January 16, 2014

The U.S. life insurance industry has been slow to recover from the economic crisis. While the industry has outperformed the S&P 500 in 2013, it has yet to return to pre-crisis levels. It has been particularly hard for life insurers to find top-line growth in new or existing markets in the U.S.

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.

Brian DeMaster, Accenture
Brian DeMaster, Accenture
Patrick Lyons, Accenture
Patrick Lyons, Accenture

The news is not all bad. Interest rates are ticking up and the economy continues its gradual improvement. Change in consumer behavior has become the biggest threat to long-term, profitable growth. The consumer's path to purchase was once linear and confined to a single channel. Thanks to technology, that path is now dynamic, accessible, and continuous. Buyers no longer enter and progress along one channel; rather, they move rapidly from one channel to another.

Consumers have become more aware of, and more sensitive to price. When coupled with competing financial priorities, this has led to decreased levels of loyalty and trust. Consumers have higher expectations for service and expect more transparency from service providers, especially when using online channels. The focus has switched from purchase to evaluation, with consumers constantly re-assessing their choices.

[Previously from DeMaster: A policy admin replacement roadmap]

We have seen, across all age groups, increasing use of digital and social media along with 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.

In this challenging environment, insurers need to quicken the pace of change and move forward on multiple fronts. The opportunities for growth are there, but only for those willing to undertake the right strategic initiatives while improving the effectiveness and efficiency of core activities.

In charting a path to profitable growth in 2020 and beyond, life insurers should focus on four key areas:

1. Customers. The combination of an economic downturn and the growth of innovative technology have created customers who are price-conscious, sophisticated and knowledgeable. They expect more for less and anticipate convenient, customized, holistic solutions. To meet these expectations, life insurers should choose target segments and tailor communications and offerings appropriately. They need to ensure that the customer experience across channels – whether the web, the advisor, or the call center – is integrated and consistent. Our research shows that customers are still interested in working with an advisor during the sales cycle, but insurers need to strengthen their web, mobile and social capabilities to become more engaging and relevant through the entire sales process.

2. Distribution. Although customers are increasingly educating themselves, they still want and need advice. Advice-led distribution models can match customers with appropriate levels of advice for their needs and their ability to pay. This advice can range from embedded product selection to personal financial management to more complex, personalized advice. This entails a fundamental shift from selling product to providing solutions for customers' problems. In a sales force that can be in close touch with tech-savvy customers young and old, agents must have access to innovative technologies and analytics to gain better insights into the needs of the customers. Analytics can also provide more effective segmentation with the knowledge to reach under-penetrated markets such as the middle market, younger consumers, women, and ethnic markets.

3. Technology Enablement. Digital technology – properly leveraged – can transform every process across the insurance value chain, not just sales. Digital technology can support expanded, personalized relationships with customers, distributors and business partners at scale. Analytics can deliver solutions-based customer insight in areas such as cross-sell and next best offer, predictive underwriting decision models, and customer retention programs.

[MassMutual adds customer analytics staff]

4. Strategic Cost Reduction. Many insurers have cost reduction programs under way. The focus in the future should be on making changes to the operating model that create a material, sustained change in the cost structure. This may include using shared services to establish real advances in process excellence, and better quality in in corporate areas such as finance and IT. There is also ample room for improvement in core functions such as claims and call centers, for instance by increasing the level of automation and customer self-service.

The path to sustained growth for life insurers will not be easy. We believe, however, that insurers taking the necessary steps can expect increased return on investment in both the short and the long-term. 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. With the right approach, life insurers can deal with external market forces and position themselves as strong competitors in this challenging new landscape.

About the Authors: Brian DeMaster is managing director in Accenture Life Insurance Services. Patrick Lyons is life insurance management consulting lead for Accenture in North America.