August 13, 2012

Brian DeMaster
Brian DeMaster, Accenture
As we have noted previously, life insurers face numerous challenges including low sustained interest rates, increased regulation and capital requirements, growing cost pressures, a weak economic recovery and changing consumer behaviors and expectations. There is, however, one element that counterbalances all of these negative trends: the growth of the retirement income market.

According to Cerulli Associates, this market is huge – estimated at $16 trillion in 2011 and growing, anticipated to reach $22 trillion by 2016. It includes a $4 trillion addressable defined contribution market in the form of 401k, 403b and 457 plans, as well as a $300 billion rollover market in 2012 alone as individuals shift from employer-sponsored retirement plans to IRAs.

Our own research – a survey of more than 8,000 people from 15 countries — indicates that, around the world, more than four out of five people are worried about their own retirement, and only about one in six is confident their current level of savings is sufficient to cover their financial needs after retirement. In short, there is a huge, unmet demand for retirement planning that the life insurance industry can help address.

To accomplish this, however, life insurers will have to do a better job of capturing asset share in the retirement income market. When consumers were asked, "Who would you contact to help you set up a retirement product?", only 17 percent named a life insurance company as their first choice (although 61 percent included life insurers among their top three choices). Life insurers, however, did outrank their competitors for their wide range of retirement products, the sophistication and innovativeness of these products, and for having a solid brand reputation in the retirement market. Brand reputation is important, as 82 percent of respondents who had purchased a retirement product said they were influenced by the brand strength of the financial institution.

[For more on Brian DeMaster's analysis of the life insurance industry, see Life Insurers' 6 Keys to Strategic Cost Reduction .]

Capturing a bigger share of retirement assets will require U.S. life insurers to recognize that customers' requirements, preferences and behaviors have changed radically over the past few years. Old, proven strategies and business models are rapidly becoming obsolete. In particular, the notion that a single set of back-end operations is sufficient to address the entire market is a fallacy. Life insurers will need to use different sales channels, different presentations, and dispense different types of advice to reach various segments of the retirement market.

FOUR IMPERATIVES FOR BREAKAWAY GROWTH

Pursuing the retirement market successfully will require determination as well as sound strategies and effective tactical execution from life insurers. We see four key imperatives for achieving breakaway growth in this market:

1. Having the best people. Life insurers need to retool, retrain and refocus their advisors to compete in the retirement income market. They can use analytics to improve the selection process for incoming representatives and agents, helping increase the chances for success for each new recruit. E-learning and other innovations in training can help give advisors the skills and product knowledge needed to go head-to-head with banks and investment management firms.

2. Broadening distribution. The process of identifying, contacting and selling to qualified prospects needs updating and modernization. Life insurers should be exploring possibilities such as the use of third party sales forces for retail sales; direct-to-consumer retail approaches; managed account retail platforms; and institutional sales for qualified retirement plans. In addition, life insurers can achieve much more specific segmentation of their different customer groups – as well as a customer experience that is tailored to each group.

3. Improving service. The life insurance sales force will be transitioning from a focus on pure sales to a more advisory capacity, providing guidance to the customer. The most successful insurers will train and coach their people in how to win the confidence of the customer, offering products that are tailored quite specifically to that customer's needs. They will supplement the face-to-face sales model with innovative technologies including online, mobile, social, chat, tablet computers and call center video, all designed to help the advisor be "where the customer is."

4. Building networks. With customers frequently making retirement decisions based upon input from friends, colleagues and employers, developing a sound social networking connection for the distribution channels will be an important success factor. Life insurers should develop the ability, not only to track and manage social exchanges which affect their brand, but to engage customers in meaningful discussions about retirement plans and aspirations.

The retirement income market provides an opportunity for profitable, sustainable growth for life insurers. Seizing this opportunity, however, will require considerable agility and flexibility on the part of those insurers that choose to participate in this highly competitive arena. These organizations will need to embrace innovative technologies to support new approaches to every aspect of the business, from product development to distribution to the identification and development of talent.

About the Author: Brian DeMaster is a senior executive in Accenture's insurance practice.