With investment income weakened and mergers and acquisitions (M&A) still difficult in light of the economic meltdown, many life insurers and annuity providers are ratcheting up efforts to expand organically.
Now, in a bid to boost customer retention and add new customers, they are turning to customer relationship management and customer profitability technology. They also are embracing technologies such as voice signature, which though not directly associated with organic growth, have helped them increase their number of policies and more quickly close sales.
While M&A remains feasible for some well-heeled and dice-rolling carriers, others are finding that organic growth offers special advantages, such as its ability to improve their shareholder value.
SHAREHOLDER VALUE AND ECONOMIC REALITIES
Several reports have questioned the conventional wisdom of turning to M&A for growth, including its uncertain ability to add to shareholder value. For instance, a study published in 2009 by two British universities - the Bristol Business School of the University of the West of England (in Bristol) and the Henley Business School of the University of Reading (in Henley on Thames) - found that based on extensive data from AXA, Generali and ING from 1995 to 2005, only organic revenue growth enhanced shareholder value.
"External growth through mergers and acquisitions does not contribute to value creation," says Gerhard Kling, principal lecturer of strategy and operations management at the Bristol Business School and co-author of the study. "In fact, the 'Merger Paradox' literature shows that stock returns of acquiring companies are negative or very close to zero after merger events. Our study used a different approach and quantified the actual extent of organic and external growth - but we came to the same conclusion."
Carriers coming to this realization tend to intensify their organic growth efforts. Yet, others refuse to see anything but M&A (i.e., external or non-organic growth) as the answer. "Based on my experience, insurance companies do not recognize the importance of organic growth and focus more on external sources of growth," says Kling. "Moreover, this behavior is driven by M&A activities of competitors, which creates 'merger waves' in the industry, as executives feel pressured to conduct M&A, as competitors did the same before."
Just a couple of the reasons for carriers' poor M&A results are that cost and revenue synergies are overstated before the transaction, and post-merger integration is much more challenging than expected, he explains.
Another study, by New York-based Deloitte Consulting LLP, echoed this shareholder principle, adding that "the life insurance industry is in the doldrums when it comes to growth," as its compound annual growth rate for premiums averaged only 1.3% from 1985 to 2005.
Even for those carriers clinging to the perception that M&A is the surest way to achieve growth, economic realities may nonetheless shut off the spigot for them. Starved of the capital for transactions, "people need to do more with less" now, says Steve Woodworth, market director, wealth management and insurance at DocuSign, a Seattle, Wash.-based e-signature provider. He indicates that since the recession, DocuSign has seen an increase of customers and, as a result, has been hiring, which dovetails with life insurers increasingly concentrating on improving efficiencies.
E-signature technology leads companies to reduce cycle time, cut costs and increase placement ratios, he says. (Still, the recession has actually enticed some carriers into M&A. See "Carpe Diem" below.)
MAKING BUSINESS EASIER
For life insurance and annuity providers, simply making transactions more streamlined can be an important motor for organic growth. "When you are trying to grow organically, it's critical to be the company that is the easiest to place business with," says John Wright, EVP of the service center of Sun Life Financial's operations in the United States. Wright is responsible for making sure the company has the high-end services necessary to help it organically grow.
Thus, in large part, carriers such as Sun Life enhance internal growth by automating processes. More than half of the business that the firm places - and about three quarters of its premium volume - is now done so electronically. "And, almost 100% of this is placed in good order (without errors or issues) because of the edits and the process that are used to actually submit the business, including compliance efforts," notes Wright.
Greater automation gives staff and clients the ability to do business with one another with relative ease. "Many of our tools and technology have product information, rules and the compliance capabilities built right in, making it easier for producers to actually do business with us," says Wright. "Automation and the ease of seeing and managing the book of business once it is actually in force is key."
At the same time, the U.S. division of Toronto-based Sun Life has made a significant investment in customer relationship management (CRM) tools to boost organic growth. This includes implementing contact management and activity tracking tools that help maximize the productivity of the carrier's wholesalers and generate organic sales growth.
"By leveraging this kind of technology, we look to ensure that our wholesalers are spending their time with top producers and key broker/dealer partners that we target from a marketing and relationship management perspective," explains Wright. Siebel CRM technology from Redwood Shores, Calif.-headquartered Oracle also has helped it measure the effectiveness of its marketing, see the total relationship for any of its businesses and identify cross-sell opportunities.
VOICE SIGNATURE TECHNOLOGY
Both e-signature and voice signature serve as examples of the indirect, yet crucial, technologies that life insurers are embracing to grow their businesses. After pioneering voice signature technology in the life insurance market in 2006, Legal & General America rolled out e-signature technology from DocuSign in the fourth quarter of 2009, according to Eric Lester, VP of administrative services at Rockville, Md.-based Banner Life Insurance Co., which along with Garden City, N.Y.-based William Penn Life Insurance Co. of New York, makes up Legal & General America Cos. Legal & General quickly was able to slash its delivery cycle time by 50%.
Likewise, CUNA Mutual has found that, by using technology to capture a voice signature and embedding that voice signature in its application process, it can dramatically improve its close ratio. Early in 2009, it rolled out call center technology that was developed in-house along with voice recording technology from Santa Cruz, Calif.-headquartered Plantronics Inc.
The carrier's agents and representatives now discuss customers' needs on the phone, and bind coverage in real time, rather than having to get the policy in force after a much more tedious snail mail and wet signature process. "That has had an extremely direct impact quickly getting the right coverage put in place for the customer, and certainly from our own perspective has helped us drive revenue growth out of those product lines," says Rick Roy, SVP and CIO of CUNA Mutual, a Madison, Wis.-based company that serves credit unions and its members.
Indeed, voice signature technology has delivered a 90% close rate for company sales. In contrast, before the implementation, the carrier had an 80% attrition rate: After sending physical forms in the mail for the customer to sign, only 20% would come back. "And it also has a side benefit because you generate some cost savings by not having to physically mail the actual signature kit to the customer to sign and return to you," says Roy.
WEB SELF-SERVICE AND SOCIAL NETWORKING
Carriers are charting out other strategies to accommodate organic growth. For instance, Legal & General America built its technology infrastructure entirely in-house. "And, we have been able to design our systems with a very small staff to be able to optimize the amount of business that we could handle with the lowest unit cost possible," Lester says. The company also has numerous Web-based initiatives underway to enable customers to execute transactions 24/7, which will further help the company eliminate back-office expenses.
Carriers need to better differentiate themselves and seize on sophisticated analytical and data mining tools and techniques, along with predictive modeling technology, in order to better understand which producers are more likely to succeed, says Kevin Sparks, director in the strategy and operations insurance practice strategy of Deloitte, and co-author of the company's aforementioned study. For example, in 2009, CUNA Mutual implemented technology based on its own data warehousing tools, and on business intelligence solutions from San Jose, Calif.-based Business Objects that has enabled it to push appropriate offerings to different customer segments in order to earn "reasonable profits," says Roy.
Forward-thinking carriers have helped such technologies balloon in popularity, and are experimenting with social networking to gauge how this can impact their business, says Sparks. Via social networking sites "some of their end consumers can clearly and quickly express [both positive and negative] opinions about them, how their distribution partners will use those tools and networks, if they have to have safeguards in place, and the rules of the road," says Sparks.
For instance, in December 2009, Pacific Life counted 146 fans on its Facebook page, which it uses to describe sponsorships, broadcast TV ads and post news announcements. While unorthodox to some, such efforts can be part of a life insurer's larger marketing drives, which are an important part of enhancing organic growth.
In order to further support organic growth, Sun Life plans to increase self-service capabilities, expand online illustrations, and deliver documents electronically, which will enable producers to better manage their book of business and interact with the company, says Wright.
The recession has led Sun Life to look harder at organic growth initiatives. "Everybody would like to be acquiring companies, but we need to make sure we are smart about it," says Wright. "Acquisitions aren't the only way to grow."
CARPE DIEM
The recession hasn't hamstrung every company, thereby forcing them to ignore M&A and fully focus on organic growth. For instance, organic growth has been vital for Madison, Wis.-based CUNA Mutual, fueling the company's overall growth for years, which has averaged 6% to 8% in the past half-decade. However, the economic meltdown did not trigger CUNA Mutual to increase concentration on organic growth, which contributed 98% to 99% of the company's overall growth in the past. For CUNA Mutual, the economic meltdown created rich opportunities, which IT and business executives both excitedly eyed. "Organic growth is very important to us and always will be," says Rick Roy, SVP and CIO of CUNA Mutual. "But in 2009, we executed a number of transactions, and many of them have to do with the economy and being opportunistic." In 2009 CUNA Mutual scooped up a 401K processing business, CPI Qualified Plan Consultants Inc., and agricultural insurer Producers Ag Insurance Group. Concurrently, the firm parted ways last year with several product lines that weren't central to its business, which also translated into organic growth. "Even though we might be divesting the product line, our customers have multiple relationships with us, and those allow us to continue to retain that customer and grow our relationships with the customer in other product lines that are more core to our business," Roy says.
Daniel Joelson is a freelance business writer based in Arlington, Va.
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