ResourceFor Insurance & Financial Services Management®
April 2011 Copy
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ResourceFor Insurance & Financial Services Management®
January 2012
NY Life Unit Using LOMA Courses
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FC_Jan_2012.indd 1FC_Jan_2012.indd 1 12/19/2011 12:53:17 PM12/19/2011 12:53:17 PM

Now that you’ve gotten the big picture
from the C-suite, it’s time to delve into
the particulars. Here, a seasoned industry
consultant does just that.
By Steve M. Callahan,
CMC®
, ChFC, CLU, FFSI, FLHC, FLMI
Senior Consultant and Practice Development Director
Robert E. Nolan Company
cover focus
18 January 2012 RESOURCE
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www.loma.org 19
he life and annuity industry relies upon economic
conditions to define growth and performance outlooks,
withparticularemphasisonunemploymentrates,which
tend to define the buying population, and interest rates,
which intertwine to define product competitiveness
and company earnings. Projections for 2012, therefore, must take
into account the expected economic environment. Specifically,
Recent White House estimates average unemployment at nine
percent, dropping to 8.5 percent in 2013 and not reaching a
normal range of five percent until 2018
Overall economic growth is expected to rise to a projected 2.6
percent (from an estimated 1.7 percent in 2011)
The Federal Reserve’s “Maturity Extension Program and
Reinvestment Policy” announced in September 2011 intends
to rely upon the poor economic conditions to keep Fed Funds
rates at zero percent until 2013, translating to lower short-term
rates as well
These conditions all lead to lower
consumer confidence, greater sensitivity
to volatility, and a demand for stronger
guarantees, all in an environment where
insurers face rate compressions, reserve
demands, low earnings, and increased
competition. What is the result? Given
individual life insurance and annuity pre-
miums tend to track disposable personal
income (DPI) over time, projected to run
at approximately 2.6 percent in 2012, industry growth expecta-
tions for 2012 are likely to run in that range. Despite the increase
in DPI, consumer confidence is likely to remain low, generating
resistancetogrowth.Furthercomplicationswillresultfromchanges
intheallocationofdiscretionaryspendingtohealthinsuranceand
retirement income products, with the health insurance impact
lagging the retirement income intensity by a few years.
Lastly, the downward pressure on interest rates will cre-
ate an assortment of challenges for insurers as the duration
increases. With 10-year treasury yields dropping from four per-
cent to slightly over two percent, the pressure has intensified. In
response, insurers have attempted to adjust to lower interest
rates, dropping from five percent to three percent in 2010, with
continued drops likely as older products roll over into newer lines.
Even with these changes, current portfolio yields have not been
fully impacted. The size of existing portfolios combined with
one-time actions adjusting credit spreads and booking mortgage
fees have diluted the impact of the low rates. These low interest
rates, expected to continue into 2013, will continue to dete-
riorate portfolio yields, accelerating spread compression. As a
result, reserves, specifically on new business, will continue to
increase based on the use of enhanced adequacy analysis and
cash flow testing. On the life side, many products are already at
their guarantee level, which generates problems since the com-
pany’s earnings rate may be below the guaranteed rate, driving
decisions towards potentially more risky investments in the over-
all portfolio. Constrained by these variables with little room to
maneuver, earnings are likely to remain low throughout 2012.
Regardless of demographic and economic changes, life
insurance remains a critical need, as over 58 million households
indicated they do not have enough life insurance according to
a recent LIMRA study. Demographically, the age 60 and over
market continues to be the only segment with sustained and
material increases in life insurance apps, while the age 0 to 44
market continues an extended trend of declining apps, all while
the 45 to 59 market hovers barely above the growth line. These
dynamics lend themselves to further defining the products that
will prove most appealing in the near term. In this context, whole
life continues to provide stability and a consistent performance,
and remains unlikely to be negatively affected by economic
conditions. Over the past 10 years, whole life has been the only
product to produce positive premium growth for all but two of
those years, and is the only product to have produced positive
growth all of the last six years. Even more notable is the slight
increasefromapolicycountperspective,whichhasonlyoccurred
twice since 1990. Conversely, term has continued to experience
a decrease in premium and policy count, although there is a
clear shift to and growth in term universal life (UL) products.
This shift is consistent with the continued growth in popularity
of UL products, expected to represent over 40 percent of the life
insurance market by 2013.
Challenges have arisen with the secondary guarantees
combined with many UL products, of most significance being
the National Association of Insurance Commissioners (NAIC)
review of reserve adequacy
for these guarantees, but
companies have already
started adjusting in advance
of any findings or problems
by lowering the guarantees,
increasing the degree of
hedging, and increasing
the cost of insurance where
appropriate—a fine balance
with the need for minimal
impact on persistency and
retaining competitiveness.
Similarly, lifetime guaran-
teed UL, although a higher
reserves risk product, con-
tinues to show growth for
the companies that kept
the product, even when 40
percent of their competitors
dropped it. Given consumer
demands, versions of UL
STEVE CALLAHAN
www.loma.org 19
a decrease in premium and policy count, although there is a
clear shift to and growth in term universal life ((UL)) prp oducts.
This shift is consistent witithh ththe continued growth in populariity
of UL products, exexppected to represent over 40 percent of the life
insurance maarkrket by 2013.
Challennges have arisen with the secondary guarantees
combinedd with many UL products, of most significance being
the Natitional Association of Insurance Commissioners (NAIC)
revieww of reserve adequacy
for thhese guarantees, but
comppanies have already
startted adjusting in advance
of anny findings or problems
by llowering the guarantees,
incrreasing the degree of
heddging, and increasing
the cost of insurance where
apppropriate—a fine balance
witth the need for minimal
imppact on persistency and
retaaining competitiveness.
Simmilarly, lifetime guaran-
teedd UL, although a higher
reseerves risk product, con-
tinuese to show growth for
the companies that kept
the prproduct, even when 40
percennt of their competitors
droppeed it. Given consumer
demandds, versions of UL
Regardless of
demographic
and economic
changes,
life insurance
remains a
critical
need.
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20 January 2012 RESOURCE
that include guarantees will continue to
dominate new life insurance sales in 2012.
An increasingly popular and innovative
option is indexed UL, which provides a
good upside but does not link directly to
interest rates. This line has shown tremen-
dousgrowth—representingover25percent
of UL sales in 2011—and is expected to
continue to grow. Combining indexed UL
with secondary guarantees represents an
even more appealing product, although
that combination runs the risk of the
NAIC task force on
reserves. As a product,
though, indexed UL is
seen as a key source of
competitive growth as
long as interest rates
remain low. While
variable universal life
(VUL) has also shown
periods of growth as a
percentage of a lower
base, market volatility
and consumer con-
fidence continue to
create swings in popu-
larity; in fact, much of
the VUL sales in 2011
came from corporate-
owned life insurance
(COLI) products.
At a macro level,
it is worth noting that
annuities have rep-
resented the greater
source of premium as well as profits for
decades, with life insurance falling from a
high of nearly 29 percent in 1996 to a low
of 17.5 percent in 2010. Taking that a step
further,basedonarecentLIMRAresearch
study, over 29 million Americans control-
ling over US$ 880 billion in retirement
assets will retire over the next five years,
creating a tremendous market demand
for income generating vehicles like annui-
ties. Carrying over from prior years and a
continued popularity, variable annuities
(VAs) with high interest rates are suffering.
Innovative approaches to address the dis-
intermediation include an auto-balancing
feature that moves the money from equity
to fixed income based investments on
market declines and then shifts them
back as markets start to improve. Alter-
natively, VAs can have an inherent hedge
built into them by structuring the funds
to be more in line with a balanced funds
approach that reduces equity exposures
to risk and volatility. Both approaches are
being taken on new annuity offerings to
balance the need for competitive returns
with company risk mitigation. The final
adjustmentbeingtakenisa
gradual decrease in rates
paid that will impact mar-
ket share, persistency, and
profit as well.
Increases in retir-
ing populations have
driven up the demand
singlepremiumimmediate
annuities (SPIAs) as con-
version to income has
taken precedence over
asset accumulation. This
trend is likely to continue
throughout 2012 as the
search for a guaranteed,
oratleastlow-risk,income
stream is pursued by
those holding material
amounts of accumulated
assets. Not surprisingly,
similar to the life mar-
kets, indexed annuities
have proven a source of
significant growth, having captured over
45 percent of the fixed annuity market in
2011, with estimates of having a record
year in 2012. Note that this refers to the
fixed indexed annuity. Registered indexed
annuities, those sold by broker-dealers,
have almost disappeared in terms of mate-
rial sales. The challenge, as pointed out
by ING, an early leader in this market,
is that the minimum guaranteed interest
rate required was too high for the current
interest rate environment. For the most
part, the registered indexed annuity will
likely be shelved until such a time as
interest rates return to a higher level.
VA sales returned better than the
market in 2011 on average and as a result
benefited from their 6th consecutive
quarter of positive growth, with the last
threequartersallinthedoubledigits.When
available, the guaranteed life benefits are
selected nearly 90 percent of the time, rein-
forcing the growing demand for security as
well as the pricing complexity that comes
with providing it. As expected in a low
interest rate environment, fixed annuities
continue to decline as they continue to
prove unable to meet consumer needs
and expectations. There was sales growth
in 2011, but with ING pulling out of the
market, and excluding the debate over
the status of the registered annuity Infla-
tion Guard by John Hancock, registered
indexed annuities are unlikely to be
players in 2012.
Structural Change
Takingmergersandacquisitionsfirst,despite
asurfaceappealfortheopportunity,thereis
limited immediate interest within the U.S.
One major player, Allianz, views prices as
toohighrelativetotheunderlyingvalueand
does not see the market opening up until at
leastaftertheriskcapitalrulesareresolved.
Forothers,acombinationoflowreturns,low
interest rates and excess capital combine to
drivedownthepotentialreturnonexpense
(ROE). Yet it may be an issue of timing or
location, as another study indicates close to
two-thirds of surveyed executives expect to
be involved in a merger or acquisition over
the next two years, backed by a good deal
of cash on the balance sheets. Still, from
anhistoricalperspective,thesuccessrateof
mergershasbeenrelativelylow,withgreater
value attributed to stock buybacks, retiring
debt, and organic growth.
True structural change will come from
acceleration in globalization, which brings
financial, political, economic, and cultural
challenges requiring careful due diligence
and collaborative management. Despite
relatively slow cross-border activity lately,
itisexpectedthatthepacewillpickuponan
internationalbasis.Astherateofglobaliza-
tionaccelerates,therewillbeanincreasein
interest rates. This line has shown tremen-
dousgrowth—representingover25percent
of UL sales in 2011—and is expected to
continue to grow. Combininingg ininddexed UL
with secondary guaararantees represents an
even more appepeaaling product, although
that combinaattion runs the risk of the
NAIC taskk force on
reserves. AAs a product,
though, iindexed UL is
seen ass a key source of
comppeetitive growth as
long as interest rates
remmain low. While
varriable universal life
(VVUUL) has also shown
peeriods of growth as a
peercentage of a lower
base, market volatility
aand consumer con-
fiidence continue to
crreate swings in popu-
laarity; in fact, much of
thhe VUL sales in 2011
caame from corporate-
owwned life insurance
(COOLI) products.
AAt a macro level,
it is wworth noting that
annuitities have rep-
resenteded the greater
source off prp emium as well as profits for
decades, withh life insurance falling from a
built into them by structuring the
to be more in line with a balanced
apapprproaoachc that reduces equity exp
to risk and volati ility. BoBothth approach
being taken on new annuity oofferi
balance the need for competitivee r
with company risk mitigation. Th
adjustmentbeingtak
gradual decrease in
paid that will impac
ket share, persistenc
profit as well.
Increases in
ing populations
driven up the de
singlepremiumimm
annuities (SPIAs) a
version to incom
taken precedence
asset accumulation
trend is likely to co
throughout 2012 a
search for a guara
oratleastlow-risk,in
stream is pursue
those holding ma
amounts of accum
assets. Not surpri
similar to the life
kets, indexed ann
have proven a sou
significant growth, having capturee
45 percent of the fixed annuityy mma
Another
structural
change in
2012 will be a
gradual shift
in distribution
methods and
channels.
018-025_Forecast_A_Closer_Look.indd 20018-025_Forecast_A_Closer_Look.indd 20 12/19/2011 12:19:07 PM12/19/2011 12:19:07 PM

www.loma.org 21
international mergers and acquisitions, in
particular U.S. firms acquiring a presence
in emerging or developing markets. Deals
will involve swaps and divestitures with
European firms to balance out books of
business, and there will be active pursuit
of investments in the Asian insurance
industry in recognition of the opportunity
it represents.
Another structural change in 2012 will
be a more gradual shift in distribution
methods and channels to new platforms
andapproaches.Theinevitableintegration
ofsocialnetworkingsiteslikeFacebookand
LinkedIn with advanced communications
toolslikeTwitterandYouTube,crossinginto
the realm of GPS and mobile platforms,
togetherputthepowerofmassmediainthe
hands of the individual. This is, as many
have discovered, a double-edged sword
in terms of the empowerment of consum-
ers to comment back and communicate
dissatisfaction equally as broadly, raising
the bar on the sales dialogue and trusted
advisorrelationship.Italsoimposesuponor
enables, depending upon your perspective,
more proactively engaging specific seg-
ments with individualized messages, more
relevant information, and a personal
brand presence. This change comes with
new requirements for compliance, many
unclearly defined, making it a competitive
frontier at this point. Still, the structure
of distribution will alter even though the
necessity of an agent or advisor will remain
a key component of sales and service.
The internal equivalent of the struc-
tural change in distribution will involve
the recruiting, training, motivating, and
incenting required to appeal to potential
Gen Y producers. Research conducted
by Maddock Douglas identified Gen Y
entrepreneurs as having a different set of
values and motivators than the traditional
agent. This key source of talent is middle
aged, parents, nearly equal in gender split,
wanting to run their own business, and
coming from a background more of
financial planning and investments than
life insurance. Impatience and autonomy
combine with the need to be involved in
profitability analysis, expanded business
and services, working against a growth
plan, and succession planning while
achieving a work-life balance.
Other structural changes are more
mundane in that they have occurred
through the years: organizational shifts to
address new regulatory demands, realign-
ment to customer bases, integration of ana-
lytics at an enterprise level, and a constant
flux of technologically driven alterations
will persist through 2012.
New Technologies
Buzzwords abound, and new technologies
are proliferating daily as extensions and
offshoots of existing ones incorporate new
features or enhance functionality. The
challenge with answering this question
is the word “new”, as many if not all of
the technologies that would benefit our
industry have been around in some form—
perhaps less elegant than today, but still
around. So let’s define new as recent, and
help as generate profitable growth, reduce
expenses, or enhance service.
Tablet computing in conjunction with
custom developed apps that link to agency
and home office systems put tremendous
horsepower in the hands of the sales agent.
Incorporate predefined
sales tracks, quoting
systems, training vid-
eos, scenario responses,
expense tracking, and
even videoconferencing
and suddenly the man-
agement of a field force
and the availability of
information and tools
are amplified tremen-
dously. Transitioning
to electronic apps with
signature pad (versus
digital signature) apps,
click to apply, jet review
table based apps, and
access to a variety of
quoting engines as well
asallthenecessaryforms
gives the average agent
a distinct advantage over a less equipped
competitor.
An old technology—but one yet to be
well implemented by many companies—is
a holistic customer relationship manage-
ment (CRM) system that crosses product
silos, integrates letters, voice and email,
and provides a profitability view of a client
based on all coverage purchased along
with family members and durations,
includingbreaksincoverage.Thiswouldbe
versus the more common single instances
in legacy systems. In order to effectively
deliver service as a competitively differ-
entiating advantage, a single view of the
customer is critical to fully understanding
their relationship with the company and
the various interactions they may have had
with an auto claim, a health claim, a policy
loan,anemailchangingonebeneficiary,as
well as supplemental information incorpo-
rating location data and demographics to
better inform the customer service agent.
Attempts to do this with legacy systems
have proven less than ideal, as have
attempts to integrate coverage information
into phone or email based management
systems. Whatever the solution, this is truly
a critical need for advancing the quality
of service differentiation.
Cloud computing
can have an immediate
impact in the context of
sales force management
and extended CRM to
the field, particularly
given the availability
of access via tablets
and iPads. While there
remain security concerns
about core applications
and potential exposures,
thereexistsagreatoppor-
tunity to leverage cloud
computing’s ability to
provide all the function-
ality of CRM, field man-
agement, lead tracking,
sales reporting, and even
simplified data entry
(like enrollments) along
www.lw.loma.o
sing
sted
nor
tive,
seg-
more
onal
with
many
itive
ture
the
main
ruc-
olve
and
ntial
cted
n Y
et of
onal
ddle
plit,
and
e of
han
omy
d in
industry have been around in some form
perhaps less elegant than today, but still
around. So let’s define new as rececenentt, aandnd
help as generatee pprorofifitable growth, reduce
expenses, oror enhance service.
Tablblet computing in conjunction with
customom developed apps that link to agency
andd home office systems put tremendous
hoorsepower in the hands of the sales agent.
InIncorporate predefined
ssales tracks, quoting
systems, training vid-
eos, scenario responses,
expense tracking, and
even videoconferencing
and suddenly the man-
agement of a field force
and the availability of
information and tools
are amplified tremen-
dously. Transitioning
to electronic apps with
signature pad (versus
digital signature) apps,
click to apply, jet review
table based apps, and
access to a variety of
quoting engines as well
asallthenecessaryforms
ggives the average agent
g g p
better inform the customer service
AtA tempts to do this with legacy s
have provenn lelessss than ideal, a
attempts to integrate cooveverage infor
into phone or email basedd manag
systems. Whatever the solution, tht is
a critical need for advancing thhee
of service differentiation.
Cloud comp
can have an imm
impact in the con
sales force manag
and extended CR
the field, partic
given the avail
of access via t
and iPads. While
remain security co
about core appli
and potential exp
thereexistsagreat
tunity to leverage
computing’s abi
provide all the fu
ality of CRM, fiel
agement, lead tr
sales reporting, an
simplified data
(like enrollments)s)
Predictive
modeling has
been around a
while, but
is gaining
ground slowly
in the life and
annuity
industry.
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22 January 2012 RESOURCE
with instant messaging to the home office
or other agents, cloud based storage for
device independence, and installation of
select software as a service (SaaS) solutions
within the cloud that benefit from variable
use pricing, nonstandard hardware plat-
forms, and geographic dispersion.
Predictive modeling as a category of
solutions has been around awhile, but
is gaining ground slowly in the life and
annuity industry. Submission patterns,
profitability analysis, agent projects, and
the simpler applications are becoming
more common. A more advanced use
would be generalized linear modeling
(GLM) for underwriting purposes, result-
ing in a less expensive, more accurate, and
more granular risk decision. It could also
beusedtodevelopmoregranularratesthat
can drive higher competitiveness by target
market segments as well as assist in the set-
ting of economic reserves and capital.
Social media, and in particular the
leveraging of YouTube, Facebook, Linke-
dIn, and Twitter to create a collaborative
set of forums for communicating with or
messaging to customers, creating corpo-
rate personalities that build brand identity
(like Flo), obtaining in effect free focus
group and customer feedback, extending
special offers and information immedi-
ately upon availability versus relying upon
campaigns or emails, providing agent
branded presences in their local markets
that enhance their reputation and ability
to sell and serve, and a variety of other
already accomplished as well as some not
yet accomplished community based activi-
ties that personalize the insurance owner-
ship experience in a positive way. There is
alsotheopportunitytoharvestinformation
about individuals to assist in better timing
communications and offerings to events
as well as to connect to those with shared
interests or possible leads.
Virtual learning centers developed
using avatars and virtual classrooms by
subject matter as well as a “break room”
for cross-class collaborations. Properly
developed, the classes can provide con-
tinuing education (CE), and can integrate
a simulated personal experience that
includesblackboards,videos,tests,surveys,
and even videoconferencing as part of the
training process. The virtual classroom
does not have to focus on employees or
agents; it can even offer customers training
on safety, like teen drivers, or related topics
as an added value service.
Other older tech-
nologies are still worth
mentioning just to keep
top of mind for those
that have not had the
opportunity to imple-
ment and benefit from
them. Customer and
Agent Portals that allow
fortheexchangeofinfor-
mation, prospectus, let-
ters, statements, email,
chat, and forms are still
not as prevalent as they
should be in terms of
full functionality. Com-
panies can save a great
dealundertheauspicesof
“goinggreen”withthese
portals while improving
service, saving time,
and saving money. The
other dated technology
that I still see many companies lacking is
call center management and scheduling
software that allows the integration of a
blending of call and transactional services
sothateventdrivenspikes(calls)canbeload-
balanced with time-driven work (written
transactions). Centers that have integrated
scheduling software have been able to
benefit from material improvements in
response times as well as staff savings and
service improvements.
Service Differentiation
Given low interest rates, principle based
reserverequirements,regulatoryoversight,
common mortality tables, and several
decades of product innovation, one could
arguethatweareatthepointapproachinga
nearlycommoditizedproductsetthatstands
on the legs of brand distinction and service
differentiation. What about product? In
general, the minor differences tend to blur
together as the purchaser focuses on his
needs, his research, his family and friends,
and his agent or advisor. Yes, there are
differences,butgenerallyspeakingthesimi-
larities far outweigh the differences to the
point that other factors carry more weight.
Simply put, companies
focusing on product dif-
ferentiation as their pri-
marystrategywillrapidly
findthemselveslaggingin
sales and market share.
Brand distinction is
measuredbyrecognition,
industry ratings, word
of mouth, advertising
investment, reputation,
and perceived perfor-
mance. Brand certainly
playsaroleincreatingan
advantage;however,even
the less known regional
may come out ahead if
its ratings, stability, or
even reputation are the
same or better. With the
world at his fingertips,
today’s purchaser is able
to quickly find out an
extensiveamountofinformationaboutany
company—andwilltendtorelyonthatmore
than advertisements or flyers.
For effective service differentiation,
two equally important customers must be
considered—the agent and the purchaser.
Agent relationships brings the business to
thedoor,andrepresentsanentirelyseparate
dimension of service as a differentiator—
companies must recognize that the service
they provide their distributors on often
the most seemingly trivial of requests can
quickly translate into losing business to a
competitor. Yet it is surprising the number
of companies that miss this point as they
engage in customer experience projects
or voice of the customer efforts, bypassing
distributors and focusing on purchasers. In
aworldofservicedifferentiation,bothmust
be considered.
Continued on page 24
ffice
for
n of
ions
able
plat-
y of
but
and
rns,
and
ming
use
ling
sult-
and
also
that
rget
set-
the
nke-
tive
h or
po-
ntity
ocus
ding
edi-
pon
gent
kets
ility
a simulated personal experience that
includesblackboards,videosos,,teteststss,ssurveys,
and even videococonfnferencing as part of the
training pprorocess. The virtual classroom
does notot have to focus on employees or
agentsts; it can even offer customers training
on ssaafety, like teen drivers, or related topics
as an added value service.
Other older tech-
nnologies are still worth
mentioning just to keep
top of mind for those
that have not had the
opportunity to imple-
ment and benefit from
them. Customer and
Agent Portals that allow
fortheexchangeofinfor-
mation, prospectus, let-
ters, statements, email,
chat, and forms are still
not as prevalent as they
should be in terms of
full functionality. Com-
panies can save a great
dealundertheauspicesof
“goinggreen”withthese
pop rtals while improving
sservice, saving time,
annd saving money. The
othher dated technology
thatt I still see many companies lacking is
call ccene ter management and scheduling
softwaree that allows the integration of a
blending off cacall and transactional services
differentiation. What about product
generarall, tthehe minor differences tend to
together as the puurcrchah ser focuses on
needs, his research, his ffamamily and frie
and his agent or advisor. YeYes, there
differences,butgenerallyspeakiningthes
larities far outweigh the differenceces to
point that other factors carry more wew
Simply put, comppa
focusing on producct
ferentiation as their
marystrategywillrap
findthemselveslaggin
sales and market sha
Brand distinctio
measuredbyrecogni
industry ratings, w
of mouth, adverti
investment, reputat
and perceived per
mance. Brand certa
playsaroleincreatin
advantage;however,e
the less known regi
may come out ahea
its ratings, stability
even reputation are
same or better. With
world at his finger
today’s purchaser is
to quickly find out
extensiveamountofinformationabouout
company—andwilltendtorelyonthahatm
than advertisements or flyers.
For effective service didiffferentiat
For effective
service
differentiation,
two equally
important
customers must
be considered –
the agent and
the purchaser.
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24 January 2012 RESOURCE
Service is a critical source of dif-
ferentiation based on two key factors: it
is hard to do, and it is hard to replicate.
If a company can achieve delivering
first-rate, low-cost customer service, com-
petitors will be hard pressed to replicate it
without a lot of time, hard work, and false
starts. Why? The quality of service deliv-
ered originates with a company’s culture
andpermeateseverypersondeliveringcus-
tomerservice.Itisbasedonhumanbeings
understandingtheneedsofeachcustomer
micro-segment, whether generational or
ethnic or situational or otherwise defined,
and knowing how to individualize the
service given that micro-segment. And
once you make your competitive differ-
encebaseduponyouremployees,youhave
moveditoutsidetherealmoftechnological
or mechanical solutions.
That is not meant to downplay the
important role technology plays in deliv-
ering quality service. There remains the
need for responding in the manner best
suited to that specific customer whether
by a personal telephone call as preferred
by earlier generations or online changes
withchatforthetech-savvy,andanywhere
in between. And, in the language spoken
or read by your customer, and without
breaching a cultural standard.
How is this achieved? First and fore-
most, the most significant investment
companies can make is in their people,
developing their ability to fully under-
stand and engage customers as unique
individuals, empowering them to solve
problems without escalation, enabling
them to address customer requests on a
once-and-donebasis,andrewardingthem
with recognition, training, flexibility, and
a rich work environment. A pleasant and
informed, competent voice may not be
as efficient as a recorded message, but it
will likely leave the customer with a good
feeling about the company.
Next, working with the staff, segment
the customers as finely as possible, deter-
mine differing service preferences, and
then develop the common solution set
of call centers, Web services, interactive
voiceresponse(IVR)systems,mobileapps,
and agent support tools made available
in a manner that addresses customers’
needs when, how, and where they prefer.
All while focusing on relevance, conve-
nience, simplicity, speed, accuracy, and
follow-through.
Ultimate Key
In his opening address at the recent
LIMRA Annual Meeting, Bob Kerzner,
president and CEO of LL Global, dis-
cussed the true systemic challenge facing
the industry, which is hidden amid all
the critically relevant and immediate
economic, regulatory, and competi-
tive distractions. The vision: Achieving
growth by leveraging technology to
innovatively change the way insurance is
communicated, sold, and serviced. The
barrier: The chaos of challenges currently
churningthroughtheindustrydemanding
immediate resolution and taking up all of
management’sbandwidth.Thetechnology
is available, the need is clearly researched,
there is a tremendous diversity of markets
tobeserved,andtheindustryhassurvived
thegreatrecessionandisstillhealthy.The
problem:Whatislackingisthewherewithal
to define, focus, innovate, and deliver
the solutions.
Considering how fast 2011 has come
and nearly gone, it is likely that 2012 will
pass just as quickly. And at the end, how
much innovation will have been accom-
plished given all the intellectual capital
and management bandwidth? It will have
more than likely all been expended on
immediate needs including:
Minimizingtheimpactoftheeconomy,
political issues, financial performance,
and regulatory shifts on the ability to
profitablydeliverreliableproductsthat
consistently meet consumer needs
Sustaining current products in a man-
nerthatisnotdetrimentaltoconsumers
concurrent with the introduction of
new products that do not trade off
long-term security and risk mitiga-
tion for sales appeal and short term
performance
Meeting new reserving and capital
requirements along with enhanced
reporting while operating in one of the
most challenging economic environ-
ments in decades
Pricingtoallowforincreasinglifespans
thatfarexceedthoseinitiallyintendedto
becoveredbylifeinsuranceorannuities,
balancing consumer protections with
adequate high-probability margins
Addressingtheneedsofanincreasingly
diversified market that crosses genera-
tions and cultures, bringing expecta-
tions of more personalized products
and services
Developing a strong talent pool that
blends new entrants into the industry
with experienced veterans while lever-
aging strengths, balancing differing
values, and building collaboration
Rebuilding a declining distribution
resulting in fewer apps of higher face
values getting written, driven by the
dramatic reduction in agents from
145,000 National Association of Insur-
ance Agents and Advisors in the 1980s
to under 50,000 today
Competing effectively in a dynamic,
tough, and highly competitive market
offering consumers more alternatives,
distractions, complexities, and chal-
lenges to the industry’s credibility
Protectingthebrandfromanonslaught
of new sources of technologically
enabledtarnishingandincreasingrisks
of unintentional non-compliance
Nowonderinnovationistheindustry’s
greatest challenge. After addressing the
above, little is left for shaping and deliver-
ing strategically innovative solutions.
Yet innovation remains the ultimate
key, It will only be through innovation
that a cost-effective and profitable solu-
tion will be found to change the fact that
“58 million U.S. households believe they
do not have enough life insurance” and
to provide risk-appropriate solutions to
the “29 million Americans controlling
US$ 881 billion of retirement assets,”
according to LIMRA.
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www.loma.org 25
Make Documents Work for You in 2012
View from Hyland
The name of the game in 2012 is operational efficiency. Among
life insurers, reducing the costs of everyday business processes
continues to play a part in keeping up profitability.
Many insurance companies have legacy imaging systems that
no longer meet their needs. Document-based processes still take
too long and require too much manual intervention.
Newbusinessapplicationprocessingiskeytogettingmoneyin
the door faster. As branch offices send in applications and checks,
many life insurers are still manually matching balance sheets,
policies and check amounts. While an imaging system captures
andstoresthisinformation,anenterprisecontent
management(ECM)solutiongoesbeyondthatto
automate many of the tasks that follow: assign-
ing each document the correct policy number,
matching up the information, and sending it on
tothenextstepwithoutanymanualintervention.
Only the exceptions require quick review and
troubleshooting by staff, so instead of looking at
hundreds of policies, they only have to look at
a few. New applications process more quickly,
money comes in faster, and customer service
improves.
As companies evolve, they require solutions
that do the same, offering them more scalability,
more flexibility and more customization. ECM
offers life insurers much more than simple scan-
ning and indexing. Make ECM part of your
strategy to meet the demands you’ll face in 2012 and beyond.
To learn more, visit Hyland.com/Insurance.
Use of New Technology Expected
View from MajescoMastek
MajescoMastek expects life, health and annuity carriers to con-
tinue to create new methods of evaluating modern technology
and even explore different modes for the utilization of those offer-
ings. Carriers have realized that modern web based applications
can be delivered via ASP and “private cloud” modes and have
started to think outside the box when it comes to mission critical
applications like new product development and policy adminis-
tration. Various business models are now being explored where
carriers can “greenhouse” new insurance or annuity products
by placing their model office in a “private cloud” environment.
This minimizes the investment costs while giving the carrier the
opportunity of exploring, learning and testing a new platform.
“If the summer of 2011 is any indication of next year, the
industry is in for an exciting year” says Erik Stockwell, Senior
Vice President of MajescoMastek. “Our life and annuity sales
team here in North America experienced an extremely high level
of activity coming from the carrier community in all forms of
creative RFIs, RFPs, demonstrations and even proof of concept
exercises. The dialogues are centered around core policy admin-
istration replacements to drive down costs on all fronts.”
For more information, visit www.majescomastek.com.
Interest Rate Challenges Seen
Study from Conning
Analysis of life insurers’ assets and investments in 2010 reveals
an industry in recovery from the credit crisis but facing a new
and longer-term set of challenges from the lowest interest rates
seen since the 1950’s, according to a new study by Conning
Research & Consulting. “Our analysis of life insurers’ invest-
ment profile through 2010 and into 2011 indicates that their
appropriate response to the credit crisis —
increasing cash and sovereign debt holdings —
now exposes insurers to other risks, especially
in light of our current expectations about a
long-term low interest rate environment,”
said Mary Pat Campbell, analyst at Conning
Research & Consulting. “The Federal Reserve’s
August decision in favor of long-term low inter-
est rates creates a real strategic problem for life
insurers. In addition to the obvious issue of low
returns on an asset portfolio composed primar-
ily of fixed income securities, the low interest
rate environment may cause other problems
with regulatory requirements and hedging
programs. Approaches to dealing with this
challenge will require greater sophistication
than ever before.”
The Conning Research study, Life Insurance Industry Invest-
ments: Investigating Interest Rate and Sovereign Risk analyzes
life industry investments for the period 2006-2010 for the indus-
try as a whole and for four underwriting market peer groups.
Further, the study also provides detail regarding the industry’s
position at the start of 2011 and analyzes how the prolonged
low interest rate environment and other challenges may influence
insurers’ strategic investment decisions in the future. “Looking at
the industry through 2011 and beyond, the Fed’s commitment to
a long, low-rate environment is compounded by the downgrade
of U.S. sovereign debt,” said Stephan Christiansen, director of
research at Conning. “Insurers must attend to their risk profiles
and consider their options. Looking forward, with emerging
dynamic capital and risk analysis requirements, our modeling
shows that lower interest rates may have particularly perni-
cious effects on capital charges relating to some asset classes in
support of particular annuity products.
Thereport isavailableforpurchasefromConningResearch
& Consulting by calling (888) 707-1177 or by visiting the com-
pany’s website at www.conningresearch.com
Other Forecast Views
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