My conclusion: life insurers can attain profitable growth and enhance their return on equity by up to 5 percentage points—if they have the vision and energy to do so.
I began this series of blogs by referring to various pieces of Accenture research that seem to indicate that the time for playing it safe, for just keeping the lights on, is over. Customer expectations, the threat of competition from companies outside the industry and the possibility that the existing value chain will be disrupted… all these factors persuade me that life insurers have to take a more proactive stance towards growth.
This is despite the many challenges they face, including increased regulation and historically low interest rates.
I’ve argued consistently that, to achieve profitable growth, life insurers will not be able to rely on a single lever. Rather they will have to identify and manipulate several levers, with the broad aims of reducing costs and enhancing operational efficiencies. Some of these levers are:
- Generally to think more laterally about what their business actually is, and to be prepared to follow where their customers are leading. For more, please take a look at my earlier blog, “New profit pools in life insurance.”
- To look at cost reduction as a strategic initiative that ultimately transforms the way the company works—with reductions in operating expenses of up to 25 percent possible.
- To be open to the possibilities of new technologies.
- To leverage relationships with regulators when it comes to making new technologies commercial, and to turn regulatory compliance into a way to integrate risk management into the way they do business.
- To take advantage of the potential of business process outsourcing to gain flexibility while reducing costs.
- To learn how to package their existing and irreplaceable advisory capabilities for today’s customers.
Using as many of these levers as possible, life insurers will find it possible to reignite growth and, as my colleagues Brian DeMaster and Patrick Lyons suggest, they could improve their return on equity from 7.8 percent to 13 percent (using 2012 averages)—an improvement of some 5 percentage points.
It’s not a simple journey, but it’s one that’s worth taking!
For more information, don’t forget their paper, Getting to 2020: Strategies for profitable growth in US life insurance, is available for download.