Life Insurance Time Capsule – 1

The Life Insurance industry at its core has operated on three legs – 1) Operational Efficiency 2) Old School Customers and 3) Market Efficient Investments. Lately the industry has seen a dramatic shift largely due to the performance of the financial markets and the changes in customer behavior. A cursory analysis might result in a thought that the industry that has barely differentiated products can regain its competitive advantage by focusing more on the operational efficiency. But is it so? Here we speculate how the industry will play out given the new uncertainties that loom around the pillars it heavily relied on. And what can the players do to safeguard their interests and maintain sustainable advantage.

Operational Efficiency – The quintessential component of cost management within insurance firms continues to be so. However, it isn’t able to substantiate the investments against value delivered as 1) The huge cost savings are not so often and 2) The cost savings which do occur are relatively meager.

Old School Customers – There is a pool of savings vehicles available now which the customers can use for money appreciation. Above that there are various IRS regulations on Life Insurance which inhibit any dollar benefits customers were earlier able to extract. Thus, customers are not able to utilize the Life Insurance as they used to. It more or less has become a pure Life Insurance, though a little more complex for a regular Joe to understand.

Market Efficient Investments – The investments which relied heavily on good fixed income rates and market efficiency now don’t follow the suit as the costs continue to increase but the margins on investment profits continue to decrease. This resulted in a change of investment game altogether.

Off the various avenues which can be pursued to address the above concerns, there are primarily three which can cater to the bottom line aspirations from the short term goals to the long term sustainable growth. These are 1) New Products 2) Refined Targets and 2) Agile Governance.

Insurance Capsule 1

New Products: A 30,000 ft view on the industry reveals that the players seem to have created a red ocean in their existing markets and thus would need to expand to other markets to continue to leverage off their existing products. Which unfortunately is not easy given the huge costs these firms are already currently incurring to move out of legacy world and keep up with technological advancements. The current focus of the players thus should be in the direction of consumer interests outside of their existing markets. Apart from supporting existing products they would in parallel also need to create new products and create blue oceans in their existing markets. This will be challenging however, not as challenging as squeezing the last bit out of operational efficiency. The players seem to focus heavily on “operational efficiency” while they continue to loose on other ends. The new products thus should 1) Be simple vehicles for insurance than complex savings vehicles 2) Allow easier configuration so that they can address the needs of different customer segments and 3) Cost efficient from a per policy management costs perspective.

Refined Targets: The customer reach out processes have significantly changed due to the emergence of data analytic; which continues to have a direct impact on how customer strategy is build out. This has not only helped firms, those who are using it, segment the customers in a better way but also create better customer centric strategic plans. This has helped these firms spend wisely on the potential targets thus generating better ROI and adding new revenue streams. Life Insurers who won’t follow this suite will not only loose the market share but also loose on the upcoming opportunities against those who understand their customers better.

Agile Governance: Life Insurance firms will need to re-look at the age old governance frameworks to support the velocity with which the markets are changing from customer analysis to building investment strategies. They’ll need to be re-engineered 1) To become agile to move with the speed of customer and 2) To be able to support the new processes which become part of the strategy. Overall, the Life Insurance industry needs to wake up and speed up their slow moving components. The challenge that yet remains here is the culture component of the Life Insurance industry. The industry has enjoyed a slow moving pace so far, however, the demanding and ever changing new customers will drive the new pace and the industry will have to leave the old shell and gear up to support the emerging demands.

There are many other challenges from aged personnel population, archaic technologies, investment management strategies, payment options et al. which would need a look post the above have been addressed. Altogether, it’s time for the CIOs of the Life Insurance firms to gear up and be prepared for the roller-coaster of the technological changes that lie in the near future.

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