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.


Key Takeaways

4

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.

Copyright © 2013 Accenture All Rights Reserved.

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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.


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.


7.8%

13.0%

7

Improving life insurance industry performance will require leveraging

a focused set of value drivers

Percentage Point ROE Improvement


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


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.

9

Distribution


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.

10

Technology Enablement


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


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.


Economy & Finance

U.S. Life Insurance Industry 2020