U.S. Life Insurance Industry 2020
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Transcript of U.S. Life Insurance Industry 2020
U.S. Life Insurance Industry 2020 Getting to 2020: Strategies
for Profitable Growth
Life Industry in U.S.
The U.S. life insurance industry has been slow to recover from the
economic crisis and returns in this large, mature industry have
been low. While the life industry share index outperformed the
S&P 500 in 2013, as Figure 1 on the next slide shows, it has yet
to return to pre-crisis levels.
Copyright © 2013 Accenture All Rights Reserved. 2
Figure 1: While the life industry share index outperformed the S&P 500
in 2013, it has yet to return to pre-crisis levels.
Copyright © 2013 Accenture All Rights Reserved. 3
Key Takeaways
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The industry continues to face strong headwinds
• In addition, the industry has been challenged to make a sustained impact on its ROE’s or
find top-line growth in new or existing markets in the U.S. In the first half of 2013
Accenture completed some modeling and scenario planning analysis around strategies for
future growth. As we look into the future, there are no expectations that growth will
appreciably accelerate with business as- usual strategies. Forecasted top-line premium
growth through 2020 is only expected to compound at a very slow 1.9% rate and net
gains from operations at a similarly slow 3.0% rate.
• The industry continues to face strong headwinds, including low interest rates, cost
pressures, product focus shifts, changing customer behaviors, increased competition and
new regulatory initiatives. These and other factors are forcing life insurers to re-think
their approach to the market.
• With some possible relief on interest rates and an improving economy, change in
consumer behavior has become the biggest threat to long term, profitable growth. The
consumer’s path to purchase used to be linear and confined to a single channel. Thanks to
technology, the journey now is dynamic, accessible and continuous. As discussed in the
Accenture Point of View “What Today’s Nonstop Customers Want from Life Insurers—
and How to Give It to Them,” buyers no longer enter one channel but are continuously in
multiple channels.
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Need for pace of change and multiple fronts
• Consumers have become more aware of and sensitive to price and, when
coupled with competing financial priorities, this has led to decreased
levels of loyalty and trust. They have higher expectations for service and
expect more transparency from service providers, especially when using
online channels.
• Evaluation, rather than purchase, is now the focal point, with consumers
constantly re-assessing their choices. Across all age groups, there is
increasing use of digital and social media, and mobile devices such as
smartphones and tablets. Consumers are exposed to content beyond the
brand’s control, and that content is more insistent and more influential.
• Despite this challenging environment, insurers will need to quicken the
pace of change and move forward on multiple fronts. The good news is
that opportunities for growth are out there for those willing to undertake
the right strategic initiatives while addressing improvements to core
activities.
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Key Takeaways
Insurers planning for a return to profitable growth should focus
on the following key areas to drive a balanced attention to
growth through customer experience transformation and
operational excellence. This will deliver a sustained shift in their
cost curves and ROEs.
Copyright © 2013 Accenture All Rights Reserved. 6
7.8%
13.0%
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Improving life insurance industry performance will require leveraging
a focused set of value drivers
Percentage Point ROE Improvement
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2.5% 0.6% 2.1%
Current 2020 Slow
Growth Scenario
Reduce General Expenses Optimize Commissions Grow top-line premium
Value Drivers
to Improve
Performance
• Operating Model / Organization
Transformation
– Consolidate/ breakdown silos /
adopt shared services
– Process excellence
– Spans/Layers
• IT Transformation
– Application Rationalization
– Automation / Self Service
– Platform Modernization
– Demand Management
• Sales & Service
– Analytics / Segmentation
– Lean Agency structure
– Multi-channel capability
• Sourcing/ Procurement
– Cost Arbitrage
– Effectiveness (outcome based)
• Optimize Compensation Spending
– Refine sales credit participation and validate compensation
eligibility – Re-align pay mix and refine pay for
performance guidelines • Reduce overpayments
– Enforce plan policies in processes and tools to improve compliance
• Reduce Operations Costs – Reduce operational support
requirements from compensation administrators and IT personnel
– Re-purpose time from data validation to value-added analysis
– Enhance self-service capabilities for the Field
– Reduce labor costs via consolidation
• Increase new business by improving
market penetration and explore
emerging markets
• Improve retention
• Increase cross-sell rate
• Optimize multichannel distribution to
enhance customer experience and
channel profitability
• Enhance distribution model and
offerings based to reach attractive
underpenetrated customers / customer
segments (Gen X, Gen Y, Middle
Market, Ethnic, Retirement Services)
• Recruit advisors that improve
productivity and retention
• M&A to expand offering, reach and
returns
Formula driven
13% ROE
Priority focus should be on strategic cost reduction through operating model transformation, and enhanced
customer experience for growth through analytics and digital technology, and improved multi-channel distribution
Bottom-Line Impact Top-Line Impact
Source: Accenture analysis and estimates
Forecast Approach & Outlook
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Customers
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Executive Summary
• The dual forces of an economic downturn and a technological boom have created
customers who are price conscious yet sophisticated and knowledgeable. Theyexpect
more for less, and particularly convenient, customized, holistic solutions. To meet these
expectations insurers should choose target segments and tailor communications and
offerings appropriately. They need to ensure that the customer experience across
channels (web, advisor, call center) is integrated and consistent. While consumers are
still interested in working with an advisor during the sales cycle, insurers need to
strengthen their web, mobile, and social capabilities to become more engaging and
relevant for the entire sales process.
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Distribution
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Executive Summary
• Although customers are increasingly self-educating, they still want and
need advice. Consider using advice led distribution models that can match
customers with appropriate levels of advice for their needs and ability to
pay. Advice can range from embedded product selection to personal
financial management to more complex, personalized advice. There needs
to be a fundamental shift from selling product to providing solutions for
consumers’ problems.
• In this rapidly changing environment insurers are dependent on a sales
force that can be in close touch with younger customers, and tech savvy
customers young and old. Agents who fit the bill are demanding access to
innovative technologies and analytics to gain better insights into the
needs of customers. Analytics can also help segment the customer base
more accurately and provide deeper knowledge to help producers reach
underpenetrated markets, such as the middle market, younger consumers,
women, and ethnic markets.
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Technology Enablement
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Executive Summary
• Digital technology should be leveraged to transform every process
across the insurance value chain, in addition to the historical focus
on sales. Digital technology can enable expanding and personalizing
relationships with customers, distributors, and business partners at
scale. Software-as-a-service models are being implemented in
frontend CRM, to underwriting, to back-end policy administration to
increase agility and reduce costs. The new digital insurer will be
powered by analytics that puts data to work to drive solutions-
based customer insight in areas such as cross sell and next best
offer, to predictive underwriting decision models, to customer
retention programs.
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Strategic Cost Reduction
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Executive Summary
• While many insurers have cost reduction programs underway, the focus needs to be
on making changes to the operating model that creates a material and sustained
change in the cost structure. Strategies that can achieve those results include using
shared services to establish centers of excellence and generate real advances in
process excellence, and service quality in corporate areas such as finance and IT and
in core insurance functions such as claims and call centers. Modernizing and
transforming the complex policy administration environment is an area where
different levers such as surrounding, replacing, and outsourcing should be considered
to reduce the significant cost and complexity that currently exist in that part of the
operating model.
• While not new, lean strategies can be applied in a more end-to-end transformation
approach, to support standardization and optimization of processes across the entire
value chain. Distributor compensation, which typically makes up a large component of
insurers’ expense , can also be optimized by decreasing operational costs, enhancing
sales productivity, and strategically aligning with performance. In our experience,
transforming the operating model could reduce operating expenses by more than 25
percent, and improve speed and cost to market by 20 to 30 percent.
While the journey to sustained growth may still be challenging, the good news is
that by taking the necessary strategic steps insurers can expect increased return
on investment in both the short and long term.
For example, improved back-office functions, increased outsourcing of non-
strategic functions, and better use of data analytics can all yield immediate gains
in both efficiency and effectiveness. The road to 2020 may not be smooth, but
with the right initiatives insurers can withstand the unrelenting external
pressures, and position themselves competitively in the changing landscape.
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