We believe the life insurance industry faces a pivotal, dual opportunity: the chance to fulfill growing customer needs while returning to profitability and growth. • Insurance industry dominated by non-life insurance (74%) • Life insurance industry dominated by foreign companies (79% in 2015) Soruces: ‘Annual Report on the UAE Insurance Sector 2015’ by Insurance Authority UAE for GWP, ‘The Annual Economic Report 2015’ by Ministry of Economy UAE, World Bank and others *Organization for Economic Co-operation and Development Now in 22 markets, the program has seen a 35 percent reduction in mortality among highly engaged members and a 15 percent lower policy-lapse rate. The recent crisis has depressed valuations for start-ups, providing insurers an opportunity to acquire capabilities more cost effectively. Please email us at: McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. Use minimal essential Continuous underwriting. Buying a home Having children Substantial value from in-force and closed blocks. The most successful life insurers will redouble their focus on innovation and flexibility. A shift to targeted health management. Reinsurers face highest risks from coronavirus, says A.M. Best 31st January 2020 - Author: Matt Sheehan Analysts at AM Best believe that reinsurers could face higher levels of risk related to the ongoing Coronavirus outbreak than their primary life & health counterparts. Overall, this ad is really great. • In 2017, the life insurance industry earned $18.1billion in premiums from life insurance policy holders in 2017. Insurers must also develop plans to simplify and reduce the costs of managing legacy systems on an ongoing basis as those aren’t going to be fully replaced any time soon. At the same time, fee-based earnings introduce more complexity vis-à-vis sales and after-sales support. 9 9. By 2030, the number of people aged 60 and older will grow by more than 50 percent, from 900 million in 2015 to 1.4 billion. The life insurance industry also is challenged to revamp its workforce, the report said. The third section, The Impact of Technology on the Life Insurance Industry, discusses the impact of emerging technologies on the life insurance industry. The insurance industry is undergoing a period of radical change, occasioned by the principal drivers of cost reduction, legislation, competition, and ever-increasing critical mass. Yet given their cash flow potential, earnings, and embedded value, closed blocks deserve time, attention, and resources. By 2030, all baby boomers will be age 65 or older, The life insurance industry continues to grow, with gross policy revenue increasing by 6.3% over the past year to $24.7 billion, and reinsurance playing Life insurers must respond by capturing more value from existing assets and pursuing targeted M&A. For example, customers who exhibit regular healthy behaviors, such as exercising and attending doctor checkups, are rewarded with lower premiums. collaboration with select social media and trusted analytics partners Tailor new solutions for different life stages. Effective M&A—specifically as a vehicle for market expansion, capability building, and divesting noncore businesses—can continue to be a core strategy for successful life insurance companies. Life insurance companies will have to significantly invest in digital infrastructure and place analytics at the core of distribution. The cost of defending your enterprise network is not a child’s play. ACLI represents approximately 290 legal reserve life insurer and fraternal benefit society member companies operating in the United States. As a result, life insurance companies can acquire their way to the forefront of disruptive innovation. 4. Emerging trends in the Insurance industry are a combination of business and technology themes, most of which are likely to become mainstream in the near to long term. divorce rates continue to rise, and job insecurity, spurred by technological advancements, can create uncertainty for consumers. 3. This evolution reflects the need for insurers to shift from product-centric business models to value propositions founded on customer-centricity. “Older People Projected to Outnumber Children for First Time in U.S. History,” US Census Bureau, March 13, 2018, census.gov. To achieve these goals, we expect winning life insurance companies to outperform in three areas in the decade ahead: The influence of digital leaders in other industries has raised the bar in insurance as well. Life insurance (or life assurance, especially in the Commonwealth of Nations) is a contract between an insurance policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money (the benefit) in exchange for a premium, upon the death of an insured person (often the policy holder). 8. In Asia and Europe, life insurance companies are already offering administrative support for medical visits, In the years since the financial crisis, U.S. life insurers have improved their risk management skills, de-risked their balance sheets and focused more sharply on cost and efficiency. Globally depressed interest rates curtailed investment portfolio returns. Between 2013 and 2018, compound annual growth rate in life insurance premium growth has been 1.7%, the EY report said. 3 Specialists, whose scale facilitates lower costs per policy, have proven themselves to be effective operators. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more. Frontline professionals will continue to play a critical role in reaching customers, so insurers must embrace the integration of physical and digital channels once the crisis subsides. Nonmonetary benefits can also address the risk needs of policyholders. Indeed, the COVID-19 pandemic has only reemphasized the need for mortality protection. Technology will play an important part in this transition. Such funds provide access to leading start-ups and serve as a natural “buy” versus “build” entry point for leading technologies. In addition, some Japanese life insurance companies are migrating to a “pay as you live” premium schedule with dynamic pricing. May 5, 2015, blogs.imf.org. Insurtechs can also help companies increase their pace of innovation. Since the onset of the pandemic, insurance companies have been forced to adopt digital-hybrid solutions by incorporating robo-advisors, video conferencing, and web chats. “Noncommunicable diseases,” World Health Organization, June 1, 2018, who.int. Note: The essence of pointing out these challenges facing the global insurance industry is not frighten you but to inform you ahead of time of their capacity to ruin your business if you don’t do anything about them. A return to profitable growth has to be at the top of the strategic agenda for life insurance executives for both the near and longer terms. However, these workforce shifts will not eliminate jobs—our research indicates net new jobs will be created due to advances in automation—but instead change the nature of the work. Life insurers must take action on four fronts in order to reverse 10 years of low growth, the EY report said. a troubling sign for an industry in which 25 percent of employees believe themselves to be within five to ten years of retirement. Growth within existing markets will be challenging; life insurance companies can use acquisitions to enter new geographies, adjacencies, and products. Several life insurance companies have already begun moving their portfolios toward a wide variety of capital-markets products, specifically hybrids and unit-linked products, that are more capital efficient and perform well in a low-rate environment. Second, it fails to account for a customer’s lifestyle changes, which are significantly more controllable. permission. The global middle class is rapidly expanding, bringing higher incomes, growing financial wealth, and heightened risks to manage. State Farm immediately pops into your head. World Population Ageing 2015: Highlights, United Nations, Department of Economic and Social Affairs, Population Division, 2015, un.org. According to our research, more than 90 percent of new business in China historically has been generated through face-to-face interactions. The goal here is this: You decide one day that you’re ready to buy life insurance. 10 Developed by Discovery Group in South Africa, Vitality pioneered the model of shared-value economics in its product design and pricing, leading to the creation of an engaged wellness ecosystem. Cyber Security Reinvent your business. cookies, McKinsey_Website_Accessibility@mckinsey.com, personalize every aspect of the customer experience, develop flexible product solutions suitable for a challenging regulatory and interest-rate environment, commercial effectiveness, including lapse management and cross-selling to policyholders, financial efficiencies, such as actuarial optimization and reinsurance, operational efficiencies, such as reduced administrative costs, transactions, such as partial or full sales of blocks of business. Ultimately, earnings potential will be shaped by not only customer demand but also companies’ abilities to upskill distribution talent and develop unique economic solutions for distributors. Johnny Wood, “Retirees will outlive their savings by a decade,” World Economic Forum, June 13, 2019, weforum.org. COVID-19 has accelerated many of the digital and omnichannel elements that were in their early stages. 1 A strong regulatory environment and entry of a number of global companies and brokers has seen Singapore established as a key regional centre for insurance and reinsurance, and domestically the penetration of life and health products continues to … Emotional, interpersonal, and social skills will also become more critical, especially for customer-facing agents who can help consumers address their changing financial and coverage needs. More recently, the COVID-19 pandemic has depressed global interest rates even lower than those seen in the 2007–08 global financial crisis, leading to disproportional impact on life insurance stock relative to the rest of the market (Exhibit 4). Not surprisingly, new insurance entrants have stepped in to bridge the gap to offer more complete coverage for sharing economy service providers. Collectively, traditional long-term, fixed-rate guaranteed products will undergo a paradigm shift in structure, from being rooted in guaranteed returns to offering upside potential with guaranteed downside protection. In the coming decade, the industry will see the emergence of new types of coverage, as well as increasing flexibility in product coverage and payment. 6 Life insurance companies often use these funds to finance the transition of the closed blocks to a target platform, invest in digital and analytics, and wide-scale productivity transformations. Regardless, given the historically strong correlation between return on equity and price-to-book ratio, such investors reward higher return-on-equity businesses. Moreover, the global middle class, projected to include six billion people by 2030, Life insurance companies that prioritize those efforts and develop operating models capable of responding to changing demands will distinguish themselves from peers and position themselves at the forefront of “future-proofing” their workforces. 2. today, six in ten consumers globally are comfortable sharing personal details with their insurer in exchange for lower premiums. Please try again later. Insurers’ commitment to maintain their fiduciary duty is also under increasing scrutiny. Together, this four-phase evolution flips the underwriting approach on its head, with environment, health, and lifestyle becoming primary inputs and medical data providing only one part of the picture (Exhibit 7). Value-added services and nonmonetary benefits. Several trends show promise for the life insurance industry in the next decade. Finally, winning companies will provide continuous “one-touch” underwriting, with dynamic adjustment based on customer behavior and suggested personalized actions to significantly drive healthier behavior (phase 4). The global life insurance industry has seen significant changes over the past decade. Recent regulatory actions and proposals indicate that customers’ best interest will remain a major focus area, one that will require considerable management attention for insurers and intermediaries. health management, and telemedicine. While a significant portion of middle-class customers have not saved enough for retirement, the industry has fallen short in communicating the importance and value of its products. crunchbase.com. Global M&A remained steady in the 2010s. Joanna Glasner, “A record $2.5B went to U.S. insurance startup deals last year, and big insurers are in all the way,” Crunchbase, April 4, 2019, Gross written premium grew from $661 billion in 2013 to … RBC Life Insurance John DelPozzo Ohio National Financial Services 2015 Forecast Participants Jimmy Atkins Legal & General America Key decision makers from a cross section of insurance industry companies participated in the 2015 forecast. Significant numbers of workers, including agents, will retire in the near future. Currently, insurers focus on automating the underwriting process to improve efficiency gains and reduce inconsistencies (phase 1). Flexible offerings, which allow the consumer to adjust coverage throughout the life of the policy, have been met with favor in Japan. Several areas offer opportunities for personalization that can strengthen customer relationships. The prevalence of closed-block specialists will also spark increased sales by insurance companies beyond A digital transformation helps change the customer experience to better benefit policy holders in … For example, the introduction of Solvency II in 2016 in the European Union increased capital requirements for traditional life and annuity products, putting further pressure on profitability. Apart from the cost benefit, digital transformation also creates opportunities for synergies between them. Life insurance companies can enhance in-force value creation by executing across four pillars: Companies can also extract value from closed blocks, which sometimes have unattractive product economics and operational difficulties or are misaligned with a company’s strategy. Press enter to select and open the results on a new page. Life insurers have long maintained a focus on mortality protection, but concern over mortality risk has diminished in many markets, which has reduced demand for core products. That’s hard to pull off; it’s a very hard pivot.”. Partially fueling the segment’s rise are the increasingly popular internal venture-capital funds launched by life insurance companies themselves. Consumers will continue to seek out guaranteed returns, which means many insurers will face challenges in offering guarantees in a capital-efficient, profitable manner. Interest rates have been globally depressed for a decade—and even longer for some economies, such as Germany and Japan. Having said all of that, lets quickly dive deep. In fact, 80 percent of millennials say they have limited knowledge of the insurance industry, Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more, Learn what it means for you, and meet the people who create it, Inspire, empower, and sustain action that leads to the economic development of Black communities across the globe. Global penetration fell to 3 percent, and premium growth within most developed markets, hovering just below 2 percent per year, struggled to match GDP. Throughout the customer life cycle, life insurance companies will engage in multichannel, personalized customer interactions to promote cross-selling (by identifying the most likely “next product to buy”) and proactively reach out to customers who are likely to lapse. The fourth section, Life Insurer Balance Sheets, looks at financial performance of the life insurance industry over the last decade and provides an in-depth look at the 2011 numbers to give a On top of all that, life insurers are losing talent to banks and asset managers, primarily due to compensation. Contact her at [email protected]. In fact, carriers built roadmaps to … Follow her on Twitter @INNsusan. Such interactions have the ability to reduce customer acquisition costs by up to 50 percent, generate 5 to 10 percent of new premiums, and reduce customer churn by up to 30 percent. Life insurance companies can also rely on acquisitions for tech enablement and capability building. Pierre-Ignace Bernard is a senior partner in McKinsey’s Paris office; Kweilin Ellingrud is a senior partner in the Minneapolis office; Jonathan Godsall is a partner in the New York office, where Andrew Reich is a consultant; and Bernhard Kotanko is a senior partner in the Hong Kong office. At the same time, these agents were spending disproportionately more time on customer service and administration than before. Evidence shows that a higher proportion of consumers are willing to share data collected on their watches related to heart rate. Economic and demographic trends will also offer tailwinds. Report: Barclays Warns Investors Of A Warren Presidency, New Jersey Gov Signs Bill To Protect Seniors From Financial Exploitation. our use of cookies, and The report also predicted advisory services and fee-based models are likely to grow, while commission-driven product sales are likely to shrink. FIND CLARITY IN THE CHAOS In other words, for every $1 million saved in long-term in-force servicing costs on the closed block, there could be a $10 million onetime reserve release. Insurers will then graduate to microsegmentation and personalization, for which individualized offers are generated using comprehensive internal and external data sets with enhanced accuracy (phase 3). 6.2 Life Reinsurance Assumed (face amount) 61 Life Insurance 7.1 Life Insurance in the United States 66 7.2 Individual Life Insurance Purchases in the United States, by Plan Type, 2018 68 7.3 Life Insurance Purchases, by Participating Status 68 7.4 Voluntary Termination Rates for Life Insurance Policies, Calculated by Face Amount (percent) 69 Regulatory issues continue to pressure life insurers, the report said. If a full acquisition is not an option, hiring talent from insurtechs and other start-ups with greater digital and analytics capabilities is another possibility. Gross written premium grew from $661 billion in 2013 to $718 billion in 2018. 2 Regardless of interest-rate movement, previous fixed-rate guarantees, coupled with new regulations and customer education around alternatives, will likely keep life insurance companies focused on capital-light products in the decade ahead. Those four fronts include: “Life insurers must continue to focus on providing top quality products that have very strong benefits and very good value proposition,” Majkowski said. Digital upends old models. tab, Engineering, Construction & Building Materials, McKinsey Institute for Black Economic Mobility.
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