201001 loma resource_forecast

E-MAIL

This page to a friend Enter recipient's e-mail:

Send this page

From January 2010 Resource

Forecast for 2010: Cautious Optimism Most companies are predicting 2010 sales growth, premium growth and profitability to be modest to flat compared to 2009. By Jennifer C. Rankin and Ron Clark Insurers are slowly emerging from the financial crisis and recession and are cautiously optimistic about the year ahead.

It’s against this backdrop that Resource asked insurance industry leaders to share their thoughts on what the year ahead holds for sales, profitability, technology and customer service. The executives who participated in our annual forecast included a cross section of the LL Global board of directors plus several industry analysts. They are:

Steve M. Callahan, CMC®, ChFC, CLU, FFSI, FLHC, FLMI, senior consultant and practice development director, Robert E. Nolan Company

Esfand E. Dinshaw, LLIF, president, annuities, Midland National Life

Peter A. Golato, CLU, ChFC, senior vice president, individual protection, Nationwide Financial Services

W. Kenny Massey, FICF, LLIF, president and CEO, Modern Woodmen of America

Eileen C. McDonnell, executive vice president and CMO, Penn Mutual Life

Dayton H. Molendorp, CLU, chairman, president & CEO, OneAmerica Financial Partners

Karen Pauli, research director, TowerGroup

L. John Pearson, CLU, chairman, Baltimore Life

Elaine A. Sarsynski, chairman and CEO, MassMutual International LLC—International and Retirement Services

Nicolas Schimel, chief executive officer, Union Financière de France

Craig W. Weber, senior vice president, Celent

Here’s what they had to say:

1. SALES What is your prediction for sales,

of 14insurance service

1/5/2010http://www.loma.org/res-01-10-forecast.asp

http://www.loma.org/res-01-10-forecast.asp

premiums and profits for our industry as a whole in 2010? What products look particularly strong or weak?

CALLAHAN: As goes the market, so go market based products. With the dramatic drop in the S&P from its highs by almost 40 percent (52 percent for the Life and Health Insurance Index June 2008 to June 2009), and with interest rates continuing at historically low, almost nonexistent, levels, the appeal for variable products, both annuities and life, dried up most of the year as buyers shifted to whole life and term to preserve their assets. The hedging and risk management techniques, combined with unexpectedly underpriced guarantees linked to the variable products, put many insurers at an extremely high exposure level that will continue to wash out over the duration of 2009 and into 2010. In response, most reinsurers exited the variable market, while many insurers either stopped writing variable guarantees or, more commonly, selected some combination of increased fees, reduced guarantees, and/or restricted asset allocations, all in an attempt to reduce market exposure and capital drain.

And, with the exception of MetLife, whose VA sales have increased 11 percent through 3Q09, the industry has suffered a 23 percent decline through 3Q09 versus 3Q08. Yet sales do not directly or immediately translate to profits, as MetLife’s recently announced US$ 1.4 billion in investment losses and third quarterly loss indicates. Even with the market returning slowly to better times, a return to profitability will take care and time. Specific to the variable products, positive press combined with well established brands and continued improvement in the market will likely cause them to inch up. Yet the increase is likely to be a gradual one due to two key inhibitors. First, there are fewer, less wealthy, and much more cautious buyers available for purchasing variable products. Second, feeding the concerns of the cautious, the changes in fees, features, and guarantees undertaken by insurers compound the reluctance to dive back into this market.

Similar to the "flight to quality" during the tech bubble burst of the mid 2000s, consumers have tended towards permanent and term products during these difficult market times, with, for example, an eight percent increase in agency sales through September 2009 versus the same timeframe in 2008. Companies with products that, during significant real estate and market declines, are able to either show no change in any intrinsic value, like term, or an actual increase in value, like permanent insurance, are appealing to the consumer’s desire for safety, security, and stability. Building on the appeal of term products, companies are introducing modified term plans that approximate dial-a-term (select a face) and term/UL combos that allow flexible durations, issue ages, steps in face, and premium payments. In fact, for some, the appeal of permanent plans has been enough to initiate actual increases in the amounts being paid into their cash value permanent plans. Along these same lines, fixed deferred and immediate annuities have taken over a good share of the market lost by variable products, growing to 40 percent of total annuities in 2008 and expected to reach 50 percent of total annuities in 2009. That said, total annuity sales are expected to remain flat across the two segments in 2009.

A product set that is garnering a great deal of attention is the indexed annuity and indexed universal life set. Focusing first on the indexed annuities, given the market volatility, and a primary shift away from indexed annuities, there has also been over 11 percent year to year




growth in indexed annuities amounting to US$ 7.5 billion. Hidden behind this rather innocuous growth rate is the tumultuous nature of the competitive landscape, with some companies up over 75 percent in sales and others down almost 60 percent, shaking up the rankings tremendously on a product showing growth. In the indexed universal life arena, year on year growth is slow at one percent across the 33 existing carriers, building momentum for 2010 as product designs are continuously refined. The rapid feature set change and growth is typical for a new product concept going through rapid innovation cycles that change competitive profiles rapidly. Another trend below the radar with this product set is the tripling of bank distribution’s share of the market over the past year, bringing this channel up to over 12 percent of the total sales as of 3Q09. Innovation, growth, and channel competitiveness make this product one to watch with care, along with the trials and tribulations of the 151A ruling that would make this an SEC regulated product. The implications of either vacating or delaying the ruling due to the need to measure the overall costs and impacts will accelerate indexed product sales as they become the innovation of choice.

Combo long-term care (LTC) plans are also growing in appeal as the aging Baby Boomers look for a solution to their need to work longer than planned while still insuring, cost effectively, against the cost of long term care. These plans bundle an LTC rider on top of either a cash value based life plan or an annuity that create a funding vehicle for the LTC rider. There are several appeals to these plans, including bundling so that the costs are lower, tax advantages, flexibility, and broader coverage. It also addresses the aging of the workforce, which is a critical need.

New sales volume for life will likely continue the 20-plus quarters of quarter on quarter downward trend, with group life trending up as voluntary workplace markets improve. On the other hand, there is a significant spike up in the rate of new app sales growth in the 60+ market, while the 45 to 59 market shows very slight year on year growth in the two percent range, and the 0 to 44 market is actually shrinking at a slow rate. Recent attention has expanded beyond Baby Boomers to recognize the tremendous opportunity presented by the underserved middle market, with focused product and distribution techniques being developed to specifically target this market’s needs using the workplace as the common medium for linking the structure together.

For 2009, total inforce premium will probably shrink as lapses hold at a higher level paired with accessing funds through withdrawals, loans, and partial surrenders. These shifts clearly impact the investment portfolio performance of insurers. While a loss like 2008’s US$ 50+ billion is unlikely in 2009, a return to profitability may not yet be in the cards despite market upturns over the last quarter. A combination of portfolio commitments, increased reinsurance costs, increased reserving demands, lower returns, and the cost of guarantees are all combining to make the return to profitability a gradual one. That said, insurers have been effective in cutting their operating expenses by nearly 30 percent from a high of US$ 155 billion in 2007, which helps make the transition to profitability easier and shows effective leadership under market duress.

DINSHAW: Expect individual life insurance sales to increase by five to 10 percent. People will be attracted to guarantees and death benefits. Do not expect premium financing sales to return. Fixed annuity sales will remain strong as people have been burned by equities. Some rebound in variable annuity sales but overall demand




will be low. Profits will be challenged primarily due to variable annuity guarantees and investment portfolios. Investment portfolio challenges (corporate bonds, commercial mortgages etcetera) will limit capital. Companies will be trying to build capital by retaining profits.

GOLATO: Most companies are predicting 2010 sales to remain flat to down compared to 2009. Premium growth and profitability will likely follow that same trend. Consumers are going back to the basics of life insurance protection, which means they are looking for low-cost coverage to protect their families. Simplified issue products are getting a lot of attention in the market and products that will be strong sellers in 2010 include those with guarantees. Universal and term life will remain strong sellers. We hope that variable products will return to favor as the markets recover and we expect whole life to hold steady. In the last few years, the trend for advisors has been to sell more fixed life products and fewer variable products. It will be interesting to see how this plays out as things hopefully continue to stabilize.

MASSEY: We predict a three to five percent increase in life sales with annuities being flat after a tremendous increase during 2009. Variable annuity and mutual fund sales will experience a 20 to 25 percent increase. MCDONNELL: I expect sales will be up slightly over 2009 due to slow but continued improvements in the economy. Profits will be hampered by sustained low interest rates and pressure on sales, putting even greater emphasis on cost controls. We are likely to continue to see lower face amount policies and a trend to cheaper/lower premium policies such as term insurance. Other products that look particularly strong are whole life, guaranteed universal life and indexed universal life. Variable life sales will continue to lag.

MOLENDORP: I believe sales will be a challenge in 2010. Lower interest rates will impact fixed annuity sales, while variable annuities will be stronger but still tied to guaranteed living benefits. I expect whole life insurance to continue to be strong, given guarantees. Universal life sales will be flat to down. PPA LTC asset based products will grow. [Editor’s Note: The Pension Protection Act of 2006 (PPA) extends the Health Insurance Portability and Accountability Act’s favorable treatment of combination life and long term care policies to combination annuity and long-term care (LTC) contracts]. I also expect 401(k) and 403(b) plans to be stronger than 2009. Group life and long-term disability (LTD) will be challenged with a stronger move toward voluntary benefits. I expect profits to be somewhat stronger as capital losses diminish and companies realize gains on previously written-down assets, but returns will remain depressed as companies hold more capital and carry more debt. Low interest rates will reduce profitability as spread compression increases. We may also see a rise in disability claims given persistent unemployment.

PAULI: While there will be improvement in 2010 in sales, premiums and profits, all these indicators will still be negative. Each quarter in 2009 has been a bit better than the one before. However, first quarter results were so horrific, all of this is simply a matter of degrees of poor performance. Products with guarantees will be the preferred products. This represents a shift away from straight accumulation products (e.g. variable annuities). Retiring Baby Boomers want guaranteed income products including variable and fixed annuities. Consumers definitely want products that are easy to understand.




Complex products that cannot be detailed in layman’s terms will not sell well.

PEARSON: Overall, 2009 was a poor year for our industry, particularly for companies selling large face amount and registered products. Sales were substantially better for Baltimore Life, however. When times are tough, middle market consumers are interested in protecting their assets and they value the guarantees we can provide. I think the industry has now made it past the bottom of the downturn, and we should soon start to see a move back toward sales growth. Registered products should improve as the market stabilizes, while fixed and guaranteed products will continue to do well.

SARSYNSKI: Prospects for the retirement services industry are definitely improved for 2010 compared to this year, driven by improved equity markets and the resulting positive impact on assets under management (AUM) and revenue. Cash flow continues to be positive for the industry and stronger firms will continue to benefit from the flight to quality. More sponsors will likely switch providers than over the past two years, which were marked by record low levels of sponsor turnover. The expected increase is a result of a generally improving business climate that will cause sponsors to revisit their retirement plan providers and by increased levels of fee and plan performance benchmarking. Providers who can help sponsors (along with their advisors) fulfill their fiduciary obligations and help their participants achieve retirement success will gain from the increased activity.

SCHIMEL: Expect average sales and premiums, but good profits, for the industry as a whole. Sales of products having a death benefit or guaranteed minimum benefit (GMB) should be strong, as will variable annuities. Sales of universal life, except certain offers, and fixed annuities will be weak.

WEBER: I think insurers should expect a "back to the basics" year in 2010. 2009 left a bad taste in everyone’s mouth, and I expect consumers will remain cautious for the foreseeable future. That points to simpler products like term insurance, where the coverage is easy to explain and risks are low. In terms of profitability, results will be mixed. But low expectations for investment results suggest that carriers need to be more careful than ever about the risks they write

2. ECONOMIC CLIMATE How do you think our industry will be affected in 2010 by the current economic situation? Will there be consolidation, downsizing or something else?

CALLAHAN: Not surprisingly, the economics of 2010 will drive many of the insurer decisions. Based on a review of nationally available statistics, the relevant economic indicators for 2010 include the annualized quarterly change in GDP for 2010 remaining under three percent; best-case estimates for unemployment over eight percent, with pessimistic estimates at 10+ percent; inflation, given high levels of unemployment, remaining in the low two percent range; home prices continuing down to flat due to an explicit and a hidden oversupply; rate of foreclosures rising, indicating there remains significant loan risks; and net rate of return on general accounts for insurers staying in the +/- six percent range.




While there will be some degree of improvement, it is relatively minor compared to the material negative impact over the last few years, which will draw out the time to recovery. Companies are benefiting from the recent market turns combined with the expense control and governance/risk management investments made the last two years, which will carry over into 2010 and amplify any additional recovery efforts. There is also the concern that additional losses driven specifically by the direct origination commercial real estate assets in insurer portfolios will exacerbate investment performance, increase operational pressure, and potentially even negatively impact ratings.

An interesting turn in the market has been the general findings by Moody’s and A.M. Best that the mutual insurers have ended up being better capitalized as well as more resilient to the market swings. This despite the governance created by SOX required for publicly traded companies (but not mutuals) intended to help manage some of the risks of these last few years. In response, companies worldwide are integrating stronger practices for managing credit exposures, regulatory capital levels, hedging techniques, foundational risks (basis, gap, and volatility), and the cost of specific product features like guarantees. An overall increase in focus on risk management has been the clear, self selected outcome of the recent difficulties.

Likely insurance buyer impacts relevant to insurers due to these factors include a good chance that many employees will face salary reductions up to 50 percent; the loss of home and retirement account values forcing people to work longer; lapses by count and by face remaining at their 10 year (excluding 2002 blip) highs; policy loan levels and rates remaining a critical factor in portfolio performance; and guarantees and price points becoming an even greater factor in decision making.

Dealing with these consumer and market issues will require a great deal of focus, flexibility, and attentiveness to detail. Companies that have managed to navigate through the market storms have already shown a proficiency in focusing on risk management and operational expense demands that will now need to be translated into coordinated product, investment, and distribution optimization.

There are clearly two other primary trends that will play a major role, although in different ways, in 2010 and beyond. The first is the globalization of our industry, with particular attention to the opportunities and competition that exists in China, India, and Russia to name three of the more recent, and prevalent, markets. Dealing with national economic issues and international competitors emphasizes the importance of focus, vision, and mission. Companies will need to divest noncore and/or nonperforming businesses diligently and without hesitation to free up the necessary resources. This leads to selective M&A activity that will increase as some insurers sell lines or segments that other insurers need to gain geographic or operational economy of scale. This M&A activity will extend beyond national borders, as large U.S. players continue to selectively expand internationally, and the international players do the same.

The second trend acts as an umbrella across all other issues, and is in the realm of regulatory oversight. There is no doubt that the level of national and state attention will continue to increase as the intensity of attention turns to transparency, product fee structure, solvency, suitability, and commissions. Included in this category are the debates on a national office of insurance, mark to market




challenges, the complex transition to IFRS, the insufficient availability of reinsurance, and new capitalization demands. Each of these items brings with it additional challenges that demand care and attention, which translates into a drain on expert resources that could be optimally utilized helping with organic growth. Balancing the ability to address these umbrella needs with not exceeding expense limitations or missing a market opportunity will be the challenge for next year’s leaders.

DINSHAW: Tepid economic growth is the forecast. Expect significant downsizing and capital building. Do not expect acquisitions due to lack of capital.

GOLATO: Several companies have taken action to improve their own capital position as opposed to allocating capital to fund acquisition opportunities. Their responses have been mostly with respect to product price adjustments. We see these trends continuing with a new focus on distribution efficiency improvements to maximize sales opportunities and minimize expenses. We also see an increased emphasis on the role of third party marketers and aggregators.

MASSEY: There is still concern for commercial real estate, but we feel there will be very slow recovery of the economy with little improvement to unemployment rates. Consolidation may see a small uptick, but 2011 may be the real year of consolidation. We will be more conservative and cautious with our investments and product development. Risk awareness and management will drive better decisions for a strong future.

MCDONNELL: While I see an economic improvement in 2010, there will be continued consolidation of distressed companies and downsizing of surviving ones as companies continue to refine their strategies and divest from businesses that are underperforming, unsustainable, or distracting from their core competencies.

MOLENDORP: I think the economy may well move sideways. Our industry is still susceptible to market shocks. There may be some consolidation, but I think it will happen gradually. We may well see continued downsizing.

PAULI: The economic hangover will continue through the end of 2010. The effects will ease up some by mid-2010 but this simply means that the negative numbers won’t be as bad as they have been in 2009. Fundamentally, business and personal financial resilience is gone. Layer uncertainty and distrust on top of that and it does not portend an easing of the pressure on insurer premiums and new business acquisition. There will definitely be consolidation as some insurers merge for survival. Consolidation will also come through carriers moving away from product lines they are not comfortable with.

PEARSON: Capital is becoming more available and companies that are under duress will be looking for partners. This will lead to some additional consolidation throughout our industry.

SARSYNSKI: Most strong [retirement plan] providers have adjusted to the economic environment by concentrating on core competencies and managing expenses. Most firms have worked to improve their balance sheets and capital positions. The improving economy, coupled with provider efforts to stay solvent and cost-efficient, will




provide new opportunity for stronger providers to acquire weaker firms. We expect this to result in a modest increase in consolidation activity in 2010.

SCHIMEL: I do see economic improvement during 2010, but the industry will remain cautious. Europe will be dealing with the impact of Solvency II. The industry will continue to consolidate.

WEBER: We are already seeing signs of a broad, though weak, economic recovery. For carriers that did not have exposure to highly troubled assets, including many of the regional players, I see this as a year of great opportunity. They can afford to invest in technology and process optimization and create differentiated services, even though unit sales in most lines are likely to be flat. In a great economy over two to three years, everyone can afford to throw money at problems. But this year we will see meaningful differences in levels of investment.

3. TECHNOLOGY

What new technologies have the greatest potential to help our industry and how can they help?

CALLAHAN: The industry is still faced with legacy applications and traditional processing environments to a great extent, which will make investments in improving operational effectiveness a continued focus. Despite efforts to the contrary, the life insurance industry even lags its property/casualty sibling along the new technology adoption and integration curve. Yet it is important, especially now with the advent of so many appealing technologies, for companies to put in place a disciplined portfolio management strategy for handling all technology and infrastructure investments. This portfolio management structure needs to provide an effective framework for the evaluation, selection, and implementation determination of the key projects that will be pursued. Consider it as a consolidation of RFP, PMO, ROI, and project management practices and tools. Every investment of scarce technology resources has to pass a rigorous filter containing all of these components before moving to the next stage.

While there is value in mentioning how operational effectiveness and service differentiation at the customer and agent level should remain at the top tier of evaluative criteria for selecting technology investments, these must be taken in tandem with a good dose of reality. Now more than ever it is important to emphasize that there is a difference between appealing, even desired, technology and cost effective, competitively enhancing solutions. The largest arena for this debate falls in the Web 2.0/social networking bandwagon that has drawn so much attention, some of it deserved and some of it less than ideal. A reality filter has to be applied to any new technology that goes beyond asking customers if they would "like" being able to chat online or look at a Facebook page. The more relevant question is to what degree a given solution would influence buying behavior as well as the tendency for the consumer to recommend the insurer to someone else (the Net Promoter Score). Many consumers will express interest in a given system or feature; yet when asked to rank its relevance in determining where to do business, a question not typically asked, the answer is often dismaying to the project owner.

DINSHAW: Automation technologies that reduce expenses or




provide faster processing are important. Therefore, workflow, straight through processing, automated underwriting and so on will be important.

GOLATO: Life insurance companies will increasingly leverage technology, such as iPipeline, as they continue to explore ways to control expenses and optimize sales and underwriting process efficiencies. This means we’re going to see more things like electronic delivery of routine customer and agent communications, Web site enhancements to enable customer and agent self-service, and enhancements like straight-through processing of life insurance new business submissions.

MASSEY: The Internet is still the great unconquered frontier.

MCDONNELL: Some emerging technology advancements will significantly change our industry. Virtual communications tools such as Skype can reduce travel expenses and make remote communications more personal. Wireless technologies will provide the ability to access tools and capabilities from any location and have the potential to change the client/producer experience, especially at point of sale and service. Workforce virtualization will allow firms to recruit beyond their historical geographic boundaries and could lure diverse talent into our industry.

MOLENDORP: Technology that enables straight through processing to reduce administrative costs and to improve both field and customer experience will become more critical. New social networking technologies will get a lot of attention but will only be useful to the extent they support the larger strategy.

PAULI: The new technologies will be the use of social media for marketing and customer communications. However, the true business use of social media will take some time to mature. Internal use of blogs and tweets has already started to be tested by leading insurers. This will grow in importance and acceptance for the next three years. The really important technologies are not new as much as under-utilized. Analytics and models, data management and integration, business intelligence and business process improvement. All of this is necessary in order to gain better customer insight and to improve the customer experience. This is very critical! Better customer insight not only improves customer experience, but also allows carriers to improve operational efficiency.

PEARSON: New technologies have great potential to simplify the buying experience by offering a shorter enrollment process and faster policy issue. In addition, the use of social networking Web sites such as Facebook and Twitter shows great promise in helping us reach out to our clients and prospects. LinkedIn is a similar tool that will prove useful for agency managers in their recruiting efforts. Many companies are actively developing new policies to support this type of communication and advertising platform, and compliance issues regarding these new tools will need to be thoroughly examined.

SARSYNSKI: Technology that adds efficiency (and therefore reduces operating costs) will have the biggest impact on our industry over time as [retirement] plan fiduciaries increase their level of benchmarking and oversight and ensure the services they are receiving are in line with the fees paid. Technology that supports participant self service (nudging participants to wiser decisions on savings rates and investments) will increase in importance as




automated plan designs continue to gain favor in the marketplace. Finally, technology that simplifies the process as older plan participants begin to retire and transform from the asset accumulation phase to the income phase will become increasingly important.

SCHIMEL: Smart phones will have an impact for customer relationships.

WEBER: The current buzz is around mobile technologies, and we think there is some potential there. But other, more established technologies are still underutilized. For example, there is still a lack of automation and an overreliance on paper in our industry. We like business process management tools, whether they are stand-alone tools or built into core insurance systems, for that reason.

Another area of immense promise is analytics. For an industry built around long-term risk management concepts, it is surprising how much opportunity there is to understand and manage risks better through application of technology.

4. CUSTOMER SERVICE How important is customer service to our industry and how can it be improved?

CALLAHAN: Earlier this year, Nolan put together a special report (and Webinar) on The New Era of Service Differentiation. The gist of the report was to emphasize how the delivery of customer service—where, when, and how the customer wants it—is becoming the primary source of sustained competitive differentiation. In other words, customer focus will be the foundation of future growth, particularly as the market becomes more segmented and demanding. This strategic shift toward service as a differentiator is based upon expectations for high service being driven from outside the industry; the increasingly commoditized nature of insurance products as products converge; and increased competition and tight economics putting more pressure on margins and price.

As a result, service is critically important as the differentiator in our industry whether you define your customer as the end consumer/insured or the distribution channel/agent—by the way, the answer is both.

Consider that even now, as we recognize that many are being forced to work longer, we are faced with five generations of insureds and even distributors. Each has a unique value system and a preferred method of doing business, in general moving along the continuum from low tech/high touch to high tech/low touch: GI, at 20 million; Swing, at 28 million; Boomer, at 78 million; Gen X, at 50 million; and Gen Y (Millennial), at 72 million.

In order for companies to address this continuum effectively, there are several strategic implications. The first and foremost is an ability to clearly identify these segments, including subdividing them further based upon behavioral attributes, demographic characteristics, and current company relationship information (tenure, products purchased, premium payment patterns, and so on). For this,




improved data mining and modeling practices and tools are foundational. The second equally important strategic implication is the ability to translate the identified segments into either a market niche oriented strategy, focusing platforms and services on customers that best fit a well-defined portion of the overall market, or a broadscale approach intended to address the full range of customer needs.

The niche strategy allows a lower cost structure, greater flexibility, and quicker speed of adaption, yet is limited by breadth of opportunity. For the broader approach, optimal flexibility within an effective cost structure that is able to address the diverse demand for customer-driven service—in person, by phone, by the Web, by mobile device, by mail—is required. Achieving this environment will require process, technological, and human resource changes built upon flexibility, fast adoption curves, and a modularized approach to products and services. Regardless of the strategy selected, a balanced focus on the services that are table stakes for any given segment with those that generate a competitive advantage must be maintained, while avoiding the temptation to invest in services or features that have "curbside appeal" but no comparative advantage.

DINSHAW: Customer service between agents and clients is very important. From a company perspective, solid, courteous service is a necessity. Service improvements involve correct and consistent answers in a reasonable timeframe.

GOLATO: Customers will become even more savvy and demand more customer-focused service from their life insurance companies. Providing an outstanding customer experience, from the sales process through any servicing issues, will be the new way companies differentiate rather than on a price basis. Successful life insurance companies—and more importantly, the financial professionals who sell life products—that have a strong customer focus and who can identify and respond to the unique need of each customer will be able to maintain customer loyalty and generate more referrals enabling them to grow their business.

MASSEY: Our industry is only about two things: sales and service. Service can be improved by listening to the consumer. We must interact and communicate with them when and where they want.

MCDONNELL: Customer service is more important now, given the complexity of the products developed and sold over the past few years. We need to provide clients with faster, more insightful and engaging information to help them meet their financial and protection needs. And because of marketplace clutter, this information must be presented in a clear and concise manner. Technology will continue to play a large role for producers to serve their clients (e.g. electronic applications, Web-based underwriting capabilities, data mining and client relationship management).

MOLENDORP: Service is very important and needs to be considered through the entire customer experience. To improve service, we must improve the advice model, invest in rep training, improve administrative processes/speed to delivery, and improve access to data/customer information consolidation.

PAULI: Customer service is what the whole industry is about. The above statement about improving the customer experience holds true for this question. Customers need to get service on their own terms,




7 by 24 by 365. And they need to have their questions and concerns addressed in one contact, not playing telephone tag. They also need to get service via their chosen method—it could be phone one day, Internet the next and face-to-face with an advisor the day after that. The experience needs to be uniform across all service points. These are all challenging issues.

PEARSON: Customers want and deserve individual treatment and attention, and we must strive to make customer contact as personal and seamless as possible through all levels of our organization. Leveraging technology is an ideal way to achieve this goal. Offering convenient customer service Web sites with real-time chat options can provide personal attention to online customers.

SARSYNSKI: Service is probably the largest contributor to long-term success in the [retirement plan] market. Service is the primary reason plan sponsors switch from one retirement services provider to another. It is far more economical to keep an existing customer than to acquire a new one. Firms that are achieving positive net cash flow in the retirement industry are generally doing so by meeting both their sales and retention goals and both of those are dependent on providing excellent service. Service for the industry needs to improve in the area of helping individuals prepare for retirement and transition from the accumulation phase to the income phase. The retirement services industry is currently only retaining about 10 percent of assets as participants make that transition. Greater provider involvement in helping participants (directly or through an advisor) in that transition is a need that once met, will result in better prepared participants and improved provider retention rates.

SCHIMEL: Very important as customers grow weary of poor service. While the quality of Web services is a big thing, it’s still important to answer phone calls and keep delays normal.

WEBER: Historically the insurance industry has not had a great reputation for service, but I think that is changing. There are now great examples of insurers who consistently take care of their customers and provide the tools that agents and customers need. The driver behind this change is an understanding that insurance consumers are also consumers of many other types of products and services. They know what good service entails, and they expect it from their insurer the same way they expect it from retailers, utilities, and other types of service firms. Borrowing the best ideas from other industries is always a good idea. And taking the time to ask our customers what they really want is also critical.

5. PROFITABILITY

How can our industry increase its profitability over the long term?

CALLAHAN: To increase industry profitability, there must be a recognition of the structural changes that are occurring and their implications, which includes a realization that past strategies and historical practices are unlikely to fit with the new complexities of a globally competitive marketplace. As previously stated, companies must focus on more flexible operational environments that are able to individualize products and service delivery to an increasingly segmented marketplace. Compressed margins combined with a shorter product lifecycle and less ability to derive plan based advantages require the discipline of focused strategies.




Achieving this focus requires the reintroduction and institutionalization of the rigors of true multi-year strategic planning a là Michael Porter. There is an increasing need for both innovation and foundational change, including investments in a staged replacement of traditional systems with modularized and more efficient technologies combined with a stronger focus on rightsourcing non-advantageous functions and services. With service as the driver, talent management reaches the forefront of strategic consideration as up and coming generations attempt to fill the void of retiring experts. The generational differences in the mix of employees brings new challenges for training, tools, schedules, remote operations, and self-directed teams combined with new benefit and compensation systems that cover the complex needs of an increasingly diverse workforce.

In addition, the concept of virtualized operations is both a necessity and practical, with global competitors basing their ability to enter a market—our market—around this approach in order to minimize fixed costs while maximizing flexibility. We must be willing to transition toward that model, rethinking long-established paradigms in order to meet market demands for innovation, speed to market, flexibility, efficiency, modularized products, and differentiated service. These will all be required to succeed in the fast approaching service based global insurance industry.

DINSHAW: Life insurance and annuities are necessary in most financial plans. Our product is in demand. We need to reduce expenses (including distribution costs), invest conservatively and price wisely. Loss leader products, aggressive investing and bloated expenses have reduced overall profitability and capital levels.

GOLATO: Overall operational simplicity, coupled with sensible pricing, will drive the efficiency. Technology will continue to play a big part in improving profitability, especially if more can be done in the area of underwriting. For example, there are several technology-based tools available that ensure the paramed process happens quicker, with fewer errors and while also being cost-effective. And we’ve only just scratched the surface of what’s possible in the future.

MASSEY: Improve consumer trust and quit basing our future on low cost, low margin products.

MCDONNELL: Companies will be under pressure to raise prices on certain features such as UL with secondary guarantees and variable annuities with living benefits. Creative solutions, which allowed current pricing levels, are no longer viable. The industry also needs to continue to invest in technology, toward straight-through processing and greater operational efficiencies. Again, companies will need to revisit their strategies on a consistent basis and divest from businesses that are underperforming, unsustainable, or distracting from core competencies. More "narrow and deep" business models will emerge.

MOLENDORP: Improved distribution productivity and administrative efficiency will help, but will be partly offset by the cost of increasing risk management, accounting, compliance and actuarial talent demands.

PAULI: Data and analytics that provide experienced, qualified workers with the information they need to make decisions.




PEARSON: Currently, there are vast unmet needs in the retirement market and the underinsured middle market. We need to work harder to create products and practices that will enable us to reach these segments. The trend toward industry consolidation will also likely result in improved profitability in the coming years. We must continue to use technology to enable more cost-effective operations. Finally, in an industry where the average age of an agent is 56, it’s important for all companies to look for both traditional and non-traditional methods to grow distribution.

SARSYNSKI: There are just under 140 million working Americans, 71 million have access to a retirement plan and 55 million participate. Only 13 percent are confident they will have enough money for a comfortable retirement. We can improve the state of the retirement system and ultimately our industry’s profitability by concentrating on getting participation and savings rates increased, getting participants into more appropriate investments while they accumulate and helping them achieve their in-retirement needs.

SCHIMEL: Offer more protection (death, disability and long-term care). Pass on to customers capital constraints. Place value on advice and quality.WEBER: There are two elements to profitability. The first is improving the risks we write and how we price for those risks. The second is improving operational efficiency. I think we have been cranking up our process efficiency as an industry for a long time. The problem is that a five or 10 percent improvement, while good, is probably not aiming high enough. For almost every process, I think insurers should be aiming for mid-double-digit improvements in cost.

Contact Resource at [email protected]

Advertise with us...Your Financial Services Customers are here. Download LOMA's 2010 Products and Services Catalog here

Chinese | Español | Français | Português | About LOMA | Banking | Healthcare Management | Members Only | What's New Customer Assistance | Downloads | Education/Training | FLMI Program/Societies | International | Life Insurers Council

LOMANET | Meetings/Events | News Center | Online Learning | Products/Services | Publications Research Reports | Resource Magazine | Technology Directory | The LOMA Store | Search Site | Site Map | Privacy Policy

Write us at: LOMA, 2300 Windy Ridge Parkway, Suite 600, Atlanta, GA 30339-8443

Phone: 770-951-1770 or In the U.S. and Canada: 1-800-ASK LOMA (1-800-275-5662) Fax: 770-984-0441 E-mail: [email protected]

Copyright © 2010 LOMA. All rights reserved. For technical assistance or to report problems, contact: [email protected]



mailto:[email protected]


