Life Insurers Rethink Their Strategies for 2013

Life insurers are transforming their strategies in response to demographic, economic, and regulatory pressures, according to Ernst & Young. New players are entering the market, the largest carriers are gaining market share, and distributors are consolidating. Carriers are evaluating books of business for the ability to generate profits and diversify risks. Meanwhile, regulators are evaluating suitability standards, which could alter sales practices among distributors and insurers.  For many companies, the goal is to have a balanced product portfolio, in which no single line dominates the business.

The average household expenditure for life insurance has declined 50% in the past decade. So insurers need to consider offering new simpler products geared to younger consumers, such as term and whole life insurance and use digital marketing and mobile distribution, according to researchers.

Insurers need to pay more attention to the risk transfer and savings needs of young people while continuing to build a case for retirees and pre-retirees. These areas offer significant growth opportunities in 2013.

Business strategies need to change in the face of unrelenting interest-rate pressure. According to the study, “Many life insurers have responded by de-risking [sic] and redesigning products, writing down certain lines of business, and increasing reserves on a fair-value basis.” Insurers are likely to renew their focus on asset management and wealth management, rather than on costly and risky guarantees. Improving capital and risk management remains a priority.

Insurers will need to hire talent to invest in sophisticated modeling techniques. Insurers need to stay attentive to tax changes as the government seeks new sources of revenue. The Federal Reserve may issue new regulations to improve risk management. Also, the Consumer Financial Protection Bureau may expand its scope reviewing insurance products.

Proposed U.S. and international accounting standards will have a significant effect on life insurance business models. Insurers have to make sure that they can implement these new requirements. For a copy of the U.S. Life Insurance Industry 2012 Outlook report, visit www.ey.com/insurance.

Last Updated 10/4/2017

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