Life Insurers Challenged by Competitive Landscape


Towers Watson survey finds life insurers’ technology limitations affecting their profits

Chief financial officers (CFOs) at North American life insurance companies say they continue to face sizable competitive challenges to their profitability, yet only a small number (20%) believe they are well prepared to respond to this competitive environment.

Life insurers cited competition (61%) and cost management (61%) as the top challenges to their profits this year, and seem only somewhat better prepared (46%) to address the cost pressures, according to a Life Insurance CFO Survey conducted by global professional services company Towers Watson’s (NASDAQ: TW).

Insurers also acknowledge that the competitive environment (78%) is the biggest challenge to their growth objectives, and the majority rank the economic environment (56%) and regulatory landscape (56%) as the main impediments to meeting their risk objectives. In response to their various challenges, insurers are trying several measures, such as expanding into new products or markets (44%), increasing distribution (39%), and implementing or improving risk management processes, including financial discipline, and risk and capital processes (39%).

“Life insurers face difficult market conditions characterized by moderate return on equity, flat to sluggish sales growth and protracted low interest rates. These threats make countering their competitive challenges even more daunting,” said Elinor Friedman, Towers Watson’s Life Insurance practice leader for the Americas. “Insurers have significant work ahead, yet they have opportunities, too. By developing an organized, comprehensive strategy that firmly connects growth and profit objectives with risk goals, they can counter these strong competitive challenges and exert more control over their business.”

The survey established that CFOs are grappling with technology implementation even as they continue to understand the competitive benefits it provides. They ranked technology limitations (56%) as the primary internal obstacle in realizing their profit goals, and information technology (83%) as the greatest cost and expense management challenge, which far outpaced regulatory and accounting compliance (44%). Nearly three-fifths (59%) said the effective use of technology to create value with customers is their leading distribution-related challenge.

“Operationally, the survey showed that insurers need to utilize technology more effectively,” said Friedman. “This spans multiple functions of their business, from financial modeling, pricing and product development, to distribution and customer service. With the right technology and financial models in place, life insurers can turn data into discernible information, which will help them better understand and serve their customers, and improve top- and bottom-line growth.”

The survey also revealed that insurers’ satisfaction level with their financial models varied by use and that the full benefits of their models have not been realized. While three-quarters expressed a high level of confidence with model results for cash-flow testing and over half (56%) for valuation, insurers are less enthusiastic about other functions, such as hedging (36%) and pricing (22%). Further, insurers are only moderately satisfied with the timeliness of their models. At best, half are extremely pleased with their hedging models, but their satisfaction trails off to a low of 9% for their economic capital or capital

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