underwriting, the use of electronic forms and straight-through processing are just of the few ways insurers seek modernized and enhanced operations
- Technology: old legacy systems must be updated or retired, while better mobile apps, more advanced analytical capabilities and better data integration point the way forward. As on respondent put it, "In today's world, everything has to be mobile first."
While the tone of survey responses was grave – "innovate or die" was one executive's perspective – many respondents reported significant progress on several of these fronts. Now that a few early adopters have demonstrated success with high-profile programs, more insurers identify themselves as fast followers than in prior years. Investments in innovative capabilities are likely to be significant, but respondents believe they can build substantive and quantifiable business cases based on badly needed performance improvements.
However, insurers can no longer just follow their current competitors. Instead, they must be aware of the potential for major disruption from the entry of new players, such as Google, Apple, credit card companies and others. In one executive's words, "Technology is fundamentally upending and allowing new competitors to come into and interrupt traditional business models … [none of us] are safe."
3. Finding, attracting and retaining sufficient talent.
