What Makes Smaller Carriers Successful?

By Cyril Tuohy

InsuranceNewsNet

Traits that make small and midsize individual life and annuity insurers successful range from geographic concentration, to product mix, to low exposure to low-grade bonds and higher productivity among distributors, according to a new study by Conning.

Despite recent consolidation among individual life and annuity insurers in the wake of the recession, the financial crisis has not forced small insurance companies out of the market. What makes these smaller players so resilient?

Successful small carriers depend on life insurance and annuity products in roughly equal percentages, with only 29 percent of premium coming from life insurance products, the report found.

Geographic concentration also plays a role, with successful small companies reporting that 75 percent or more of their premiums come from a single state, and small underwriters relying less on single-premium sales, the report found.

The report, titled Successful Individual Life-Annuity Specialists 2013, is part of Conning’s Strategic Study Series in insurance research. It is the fourth study in the series by the consulting and research organization. The previous study was issued two years ago.

The study also found small and midsize individual life insurers to be very consistent in keeping with their product mix, once they find that optimal revenue balance.

“Each company seems to have found its optimal product mix that works for its specific products, markets and distribution, and then did not vary much from it,” the report said.

Small and midsize individual life and annuity carriers are consistent in their business strategy, but nimble enough to adapt to change. Successful small carriers, for example, continue to invest in bonds with a term of anywhere from one to five years.

Many of them avoided investing in junk bonds, and do better than larger individual life and annuity companies at controlling expenses.

Even when agency expenses are included, successful small companies tend to have higher distributor productivity than the small group overall, the study found, but maintaining that advantage “will be challenging in the future.”

Agents who left the sales force during the recession tended to be young, and those who remain are graying, and overwhelmingly male.

“Companies will need to cultivate new agents and expand into new distribution channels and ethnic markets in order to reach younger and middle-market customers,” the report said.

Data for the reports are derived from financial statements required by the National Association of Insurance Commissioners.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].