Life insurers face big challenges in 2009
The global financial crisis will bring major changes to the US life
insurance industry, impacting the balance sheets, operating performance
and competitive positioning of many of these organisations, according to
Ernst & Young's Global Insurance Centre US Outlook for the life
insurance industry.
But for some insurers, opportunities will emerge as well.
Companies must adapt to this new economic climate and work
strategically to identify trends to grow and remain competitive, said
Doug French, Principal, Ernst & Young's Insurance and Actuarial Advisory
Services.
The global economic crisis has caused worldwide setbacks, and as a
result many companies in 2009 will focus on developing new products and
services to combat costs to run their businesses more efficiently,
French said.
Well positioned
The US life insurance industry is well positioned to tackle these
issues and move forward from this crisis by taking the lessons learned
to develop opportunities and become a true partner to their customers.
Ernst & Young has identified six significant challenges that the life
insurance sector must address in 2009.
Shift product and investment focus to align with risk: Consumers have
responded to the crisis by changing their risk appetites and moving away
from variable products to fixed and universal life products that are
perceived as more secure.
Simultaneously, insurers face balance sheet challenges after years of
stability. The US life industry has realised and unrealised capital
losses of $36.5 billion from bonds and preferred and common stocks
through the third quarter, representing a 12% drop in surplus, according
to Ernst & Young and Conning Research & Consulting.
Insurers agile enough to shift their focus to guaranteed-return
products and create fixed returns may gain short-term advantages, while
those companies able to squeeze performance from general account
investments will likely gain longer term advantages.
Risk management
Retool risk modelling and measurement: In 2009, life insurance
companies will incorporate risk management lessons learned into their
existing enterprise risk management processes to stay ahead of their
competition.
In terms of modeling priorities, line managers and corporate
functions will have increasing responsibility to ensure that lessons
learned are incorporated into the models. Companies that develop a
holistic approach to ERM will be better equipped to maintain liquidity
under future stress scenarios.
Anticipate changes in the regulatory environment: As a result of the
financial crisis, one thing is certain - the industry will face
increased regulation.
The regulations will likely be more intrusive, including ongoing
monitoring of activities and financial performance. Life insurers will
benefit from regulatory convergence because geography matters little in
product design or consumer preferences. |