Technology was clearly the standout challenge among insurers in 2021 as COVID-19 pushed digital distribution adoption as the way to achieve sales success. Low interest rates, excess mortality and regulation are also high on the list of what executives are focusing toward in this time of risk and uncertainty. Going forward, the pandemic may stand out as one of the most challenging times for life insurers across markets all around the globe.
In a recent LIMRA and Boston Consulting Group study, more than a quarter of executives report that interest rate market conditions are a top challenge facing their company today. Of those worried about the market, 14% say that it is not only a top challenge, but the top challenge for their company. While low interest rates have been an attention-grabbing headline since the 2008 financial crisis, actions to address the market needed to be adaptable to the frequently changing environment.
In response to this, the majority of executives started adjusting their strategy for managing investments and matching assets and liabilities. It is also common for expense and product guarantee reduction to take place in response to the current low-rate market, as well as shifting product focus toward protection.
Recent LIMRA research suggests that excess mortality may be the next big worry for life insurers around the globe. Excess mortality increased by 14% in the second quarter of 2020 and 7% in the third quarter. The COVID-19 virus not only resulted in many fatalities but also created an environment in which people were less likely to visit their doctor for preventive care and screenings.
Beyond the virus, there is extreme climate change to contend with. This has led to an uptick in severe weather patterns and events worldwide, claiming many additional lives. Flooding, heat and wildfires are occurring with much more regularity as a result of the planet’s change in climate.
Finally, regulatory challenges come up quite often in conversations regardless of time, place and market conditions. In 2021, 22% of executives placed regulation near the top of their list of concerns, making it the fourth greatest challenge overall. The ability for a life insurer to adapt quickly to changing regulatory demands is more than just crucial — it is imperative.
Some of the most challenging regulatory changes are those involving tax and savings, distribution and sustainability, and cybersecurity and privacy, as well as capital standards.
Companies are coping with the related expense to comply with regulations by reducing operating costs, effectively managing portfolios and identifying new paths to growth.
In 2021, executives were up against what may become the most challenging time of their careers. In order for their companies to succeed, they must continue to be agile and implement new ways in which to effectively adapt and manage the risks posed by the pandemic and other issues over the past two years. The full effects of the pandemic on the life industry have not been fully realized.