Life Insurance Industry Faces Low Growth, New Challenges

The U.S. life insurance industry is still feeling the effects of a low-growth decade, according to EY’s 2020 US and Americas Insurance Outlook.

How can insurers reverse this trend of low growth while dealing with new challenges like the emergence of fintech and climate change-related risks? Ed Majkowski, EY Americas insurance sector and advisory leader, shared some insights with InsuranceNewsNet.

Between 2013 and 2018, compound annual growth rate in life insurance premium growth has been 1.7%, the EY report said. Gross written premium grew from $661 billion in 2013 to $718 billion in 2018.

The report said in terms of assets under management, life insurers have not attracted the level of inflows that retirement accounts and mutual funds have. Still, there is broad industry consensus that large market segments are currently neglected or underserved.

Multiple studies have found that there is a considerable life insurance coverage gap for Americans. While a significant portion of middle-class customers have not saved enough for retirement, the industry has fallen short in communicating the importance and value of its products. A return to profitable growth has to be at the top of the strategic agenda for life insurance executives for both the near and longer terms.

Life insurers must take action on four fronts in order to reverse 10 years of low growth, the EY report said. Those four fronts include:

• Deliver financial wellbeing.  
• Win the war for talent.
• Achieve operational excellence and cost efficiency.
• Manage persistent regulatory pressures and focus on customers’ best interests.

“Life insurers must continue to focus on providing top quality products that have very strong benefits and very good value proposition,” Majkowski said. The EY report recommended insurers focus their efforts on showing consumers how life insurance products can provide retirement security and figure out how to make their products simpler to understand and less expensive.

The report also predicted advisory services and fee-based models are likely to grow, while commission-driven product sales are likely to shrink. Subscription models are likely to gain traction, as well, with consumers paying for access to advisors and more flexible product features that they can turn on and off as their needs dictate. This evolution reflects the need for insurers to shift from product-centric business models to value propositions founded on customer-centricity.

The life insurance industry also is challenged to revamp its workforce, the report said. Significant numbers of workers, including agents, will retire in the near future. Meanwhile, more administrative and back-office tasks will be handled by bots, artificial intelligence and machine learning. On top of all that, life insurers are losing talent to banks and asset managers, primarily due to compensation

What can the industry do to attract and retain talent?

“You have to keep retraining your existing workforce while bringing in new talent,” Majkowski said. “I think the life insurance industry is one of the best industries in the world, and I actually think it’s a pretty fun and great place to work. But young people coming out of school would rather work for some of the big technology firms out there. So the industry has to continue to recruit and retrain and get their existing workforce to become more digital.”

Life insurers must make the customer service seamless, Majkowski said. “Customers expect an omnichannel experience where they are able to go online to call your call center or talk to an individual and kind of feel the same message. That’s hard to pull off; it’s a very hard pivot.”

The EY report recommended insurers must bring their costs down and make their processes more efficient to fund transformation and growth initiatives. Insurers must also develop plans to simplify and reduce the costs of managing legacy systems on an ongoing basis as those aren’t going to be fully replaced any time soon. In addition, the report said insurers are selling closed books of business that are too burdensome to manage or engaging third-party administrators and spinning off businesses.

Regulatory issues continue to pressure life insurers, the report said. Recent regulatory actions and proposals indicate that customers’ best interest will remain a major focus area, one that will require considerable management attention for insurers and intermediaries. Insurers’ commitment to maintain their fiduciary duty is also under increasing scrutiny.

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at Susan.Rupe@innfeedback.com. Follow her on Twitter @INNsusan.

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Susan Rupe is editor in chief, magazine, for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at susan.rupe@innfeedback.com.