201001 loma resource_forecast

insurance service Page 1 of 14

From January 2010 Resource

Forecast for 2010: Cautious Optimism
Most companies are predicting 2010 sales growth, premium
growth and profitability to be modest to flat compared to 2009.

By Jennifer C. Rankin and Ron Clark

Insurers are slowly emerging from the financial crisis and recession
and are cautiously optimistic about the year ahead.

It’s against this backdrop that Resource asked insurance industry
leaders to share their thoughts on what the year ahead holds for
sales, profitability, technology and customer service. The executives
who participated in our annual forecast included a cross section of
the LL Global board of directors plus several industry analysts. They
are:

Steve M. Callahan, CMC®, ChFC, CLU, FFSI, FLHC, FLMI, senior
consultant and practice development director, Robert E. Nolan
Company

Esfand E. Dinshaw, LLIF, president, annuities, Midland National Life

Peter A. Golato, CLU, ChFC, senior vice president, individual
protection, Nationwide Financial Services

W. Kenny Massey, FICF, LLIF, president and CEO, Modern
Woodmen of America

Eileen C. McDonnell, executive vice president and CMO, Penn
Mutual Life

Dayton H. Molendorp, CLU, chairman, president & CEO,
OneAmerica Financial Partners

Karen Pauli, research director, TowerGroup
E-MAIL
L. John Pearson, CLU, chairman, Baltimore Life
This page to a friend
Elaine A. Sarsynski, chairman and CEO, MassMutual International
Enter recipient's e-mail: LLC—International and Retirement Services

Nicolas Schimel, chief executive officer, Union Financière de France
Send this page
Craig W. Weber, senior vice president, Celent

Here’s what they had to say:

1. SALES
What is your prediction for sales,

http://www.loma.org/res-01-10-forecast.asp 1/5/2010


premiums and profits for our industry
as a whole in 2010? What products
look particularly strong or weak?

CALLAHAN: As goes the market, so go market based products.
With the dramatic drop in the S&P from its highs by almost 40
percent (52 percent for the Life and Health Insurance Index June
2008 to June 2009), and with interest rates continuing at historically
low, almost nonexistent, levels, the appeal for variable products, both
annuities and life, dried up most of the year as buyers shifted to
whole life and term to preserve their assets. The hedging and risk
management techniques, combined with unexpectedly underpriced
guarantees linked to the variable products, put many insurers at an
extremely high exposure level that will continue to wash out over the
duration of 2009 and into 2010. In response, most reinsurers exited
the variable market, while many insurers either stopped writing
variable guarantees or, more commonly, selected some combination
of increased fees, reduced guarantees, and/or restricted asset
allocations, all in an attempt to reduce market exposure and capital
drain.

And, with the exception of MetLife, whose VA sales have increased
11 percent through 3Q09, the industry has suffered a 23 percent
decline through 3Q09 versus 3Q08. Yet sales do not directly or
immediately translate to profits, as MetLife’s recently announced US$
1.4 billion in investment losses and third quarterly loss indicates.
Even with the market returning slowly to better times, a return to
profitability will take care and time. Specific to the variable products,
positive press combined with well established brands and continued
improvement in the market will likely cause them to inch up. Yet the
increase is likely to be a gradual one due to two key inhibitors. First,
there are fewer, less wealthy, and much more cautious buyers
available for purchasing variable products. Second, feeding the
concerns of the cautious, the changes in fees, features, and
guarantees undertaken by insurers compound the reluctance to dive
back into this market.

Similar to the "flight to quality" during the tech bubble burst of the mid
2000s, consumers have tended towards permanent and term
products during these difficult market times, with, for example, an
eight percent increase in agency sales through September 2009
versus the same timeframe in 2008. Companies with products that,
during significant real estate and market declines, are able to either
show no change in any intrinsic value, like term, or an actual increase
in value, like permanent insurance, are appealing to the consumer’s
desire for safety, security, and stability. Building on the appeal of
term products, companies are introducing modified term plans that
approximate dial-a-term (select a face) and term/UL combos that
allow flexible durations, issue ages, steps in face, and premium
payments. In fact, for some, the appeal of permanent plans has been
enough to initiate actual increases in the amounts being paid into
their cash value permanent plans. Along these same lines, fixed
deferred and immediate annuities have taken over a good share of
the market lost by variable products, growing to 40 percent of total
annuities in 2008 and expected to reach 50 percent of total annuities
in 2009. That said, total annuity sales are expected to remain flat
across the two segments in 2009.

A product set that is garnering a great deal of attention is the indexed
annuity and indexed universal life set. Focusing first on the indexed
annuities, given the market volatility, and a primary shift away from
indexed annuities, there has also been over 11 percent year to year



growth in indexed annuities amounting to US$ 7.5 billion. Hidden
behind this rather innocuous growth rate is the tumultuous nature of
the competitive landscape, with some companies up over 75 percent
in sales and others down almost 60 percent, shaking up the rankings
tremendously on a product showing growth. In the indexed universal
life arena, year on year growth is slow at one percent across the 33
existing carriers, building momentum for 2010 as product designs are
continuously refined. The rapid feature set change and growth is
typical for a new product concept going through rapid innovation
cycles that change competitive profiles rapidly. Another trend below
the radar with this product set is the tripling of bank distribution’s
share of the market over the past year, bringing this channel up to
over 12 percent of the total sales as of 3Q09. Innovation, growth, and
channel competitiveness make this product one to watch with care,
along with the trials and tribulations of the 151A ruling that would
make this an SEC regulated product. The implications of either
vacating or delaying the ruling due to the need to measure the overall
costs and impacts will accelerate indexed product sales as they
become the innovation of choice.

Combo long-term care (LTC) plans are also growing in appeal as the
aging Baby Boomers look for a solution to their need to work longer
than planned while still insuring, cost effectively, against the cost of
long term care. These plans bundle an LTC rider on top of either a
cash value based life plan or an annuity that create a funding vehicle
for the LTC rider. There are several appeals to these plans, including
bundling so that the costs are lower, tax advantages, flexibility, and
broader coverage. It also addresses the aging of the workforce,
which is a critical need.

New sales volume for life will likely continue the 20-plus quarters of
quarter on quarter downward trend, with group life trending up as
voluntary workplace markets improve. On the other hand, there is a
significant spike up in the rate of new app sales growth in the 60+
market, while the 45 to 59 market shows very slight year on year
growth in the two percent range, and the 0 to 44 market is actually
shrinking at a slow rate. Recent attention has expanded beyond Baby
Boomers to recognize the tremendous opportunity presented by the
underserved middle market, with focused product and distribution
techniques being developed to specifically target this market’s needs
using the workplace as the common medium for linking the structure
together.

For 2009, total inforce premium will probably shrink as lapses hold at
a higher level paired with accessing funds through withdrawals,
loans, and partial surrenders. These shifts clearly impact the
investment portfolio performance of insurers. While a loss like 2008’s
US$ 50+ billion is unlikely in 2009, a return to profitability may not yet
be in the cards despite market upturns over the last quarter. A
combination of portfolio commitments, increased reinsurance costs,
increased reserving demands, lower returns, and the cost of
guarantees are all combining to make the return to profitability a
gradual one. That said, insurers have been effective in cutting their
operating expenses by nearly 30 percent from a high of US$ 155
billion in 2007, which helps make the transition to profitability easier
and shows effective leadership under market duress.

DINSHAW: Expect individual life insurance sales to increase by five
to 10 percent. People will be attracted to guarantees and death
benefits. Do not expect premium financing sales to return. Fixed
annuity sales will remain strong as people have been burned by
equities. Some rebound in variable annuity sales but overall demand



will be low. Profits will be challenged primarily due to variable annuity
guarantees and investment portfolios. Investment portfolio challenges
(corporate bonds, commercial mortgages etcetera) will limit capital.
Companies will be trying to build capital by retaining profits.

GOLATO: Most companies are predicting 2010 sales to remain flat
to down compared to 2009. Premium growth and profitability will
likely follow that same trend. Consumers are going back to the basics
of life insurance protection, which means they are looking for low-
cost coverage to protect their families. Simplified issue products are
getting a lot of attention in the market and products that will be strong
sellers in 2010 include those with guarantees. Universal and term life
will remain strong sellers. We hope that variable products will return
to favor as the markets recover and we expect whole life to hold
steady. In the last few years, the trend for advisors has been to sell
more fixed life products and fewer variable products. It will be
interesting to see how this plays out as things hopefully continue to
stabilize.

MASSEY: We predict a three to five percent increase in life sales
with annuities being flat after a tremendous increase during 2009.
Variable annuity and mutual fund sales will experience a 20 to 25
percent increase.

MCDONNELL: I expect sales will be up slightly over 2009 due to
slow but continued improvements in the economy. Profits will be
hampered by sustained low interest rates and pressure on sales,
putting even greater emphasis on cost controls. We are likely to
continue to see lower face amount policies and a trend to
cheaper/lower premium policies such as term insurance. Other
products that look particularly strong are whole life, guaranteed
universal life and indexed universal life. Variable life sales will
continue to lag.

MOLENDORP: I believe sales will be a challenge in 2010. Lower
interest rates will impact fixed annuity sales, while variable annuities
will be stronger but still tied to guaranteed living benefits. I expect
whole life insurance to continue to be strong, given guarantees.
Universal life sales will be flat to down. PPA LTC asset based
products will grow. [Editor’s Note: The Pension Protection Act of
2006 (PPA) extends the Health Insurance Portability and
Accountability Act’s favorable treatment of combination life and long
term care policies to combination annuity and long-term care (LTC)
contracts]. I also expect 401(k) and 403(b) plans to be stronger than
2009. Group life and long-term disability (LTD) will be challenged with
a stronger move toward voluntary benefits. I expect profits to be
somewhat stronger as capital losses diminish and companies realize
gains on previously written-down assets, but returns will remain
depressed as companies hold more capital and carry more debt. Low
interest rates will reduce profitability as spread compression
increases. We may also see a rise in disability claims given
persistent unemployment.

PAULI: While there will be improvement in 2010 in sales, premiums
and profits, all these indicators will still be negative. Each quarter in
2009 has been a bit better than the one before. However, first quarter
results were so horrific, all of this is simply a matter of degrees of
poor performance. Products with guarantees will be the preferred
products. This represents a shift away from straight accumulation
products (e.g. variable annuities). Retiring Baby Boomers want
guaranteed income products including variable and fixed annuities.
Consumers definitely want products that are easy to understand.



Complex products that cannot be detailed in layman’s terms will not
sell well.

PEARSON: Overall, 2009 was a poor year for our industry,
particularly for companies selling large face amount and registered
products. Sales were substantially better for Baltimore Life, however.
When times are tough, middle market consumers are interested in
protecting their assets and they value the guarantees we can
provide. I think the industry has now made it past the bottom of the
downturn, and we should soon start to see a move back toward sales
growth. Registered products should improve as the market stabilizes,
while fixed and guaranteed products will continue to do well.

SARSYNSKI: Prospects for the retirement services industry are
definitely improved for 2010 compared to this year, driven by
improved equity markets and the resulting positive impact on assets
under management (AUM) and revenue. Cash flow continues to be
positive for the industry and stronger firms will continue to benefit
from the flight to quality. More sponsors will likely switch providers
than over the past two years, which were marked by record low
levels of sponsor turnover. The expected increase is a result of a
generally improving business climate that will cause sponsors to
revisit their retirement plan providers and by increased levels of fee
and plan performance benchmarking. Providers who can help
sponsors (along with their advisors) fulfill their fiduciary obligations
and help their participants achieve retirement success will gain from
the increased activity.

SCHIMEL: Expect average sales and premiums, but good profits, for
the industry as a whole. Sales of products having a death benefit or
guaranteed minimum benefit (GMB) should be strong, as will variable
annuities. Sales of universal life, except certain offers, and fixed
annuities will be weak.

WEBER: I think insurers should expect a "back to the basics" year in
2010. 2009 left a bad taste in everyone’s mouth, and I expect
consumers will remain cautious for the foreseeable future. That
points to simpler products like term insurance, where the coverage is
easy to explain and risks are low. In terms of profitability, results will
be mixed. But low expectations for investment results suggest that
carriers need to be more careful than ever about the risks they write

2. ECONOMIC CLIMATE
How do you think our indus-
try will be affected in 2010 by the
current economic situation? Will there
be consolidation, downsizing or
something else?

CALLAHAN: Not surprisingly, the economics of 2010 will drive many
of the insurer decisions. Based on a review of nationally available
statistics, the relevant economic indicators for 2010 include the
annualized quarterly change in GDP for 2010 remaining under three
percent; best-case estimates for unemployment over eight percent,
with pessimistic estimates at 10+ percent; inflation, given high levels
of unemployment, remaining in the low two percent range; home
prices continuing down to flat due to an explicit and a hidden
oversupply; rate of foreclosures rising, indicating there remains
significant loan risks; and net rate of return on general accounts for
insurers staying in the +/- six percent range.



While there will be some degree of improvement, it is relatively minor
compared to the material negative impact over the last few years,
which will draw out the time to recovery. Companies are benefiting
from the recent market turns combined with the expense control and
governance/risk management investments made the last two years,
which will carry over into 2010 and amplify any additional recovery
efforts. There is also the concern that additional losses driven
specifically by the direct origination commercial real estate assets in
insurer portfolios will exacerbate investment performance, increase
operational pressure, and potentially even negatively impact ratings.

An interesting turn in the market has been the general findings by
Moody’s and A.M. Best that the mutual insurers have ended up being
better capitalized as well as more resilient to the market swings. This
despite the governance created by SOX required for publicly traded
companies (but not mutuals) intended to help manage some of the
risks of these last few years. In response, companies worldwide are
integrating stronger practices for managing credit exposures,
regulatory capital levels, hedging techniques, foundational risks
(basis, gap, and volatility), and the cost of specific product features
like guarantees. An overall increase in focus on risk management
has been the clear, self selected outcome of the
recent difficulties.

Likely insurance buyer impacts relevant to insurers due to these
factors include a good chance that many employees will face salary
reductions up to 50 percent; the loss of home and retirement account
values forcing people to work longer; lapses by count and by face
remaining at their 10 year (excluding 2002 blip) highs; policy loan
levels and rates remaining a critical factor in portfolio performance;
and guarantees and price points becoming an even greater factor in
decision making.

Dealing with these consumer and market issues will require a great
deal of focus, flexibility, and attentiveness to detail. Companies that
have managed to navigate through the market storms have already
shown a proficiency in focusing on risk management and operational
expense demands that will now need to be translated into
coordinated product, investment, and distribution optimization.

There are clearly two other primary trends that will play a major role,
although in different ways, in 2010 and beyond. The first is the
globalization of our industry, with particular attention to the
opportunities and competition that exists in China, India, and Russia
to name three of the more recent, and prevalent, markets. Dealing
with national economic issues and international competitors
emphasizes the importance of focus, vision, and mission. Companies
will need to divest noncore and/or nonperforming businesses
diligently and without hesitation to free up the necessary resources.
This leads to selective M&A activity that will increase as some
insurers sell lines or segments that other insurers need to gain
geographic or operational economy of scale. This M&A activity will
extend beyond national borders, as large U.S. players continue to
selectively expand internationally, and the international players do
the same.

The second trend acts as an umbrella across all other issues, and is
in the realm of regulatory oversight. There is no doubt that the level
of national and state attention will continue to increase as the
intensity of attention turns to transparency, product fee structure,
solvency, suitability, and commissions. Included in this category are
the debates on a national office of insurance, mark to market



challenges, the complex transition to IFRS, the insufficient availability
of reinsurance, and new capitalization demands. Each of these items
brings with it additional challenges that demand care and attention,
which translates into a drain on expert resources that could be
optimally utilized helping with organic growth. Balancing the ability to
address these umbrella needs with not exceeding expense limitations
or missing a market opportunity will be the challenge for next year’s
leaders.

DINSHAW: Tepid economic growth is the forecast. Expect significant
downsizing and capital building. Do not expect acquisitions due to
lack of capital.

GOLATO: Several companies have taken action to improve their own
capital position as opposed to allocating capital to fund acquisition
opportunities. Their responses have been mostly with respect to
product price adjustments. We see these trends continuing with a
new focus on distribution efficiency improvements to maximize sales
opportunities and minimize expenses. We also see an increased
emphasis on the role of third party
marketers and aggregators.

MASSEY: There is still concern for commercial real estate, but we
feel there will be very slow recovery of the economy with little
improvement to unemployment rates. Consolidation may see a small
uptick, but 2011 may be the real year of consolidation. We will be
more conservative and cautious with our investments and product
development. Risk awareness and management will drive better
decisions for a strong future.

MCDONNELL: While I see an economic improvement in 2010, there
will be continued consolidation of distressed companies and
downsizing of surviving ones as companies continue to refine their
strategies and divest from businesses that are underperforming,
unsustainable, or distracting from their core competencies.

MOLENDORP: I think the economy may well move sideways. Our
industry is still susceptible to market shocks. There may be some
consolidation, but I think it will happen gradually. We may well see
continued downsizing.

PAULI: The economic hangover will continue through the end of
2010. The effects will ease up some by mid-2010 but this simply
means that the negative numbers won’t be as bad as they have been
in 2009. Fundamentally, business and personal financial resilience is
gone. Layer uncertainty and distrust on top of that and it does not
portend an easing of the pressure on insurer premiums and new
business acquisition. There will definitely be consolidation as some
insurers merge for survival. Consolidation will also come through
carriers moving away from product lines they are not comfortable
with.

PEARSON: Capital is becoming more available and companies that
are under duress will be looking for partners. This will lead to some
additional consolidation throughout our industry.

SARSYNSKI: Most strong [retirement plan] providers have adjusted
to the economic environment by concentrating on core competencies
and managing expenses. Most firms have worked to improve their
balance sheets and capital positions. The improving economy,
coupled with provider efforts to stay solvent and cost-efficient, will



provide new opportunity for stronger providers to acquire weaker
firms. We expect this to result in a modest increase in consolidation
activity in 2010.

SCHIMEL: I do see economic improvement during 2010, but the
industry will remain cautious. Europe will be dealing with the impact
of Solvency II. The industry will continue to consolidate.

WEBER: We are already seeing signs of a broad, though weak,
economic recovery. For carriers that did not have exposure to highly
troubled assets, including many of the regional players, I see this as
a year of great opportunity. They can afford to invest in technology
and process optimization and create differentiated services, even
though unit sales in most lines are likely to be flat. In a great
economy over two to three years, everyone can afford to throw
money at problems. But this year we will see meaningful differences
in levels
of investment.

3. TECHNOLOGY
What new technologies have the
greatest potential to help our industry
and how can they help?

CALLAHAN: The industry is still faced with legacy applications and
traditional processing environments to a great extent, which will make
investments in improving operational effectiveness a continued focus.
Despite efforts to the contrary, the life insurance industry even lags
its property/casualty sibling along the new technology adoption and
integration curve. Yet it is important, especially now with the advent
of so many appealing technologies, for companies to put in place a
disciplined portfolio management strategy for handling all technology
and infrastructure investments. This portfolio management structure
needs to provide an effective framework for the evaluation, selection,
and implementation determination of the key projects that will be
pursued. Consider it as a consolidation of RFP, PMO, ROI, and
project management practices and tools. Every investment of scarce
technology resources has to pass a rigorous filter containing all of
these components before moving to the next stage.

While there is value in mentioning how operational effectiveness and
service differentiation at the customer and agent level should remain
at the top tier of evaluative criteria for selecting technology
investments, these must be taken in tandem with a good dose of
reality. Now more than ever it is important to emphasize that there is
a difference between appealing, even desired, technology and cost
effective, competitively enhancing solutions. The largest arena for
this debate falls in the Web 2.0/social networking bandwagon that
has drawn so much attention, some of it deserved and some of it less
than ideal. A reality filter has to be applied to any new technology that
goes beyond asking customers if they would "like" being able to chat
online or look at a Facebook page. The more relevant question is to
what degree a given solution would influence buying behavior as well
as the tendency for the consumer to recommend the insurer to
someone else (the Net Promoter Score). Many consumers will
express interest in a given system or feature; yet when asked to rank
its relevance in determining where to do business, a question not
typically asked, the answer is often dismaying to the project owner.

DINSHAW: Automation technologies that reduce expenses or



provide faster processing are important. Therefore, workflow, straight
through processing, automated underwriting and so on will be
important.

GOLATO: Life insurance companies will increasingly leverage
technology, such as iPipeline, as they continue to explore ways to
control expenses and optimize sales and underwriting process
efficiencies. This means we’re going to see more things like
electronic delivery of routine customer and agent communications,
Web site enhancements to enable customer and agent self-service,
and enhancements like straight-through processing of life insurance
new business submissions.

MASSEY: The Internet is still the great unconquered frontier.

MCDONNELL: Some emerging technology advancements will
significantly change our industry. Virtual communications tools such
as Skype can reduce travel expenses and make remote
communications more personal. Wireless technologies will provide
the ability to access tools and capabilities from any location and have
the potential to change the client/producer experience, especially at
point of sale and service. Workforce virtualization will allow firms to
recruit beyond their historical geographic boundaries and could lure
diverse talent into our industry.

MOLENDORP: Technology that enables straight through processing
to reduce administrative costs and to improve both field and
customer experience will become more critical. New social
networking technologies will get a lot of attention but will only be
useful to the extent they support the larger strategy.

PAULI: The new technologies will be the use of social media for
marketing and customer communications. However, the true
business use of social media will take some time to mature. Internal
use of blogs and tweets has already started to be tested by leading
insurers. This will grow in importance and acceptance for the next
three years. The really important technologies are not new as much
as under-utilized. Analytics and models, data management and
integration, business intelligence and business process improvement.
All of this is necessary in order to gain better customer insight and to
improve the customer experience. This is very critical! Better
customer insight not only improves customer experience, but also
allows carriers to
improve operational efficiency.

PEARSON: New technologies have great potential to simplify the
buying experience by offering a shorter enrollment process and faster
policy issue. In addition, the use of social networking Web sites such
as Facebook and Twitter shows great promise in helping us reach
out to our clients and prospects. LinkedIn is a similar tool that will
prove useful for agency managers in their recruiting efforts. Many
companies are actively developing new policies to support this type
of communication and advertising platform, and compliance issues
regarding these new tools will need to be thoroughly examined.

SARSYNSKI: Technology that adds efficiency (and therefore
reduces operating costs) will have the biggest impact on our industry
over time as [retirement] plan fiduciaries increase their level of
benchmarking and oversight and ensure the services they are
receiving are in line with the fees paid. Technology that supports
participant self service (nudging participants to wiser decisions on
savings rates and investments) will increase in importance as



automated plan designs continue to gain favor in the marketplace.
Finally, technology that simplifies the process as older plan
participants begin to retire and transform from the asset accumulation
phase to the income phase will become increasingly important.

SCHIMEL: Smart phones will have an impact for customer
relationships.

WEBER: The current buzz is around mobile technologies, and we
think there is some potential there. But other, more established
technologies are still underutilized. For example, there is still a lack of
automation and an overreliance on paper in our industry. We like
business process management tools, whether they are stand-alone
tools or built into core insurance systems, for that reason.

Another area of immense promise is analytics. For an industry built
around long-term risk management concepts, it is surprising how
much opportunity there is to understand and manage risks better
through application of technology.

4. CUSTOMER SERVICE
How important is customer service to
our industry and how can it be
improved?

CALLAHAN: Earlier this year, Nolan put together a special report
(and Webinar) on The New Era of Service Differentiation. The gist of
the report was to emphasize how the delivery of customer service—
where, when, and how the customer wants it—is becoming the
primary source of sustained competitive differentiation. In other
words, customer focus will be the foundation of future growth,
particularly as the market becomes more segmented and demanding.
This strategic shift toward service as a differentiator is based upon
expectations for high service being driven from outside the industry;
the increasingly commoditized nature of insurance products as
products converge; and increased competition and tight economics
putting more pressure on margins and price.

As a result, service is critically important as the differentiator in our
industry whether you define your customer as the end
consumer/insured or the distribution channel/agent—by the way, the
answer is both.

Consider that even now, as we recognize that many are being forced
to work longer, we are faced with five generations of insureds and
even distributors. Each has a unique value system and a preferred
method of doing business, in general moving along the continuum
from low tech/high touch to high tech/low touch: GI, at 20 million;
Swing, at 28 million; Boomer, at 78 million; Gen X, at 50 million; and
Gen Y (Millennial), at 72 million.

In order for companies to address this continuum effectively, there
are several strategic implications. The first and foremost is an ability
to clearly identify these segments, including subdividing them further
based upon behavioral attributes, demographic characteristics, and
current company relationship information (tenure, products
purchased, premium payment patterns, and so on). For this,



improved data mining and modeling practices and tools are
foundational. The second equally important strategic implication is
the ability to translate the identified segments into either a market
niche oriented strategy, focusing platforms and services on
customers that best fit a well-defined portion of the overall market, or
a broadscale approach intended to address the full range of
customer needs.

The niche strategy allows a lower cost structure, greater flexibility,
and quicker speed of adaption, yet is limited by breadth of
opportunity. For the broader approach, optimal flexibility within an
effective cost structure that is able to address the diverse demand for
customer-driven service—in person, by phone, by the Web, by
mobile device, by mail—is required. Achieving this environment will
require process, technological, and human resource changes built
upon flexibility, fast adoption curves, and a modularized approach to
products and services. Regardless of the strategy selected, a
balanced focus on the services that are table stakes for any given
segment with those that generate a competitive advantage must be
maintained, while avoiding the temptation to invest in services or
features that have "curbside appeal" but no comparative advantage.

DINSHAW: Customer service between agents and clients is very
important. From a company perspective, solid, courteous service is a
necessity. Service improvements involve correct and consistent
answers in a reasonable timeframe.

GOLATO: Customers will become even more savvy and demand
more customer-focused service from their life insurance companies.
Providing an outstanding customer experience, from the sales
process through any servicing issues, will be the new way companies
differentiate rather than on a price basis. Successful life insurance
companies—and more importantly, the financial professionals who
sell life products—that have a strong customer focus and who can
identify and respond to the unique need of each customer will be able
to maintain customer loyalty and generate more referrals enabling
them to grow their business.

MASSEY: Our industry is only about two things: sales and service.
Service can be improved by listening to the consumer. We must
interact and communicate with them when and where they want.

MCDONNELL: Customer service is more important now, given the
complexity of the products developed and sold over the past few
years. We need to provide clients with faster, more insightful and
engaging information to help them meet their financial and protection
needs. And because of marketplace clutter, this information must be
presented in a clear and concise manner. Technology will continue to
play a large role for producers to serve their clients (e.g. electronic
applications, Web-based underwriting capabilities, data mining and
client relationship management).

MOLENDORP: Service is very important and needs to be considered
through the entire customer experience. To improve service, we must
improve the advice model, invest in rep training, improve
administrative processes/speed to delivery, and improve access to
data/customer
information consolidation.

PAULI: Customer service is what the whole industry is about. The
above statement about improving the customer experience holds true
for this question. Customers need to get service on their own terms,



7 by 24 by 365. And they need to have their questions and concerns
addressed in one contact, not playing telephone tag. They also need
to get service via their chosen method—it could be phone one day,
Internet the next and face-to-face with an advisor the day after that.
The experience needs to be uniform across all service points. These
are all challenging issues.

PEARSON: Customers want and deserve individual treatment and
attention, and we must strive to make customer contact as personal
and seamless as possible through all levels of our organization.
Leveraging technology is an ideal way to achieve this goal. Offering
convenient customer service Web sites with real-time chat options
can provide personal attention to online customers.

SARSYNSKI: Service is probably the largest contributor to long-term
success in the [retirement plan] market. Service is the primary reason
plan sponsors switch from one retirement services provider to
another. It is far more economical to keep an existing customer than
to acquire a new one. Firms that are achieving positive net cash flow
in the retirement industry are generally doing so by meeting both their
sales and retention goals and both of those are dependent on
providing excellent service. Service for the industry needs to improve
in the area of helping individuals prepare for retirement and transition
from the accumulation phase to the income phase. The retirement
services industry is currently only retaining about 10 percent of
assets as participants make that transition. Greater provider
involvement in helping participants (directly or through an advisor) in
that transition is a need that once met, will result in better prepared
participants and improved provider retention rates.

SCHIMEL: Very important as customers grow weary of poor service.
While the quality of Web services is a big thing, it’s still important to
answer phone calls and keep delays normal.

WEBER: Historically the insurance industry has not had a great
reputation for service, but I think that is changing. There are now
great examples of insurers who consistently take care of their
customers and provide the tools that agents and customers need.
The driver behind this change is an understanding that insurance
consumers are also consumers of many other types of products and
services. They know what good service entails, and they expect it
from their insurer the same way they expect it from retailers, utilities,
and other types of service firms. Borrowing the best ideas from other
industries is always a good idea. And taking the time to ask our
customers what they really want is also critical.

5. PROFITABILITY
How can our industry increase its
profitability over the long term?

CALLAHAN: To increase industry profitability, there must be a
recognition of the structural changes that are occurring and their
implications, which includes a realization that past strategies and
historical practices are unlikely to fit with the new complexities of a
globally competitive marketplace. As previously stated, companies
must focus on more flexible operational environments that are able to
individualize products and service delivery to an increasingly
segmented marketplace. Compressed margins combined with a
shorter product lifecycle and less ability to derive plan based
advantages require the discipline of focused strategies.



Achieving this focus requires the reintroduction and
institutionalization of the rigors of true multi-year strategic planning a
là Michael Porter. There is an increasing need for both innovation
and foundational change, including investments in a staged
replacement of traditional systems with modularized and more
efficient technologies combined with a stronger focus on
rightsourcing non-advantageous functions and services. With service
as the driver, talent management reaches the forefront of strategic
consideration as up and coming generations attempt to fill the void of
retiring experts. The generational differences in the mix of employees
brings new challenges for training, tools, schedules, remote
operations, and self-directed teams combined with new benefit and
compensation systems that cover the complex needs of an
increasingly diverse workforce.

In addition, the concept of virtualized operations is both a necessity
and practical, with global competitors basing their ability to enter a
market—our market—around this approach in order to minimize fixed
costs while maximizing flexibility. We must be willing to transition
toward that model, rethinking long-established paradigms in order to
meet market demands for innovation, speed to market, flexibility,
efficiency, modularized products, and differentiated service. These
will all be required to succeed in the fast approaching service based
global insurance industry.

DINSHAW: Life insurance and annuities are necessary in most
financial plans. Our product is in demand. We need to reduce
expenses (including distribution costs), invest conservatively and
price wisely. Loss leader products, aggressive investing and bloated
expenses have reduced overall profitability and capital levels.

GOLATO: Overall operational simplicity, coupled with sensible
pricing, will drive the efficiency. Technology will continue to play a big
part in improving profitability, especially if more can be done in the
area of underwriting. For example, there are several technology-
based tools available that ensure the paramed process happens
quicker, with fewer errors and while also being cost-effective. And
we’ve only just scratched the surface of what’s possible in the future.

MASSEY: Improve consumer trust and quit basing our future on low
cost, low margin products.

MCDONNELL: Companies will be under pressure to raise prices on
certain features such as UL with secondary guarantees and variable
annuities with living benefits. Creative solutions, which allowed
current pricing levels, are no longer viable. The industry also needs
to continue to invest in technology, toward straight-through
processing and greater operational efficiencies. Again, companies
will need to revisit their strategies on a consistent basis and divest
from businesses that are underperforming, unsustainable, or
distracting from core competencies. More "narrow and deep"
business models will emerge.

MOLENDORP: Improved distribution productivity and administrative
efficiency will help, but will be partly offset by the cost of increasing
risk management, accounting, compliance and actuarial talent
demands.

PAULI: Data and analytics that provide experienced, qualified
workers with the information they need to make decisions.



PEARSON: Currently, there are vast unmet needs in the retirement
market and the underinsured middle market. We need to work harder
to create products and practices that will enable us to reach these
segments. The trend toward industry consolidation will also likely
result in improved profitability in the coming years. We must continue
to use technology to enable more cost-effective operations. Finally, in
an industry where the average age of an agent is 56, it’s important for
all companies to look for both traditional and non-traditional methods
to
grow distribution.

SARSYNSKI: There are just under 140 million working Americans,
71 million have access to a retirement plan and 55 million participate.
Only 13 percent are confident they will have enough money for a
comfortable retirement. We can improve the state of the retirement
system and ultimately our industry’s profitability by concentrating on
getting participation and savings rates increased, getting participants
into more appropriate investments while they accumulate and helping
them achieve their in-retirement needs.

SCHIMEL: Offer more protection (death, disability and long-term
care). Pass on to customers capital constraints. Place value on
advice and quality.WEBER: There are two elements to profitability.
The first is improving the risks we write and how we price for those
risks. The second is improving operational efficiency. I think we have
been cranking up our process efficiency as an industry for a long
time. The problem is that a five or 10 percent improvement, while
good, is probably not aiming high enough. For almost every process,
I think insurers should be aiming for mid-double-digit improvements
in cost.

Contact Resource at resource@loma.org

Advertise with us...Your Financial Services Customers are here.
Download LOMA's 2010 Products and Services Catalog here

Chinese | Español | Français | Português | About LOMA | Banking | Healthcare Management | Members Only | What's New
Customer Assistance | Downloads | Education/Training | FLMI Program/Societies | International | Life Insurers Council
LOMANET | Meetings/Events | News Center | Online Learning | Products/Services | Publications
Research Reports | Resource Magazine | Technology Directory | The LOMA Store | Search Site | Site Map | Privacy Policy

Write us at: LOMA, 2300 Windy Ridge Parkway, Suite 600, Atlanta, GA 30339-8443
Phone: 770-951-1770 or In the U.S. and Canada: 1-800-ASK LOMA (1-800-275-5662)
Fax: 770-984-0441 E-mail: Askloma@loma.org

Copyright © 2010 LOMA. All rights reserved.
For technical assistance or to report problems, contact: webmaster@loma.org


201001 loma resource_forecast

Recomendados

Recomendados

Más contenido relacionado

La actualidad más candente

La actualidad más candente (19)

Similar a 201001 loma resource_forecast

Similar a 201001 loma resource_forecast (20)

Más de Steven Callahan

Más de Steven Callahan (20)

201001 loma resource_forecast