The outlook for the life and annuity industry is stable and could present an opportunity for more aggressive technology investment by insurers to increase market share and innovation, especially when it comes to servicing consumers, according to ratings agencies and other industry experts.
As the U.S. economy has improved, unemployment has receded to 7 percent or below, and the stock market has risen, life insurers have improved balances sheets and improved enhanced risk-focused decision-making as they derisked investment portfolios. Risk-adjusted capital remains generally strong and GAAP and statutory operating earnings are steady, according to A.M. Best’s rating outlook for the life and annuity industry. Interest rates could begin to rise, as well.
In light of the increased availability of capital, Deloitte said life insurers and annuity providers should begin efforts to make more efficient use of capital and expand market share by reaching out to underserved consumer segments.
Fundamental changes to business models will be necessary, despite modest economic growth, lower unemployment and the possibility of rising interest rates, according to the consulting firm’s “2014 Life Insurance and Annuity Industry Outlook: Transforming for growth - Getting back on track.” And, more carriers will be revamping their products, core systems and distribution options.
The L&A market quickly is becoming more transparent, self-service oriented and driven by mobile, Deloitte said, and those reticent to embrace innovation risk being put to competitive disadvantage as traditional competitors ramp up their usage of such methods and new competitors enter the market. “We anticipate seeing a growing number of carriers reevaluating their business models to compete more effectively regardless of economic conditions, as well as to differentiate their brands as part of the leading edge,” said Gary Shaw, U.S. insurance leader at Deloitte LLP.
Deloitte notes that while the baby boomer market is saturated, the opportunity to reach Gen X consumers offers an excellent opportunity, potentially work $3.6 trillion over a 12-month period, and higher than any other demographic, according to LIMRA, as quoted by Deloitte. The estimated total size of that opportunity is $7.1 trillion. The caveat is that simpler products available through new distribution channels may be necessary to reach them.
“Targeting underserved segments will also require specialized marketing, engagement options through various distribution channels, and loyalty-building strategies, which will help defray initial acquisition costs,” Deloitte said. “Moreover, life insurers should begin considering how they might capitalize on the emerging group annuities market and health insurance exchanges to potentially benefit from enhanced access and sales efficiency.”
Deloitte also said, “Gen Xers’ high brand loyalty is very likely to help defray initial acquisition costs through additional product sales over time.”
Rollouts of new technology to support product and distribution innovation require high-tech talent, which is in high demand inside insurance industry and across industries. This challenge is exacerbated in the insurance industry, Deloitte said, where a particularly high portion of employees are older and nearing retirement, thus increasing the talent gap. “The rapid adoption of data-driven initiatives has widened the talent gap for insurers, given the economy-wide demand for individuals with analytical skills,” Deloitte said.
Servicing life and annuity customers also extends to processing claims, which requires attention and compassion, Celent said in “Life Claims 2014: A Global Vendor Spectrum.” Unfortunately, claimants and insurers often find themselves confronted with tedious, ad hoc or manual processes that can result delays, errors and omissions, Celent said.
To control expenses and prevent claims fraud, Celent urges technology decision makers to employ rules and workflow design and management capabilities, including three specific rules capabilities:
- The ability to design and execute rules that are separate from the core program code.
- The ability to reuse and share rules.
- A searchable and version-controlled rules repository
Celent also said contemporary core claims systems provide 13 basic functions, including:
- The ability to receive notice of claim and track production statistics.
- Automatic status tracking for any requests related to a claims case.
- Predefined selection of causes of claims.
- User-definable codes, to allow for claims activity classification.
- Automatic benefits calculation.
- Configurable fraud detection rules and algorithms.
- Automatic calculation of tax reductions and application of interest.
- Split payments to multiple beneficiaries.
- Reinsurance and year-end reporting for generation of statement and reporting.
- Automated assignment to claims adjusters.
- Ability to determine reimbursement amount rights to claims adjusters via tier user profiles.
- Ability to enter new third party agreements within the system to automatically integrate agreed tariffs when adjusting a claim (specific to medical insurance with healthcare providers network).
- Claims handling dashboard.
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