Life insurance and annuities industry remade by COVID-19 has been saved
Perspectives
Life insurance and annuities industry remade by COVID-19
Scenarios for resilient leaders
Insurers must prepare for the future, but uncertainties make it difficult to predict. These scenarios explore how the life insurance and annuities (L&A) industry landscape may develop over the next one to three years and helps leaders explore some of the potential medium-term implications of COVID-19.
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The life insurance and annuities industry has faced significant headwinds over the past few years, which have been further exacerbated by the COVID-19 pandemic:
- Sustained low-interest-rate environment
- Elevated expectations around customer experience
- Challenging operating environment for agents
- Workforce and workplace uncertainty
Given the numerous uncertainties, we explore how the insurance sector might evolve over the next one to three years so leaders can:
- Explore how trends we see during the pandemic could shape what insurance may look like in the medium term.
- Have productive conversations around the lasting implications and impacts of the crisis.
- Identify decisions and actions that will improve resilience to the rapidly changing landscape.
- Move beyond responding to the crisis, and towards recovering in the medium term.
In the wake of COVID-19, Deloitte and Salesforce hosted a dialogue among renowned scenario thinkers to consider the potential societal and business impact of the pandemic. The results of this collaboration can be found in The world remade: Scenarios for resilient leaders.
Four life insurance and annuities COVID-19 insurance scenarios
The current crisis could unfold in four ways over the next one to three years.
- Life insurance faces a near-term impact as a result of the economic downturn; however, the industry recovers as the economy bounces back, returning to normal.
- Market volatility and low-interest-rate environment hurts investment income.
- As the pandemic recedes and the economy recovers, insurers may lose urgency around business transformations, reverting to old ways of doing things.
- Market consolidation slightly accelerates as valuations of insurers decrease and large carriers look to assert strength by increasing their book of business.
- Customers’ trust in L&A carriers increases due to surge in financial wellness–led offerings and increased engagement with financial advisers.
- Investment income continues to be depressed in zero- or negative-rate environment, with carriers looking for new sources of yield.
- Customers share more data with companies in exchange for insights-driven relationships and customer-centric approaches with tailored solutions.
- Slow recovery and long-term near-zero interest rates result in strained balance sheets and declining investment income and revenues; insurers partner with private equity and offshore (APAC) investors to increase capital and ability to sustain profitability.
- Incumbents accelerate adoption of digitization and automation across the insurance value chain to stay competitive in a global market.
- Insurtechs partner with incumbents to drive operational efficiencies and lower costs to serve and offer innovative products (such as the convergence of life, health, and wealth).
- Large insurers consider selling certain business units or in-force blocks to improve cost structures and tighten expense management to maintain operations and shore up other lines.
- Long-term low-interest environment challenges insurer profitability, pushing some companies to merge or exit certain business lines.
- Customer retention increases as a result of a sustained low-interest environment.
- Digitization and automation are driven by mandate as customers become paranoid about physical interaction.
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For an in-depth discussion of the four scenarios, economic implications across geographies, and information on the potential opportunities and challenges facing the L&A industry, download the PDF here.
L&A carriers must assess implications across three main dimensions
- Customer implications: Customers and distribution
- Business model implications: Products and underwriting
- Competitive implications: Incumbents and new entrants
Get in touch
| Paul Nelson Principal, US Insurance Strategy leader Deloitte Consulting LLP +1 617 437 3257 |
Kristen Stuart Principal, Cross-Industry Strategy Deloitte Consulting LLP +1 617 449 5022 |
Puneet Kakar Principal, Insurance Strategy Deloitte Consulting LLP +1 212 829 6210 |
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