Fear of ‘Next Bubble’ Challenges Life, Annuity Carriers
Doug French | December 07, 2015
During the summer of 2015, EY interviewed executives at approximately 20 leading US insurance manufacturers, distributors, and reinsurers as part of an ongoing effort to understand how the life insurance and annuity industry can surmount current challenges and move forward.
(This article is part 1 of a series related to key findings from EY’s 2015 Retail Life Insurance and Annuity Executive Survey)
The objective was to understand the views and concerns in the eyes of industry executives and stakeholders and to outline the industry opportunities and challenges from the perspectives of customers, distributors and manufacturers. The interviews focused on the global economy, innovation, distribution, talent issues and consumer protection. This is the first article in a five part series, where we will walk through our key findings.
Ongoing Macroeconomic Sluggishness.
In the aftermath of the global financial crisis, insurance executives are justifiably worried about macroeconomic trends and the prospect of slow growth. As a whole, the global economy is still struggling to gain momentum. Global growth in 2014 was lower than initially expected, according to the World Bank. Overall, it is expected to rise moderately to 2.8 percent in 2015, and average about 3.2 percent through 2017.
Although the United States and the United Kingdom are showing improvement, the global outlook remains questionable. Negative interest rates and devalued currencies trouble some major economies. Financial malaise lingers in Europe and Japan. China is undertaking a cautiously managed slow down.
Equity markets are highly volatile and there is a widespread fear of “the next bubble,” such as an emerging debt crisis in the U.S. Few respondents believe that an uptick in the U.S. economy will restore growth for the life insurance and annuity industry or lead to broad improvements globally.
It is not surprising that retail life and annuity executives express concern about the full range of macroeconomic indicators, given the industry’s sensitivity to many of these forces. Consider demographic trends. Japan is facing a 40 percent population decline in the next 40 years, with huge impacts on a wide range of industries, including insurance. In the U.S., we have a growing population, but the inability of the insurance industry to penetrate this growing market remains evident.
Stagnant wage growth, rising healthcare costs and increased health insurance premiums could crowd out potential share-of-wallet gains for insurers, as consumers feel they have less money for life insurance and retirement savings. These effects could hit the middle-market segment particularly hard. This group is currently underserved by the industry, according to nearly all respondents. At the same time, millennials are marrying later and thus postponing the purchase of life insurance, which means income protection and retirement planning products will likely need to play a larger role within insurers’ portfolios.
Low interest rates negatively impact earnings and reserves and some respondents felt that drove companies to look for alternative asset classes for yield. Others identified a heightened awareness for the detrimental impacts of rising interest rates.
As one respondent pointed out, “We have managers that have never experienced rising rates before, and consumers that have never had to deal with it.” For instance, a potentially huge debt refinancing crisis looms if interest rates rise. As loans are refinanced, consumers will have even less money to save for retirement or to purchase life insurance products.
Stagnant wage growth, rising healthcare costs and increased health insurance premiums could crowd out share-of-wallet for insurers. In the face of these economic challenges, the industry must develop offerings that reflect the real-world needs of consumers, from affordable annuities for the middle market to more sophisticated life and health policies that leverage the Internet of Things. The bottom line is the global economy will be an obstacle to growth for insurers, until the return of broad-based prosperity and wealth creation.
In looking forward, the respondents stressed the long-term view. Such a perspective recognizes the current environment reinforces the need for strategic risk-taking and continuing analysis of business models. Thus, many carriers are likely to experiment in different markets. Survey respondents also recognize the maturity of the industry makes it particularly sensitive to macroeconomic challenges. The bottom line is that a sluggish global economy will remain an obstacle to growth for life insurers and give C-suite leaders even less financial margin for error in the future.
What respondents are saying:
- “The U.S. economy as a whole may perform well, but that doesn’t necessarily extend to the insurance industry.”
- “Several players will continue to focus on penetrating the middle market (or experimenting with it), but we don't see a super expansion due to [American’s] nervousness around share of wallet and wage growth. “
- “It’s not going to get easier. Margins will get tougher. More consolidation.”
- “We’ve been lucky in the sense that we haven’t had any shocks to [the economy], because I think it could unravel pretty easily.”
- “We rely on the global economy to do well.”
- “The penetration of life insurance in the US has decreased and our population has doubled.”
- “The ability to change quickly is key in this environment.”
- “The biggest risk is geopolitical risk across countries. [There’s] nothing we can do about that.”
Doug French is the managing principal of the Insurance and Actuarial Advisory Services practice within Ernst & Young LLP in New York. He can be reached at firstname.lastname@example.org. The views expressed herein are those of the authors and do not necessarily reflect the views of Ernst & Young LLP, the global EY organization or the Insurance Technology Association.
- It's National IT Professionals Day
- Save the Date for ITA-LIVE 2019
- OneShield Software and UrbanStat Work Together to Improve Real-Time Analytics and Risk Decision-Making
- ITA LIVE 2019 - SAVE THE DATE!
- Insurance Technology Association Announces New Editor-in-Chief
- August 2018 Edition ITA Pro Magazine is Now Available
- Enterprise Architecture in an Agile World
- Top 10 Tips for Securing Your Mobile Devices and Sensitive Client Data
- Industry Insight: 4 Global Insurance Trends in Digital, Data, Content Services and Security
- Diving Deeper into Prioritizing Your Strategic Digital investments
- Why Content Rules
- How Mass Personalization Will Open the Small Business Benefits Market
- At Year End 2017, Will Your Organization Be Protected from Cyber Risks?
- Do Insurance Bots Dream of Mitigating Risk?
- Conditioned to Respond
- Managing & Mobilizing Insurance Data in a Connected World
- Race to the Finish Line
- New Tools, New Opportunities in Claims
- ITA LIVE: Reaching Insurance Industry Crossroads
- Advice to Insurance IT Leaders: Keep Your Eye on the Ball
- New Date, Venue for ITA LIVE 2017
- Guidewire Makes Major Push to Small and Midtier Market by Acquiring ISCS
- Insurance Disruption is Happening Right Now
- Insurity Adds Strategic Investment Partner, General Atlantic
- Beyond Transformation: The Convergence of Finance, Risk, and Actuarial Functions
- The Rapid Evolution of Consumer Protection Regulation
- Talent Hunt: Finding, Attracting, Retaining Top People
- Insurers Flexing Their Distribution Models
- Technology Driving Disruption in Insurance
- Fear of ‘Next Bubble’ Challenges Life, Annuity Carriers
- Technology Allows Commercial Lines Insurers to Stand Out
- Single Sign-on Viewed as Biggest Tech Challenge for Agencies
- ISCS Observes 20th Anniversary; Scurto Predicts Major Changes Ahead
- Policyholders and Their First Impressions
- Progressive Making Progress on the UBI Front
- High and Dry: Insurers Search for Disaster Recovery Plans
- Insurers Sign The (Un)Dotted Line
- Reflections of a Retired Insurance CIO
- Mobile Device Management Just One Answer to BYOD Issue
- Lessons from GEICO and Progressive on Winning the Critical Buying Stage
- You Are a Target for a Cyber Attack
- Web-based Systems are the Next Evolution in Claims Technology
- Gaining a “Wow” Experience from Web Users
- Time to Shift from Business/IT Alignment to Business/IT Alliance
- Healthcare Insurers Changing to Consumer Model
- Organization is the Key for Selecting Software Vendors
- Analysts Expound on the Needs of the Mid-tier Insurance Market
- Finding the Cure for Obamacare’s Website
- New Software Solutions Benefit Insurers on the Inside and Outside
- Products, Market Impede Investment in Systems for Life Insurers
- Combatting Cyber Threats: Predict, Prevent, Persist
- The Future of Telematics Heads Beyond Insurance
- The Shame in Cyber Security Lapses
- Building Policy Administration Systems for the Future
- Insurers Look Into The Eyes of Their Policyholders
- It’s a New Dawn for the ITA
INSURANCE IT NEWS
- Nationwide launches easy, online insurance platform for business owners with fewer than five employees
- InsureTech Connect 2018 Pre-Conference Workshop to Focus on Customer Acquisition
- HazardHub named as EIA 2018 Entrepreneur of the Year.
- Insurers Leveraging Digital and Analytics-Driven Claims Capabilities to Improve Customer Perception and Results, Says Novarica
- Slice ICS Customer Announces Go-Live of First Digital Insurance Product
- Personal Lines Carriers Focus on Digitalization of Processes, Products, and Consumers, Says Novarica
- Messagepoint Integrates SparkPost with its Leading Customer Communications Management (CCM) Platform
- Insurers Seeing InsureTech as Opportunity More than Threat, Says Novarica
The Email Chat is a regular feature of the ITA Pro magazine and website. We send a series of questions to an insurance IT leader in search of thought-provoking responses on important issues facing the insurance industry.
ITA is pleased to present the 2014 Webinar Series. We have many topics for you to choose from and attendance is open to all ITA members. The webinar topics are current and exciting — ranging from predictive analytics to telematics and will focus on the direction insurance carriers need to follow for the future. All webinars are presented by insurance IT professionals along with some of the leading analysts and consultants in the field. There is no cost to attend an ITA webinar. For more information and to register for the webinar, click the “title” of the webinar below.
BLOGS AND COLUMNS
The Insurance Technology Association is pleased to announce that ITA Live 2019 is scheduled for May 5-7, 2019 at the Marriott Harbor Beach Resort and... READ MORE
It has become a common refrain over the past few years to view the practice of enterprise architecture (EA) as something that time has passed by, much... READ MORE
You have surely heard it said that small businesses are the growth engine for America. Today, the phrase has a special ring to it for benefits... READ MORE
With stagnant growth and lingering low interest rates, the life insurance industry faces a challenging future... READ MORE
Finding insurance carriers willing to write commercial lines risks has always been a challenge for producers... READ MORE
As Guidewire Software prepares for the start of Connections, its 11th annual user conference that begins on Nov. 2, Brian Desmond, chief marketing... READ MORE
Fraud detection has always been and will continue to be a critical component of claims management. Learning the lessons from current claims Straight... READ MORE
- Vendor Views