2015 Life Insurance and Annuity Industry Outlook
Taking the longer-term view
In many ways, life insurance and annuity carriers are in a better position to grow than in a long time. As the US economic recovery gains momentum, unemployment is falling and consumer confidence is on the rise, creating a more conducive environment for carriers to market their products and services. This year’s Outlook discusses bigger picture issues likely to have a significant effect on consumer behavior and insurer operations in 2015 and beyond.
2015 and beyond
While touching upon the impact of the economy and the state of cyclical insurance markets, we focus the bulk of our attention in this year’s Outlook on more systemic challenges life and annuity (L&A) carriers must overcome to lead the industry. We highlight five pillars for long-term success that should rank high on insurer strategic agendas.
See below for a brief overview of these pillars and an infographic outlining key priorities for insurers. For the full view into our outlook for 2015, download the report.
This Outlook is part of Deloitte’s Financial Services Industry Outlooks series, which provides insights and trends for insurance, banking, investment management, and commercial real estate.
Five priorities for life insurance and annuity carriers
Transforming for growth
The L&A industry is overdue for a reinvention, given historic lows in individual life insurance ownership and ongoing misunderstandings about annuities. Carriers need to rethink how they interact with consumers to achieve more consistent growth. They should consider:
- More innovative business models, policy designs, and marketing approaches
- Developing more precision around who the consumer is and specificity with regard to their needs
- Fostering a more educated insurance consumer market, facilitating a shift from products that have to be aggressively sold to those that are actively sought out by new buyers
Addressing longevity risks
Longer life spans and fewer defined benefit plans will prompt more consumers to seek out new lifetime income options, as well as solutions for related problems such as long-term care financing. Carriers should consider the following:
- Demographic and economic trends could make longevity protection the industry’s biggest growth opportunity
- The risk’s long-tail and investment market uncertainty could make longevity the industry’s biggest challenge as well
- Carriers will need to carefully consider how they design, model, and distribute longevity products to meet economic targets and reduce downside risk over the long term
Achieving information fluency
Data is the life blood of L&A insurance, yet many carriers are suffering from a hardening of the arteries. The full value of data is rarely optimized by insurers because information often remains isolated in siloed, legacy tech systems and operating structures. To make data more fluent throughout their organization, insurers may want to consider:
- Making information more easily accessible and translatable across the enterprise
- Strategically transforming the way they amass, store, define, govern, analyze, and disseminate information
- Turning proprietary information into a strategic asset and competitive advantage
Overcoming regulatory challenges
Insurers can rely on regulatory uncertainty as an ongoing way of life rather than a passing conundrum as multiple overseers—state, federal, and international—sort out new standards and rules. L&A insurers will want to look out for:
- The potential for new group capital requirements
- The first Own Risk and Solvency Assessment filing
- The fate of life insurer-owned captives in the face of increasing regulatory scrutiny
Upgrading capital management
L&A insurers will need better frameworks and models to meet the increasing demands of stakeholders for more robust stress testing and scenario planning, as well as to support growth needs. Carriers may want to think about:
- How to maintain let alone improve ROE at a time of persistently low interest rates
- Establishing a more robust internal risk-adjusted capital framework that incorporates a multitude of approaches
- How advancements in modeling technology have made projection of capital requirements and understanding of the intersection of different capital frameworks more manageable and efficient