Life Insurers Must Adapt

Life Insurance providers are today operating in an environment that’s rapidly changing with time and is highly challenging as well.

Owing to these challenges and fast paced changes over a short time frame, insurance businesses are under tremendous pressure from many external factors. In order to understand more about the various factors that influence the ratings of insurance business, as well as to understand some of the strategies that should be adopted by insurance business CEOs, we have put in place a survey of analysts who work with some of the leading insurance equities around the world. If these strategies are adopted, they would help insurance business improve their business value. The most surprising outcome of the results from the survey is the fact that analysts have sky high expectations from the life insurance industry’s best performers. In 2012, as compared to other years, financial analysts have begun to demand convincing growth in revenue from insurance products and they expect to see this growth on an annual basis.

Financial analysts have also started demanding a 9% increase as compared to 2011, in pre-tax returns on financial investment and equity. However, as insurance providers still continue to struggle and battle with the economic crisis which has affected the industry worldwide, for these businesses simply surviving and maintaining their current positions in the industry might sound like a very reasonable expectation in itself. This is because weak demands for insurance products and new requirements with regulation make it difficult for insurance providers to grow. However financial analysts continue to expect growth in revenue as well as growth in return on equity.

The survey also included questions around the impact that the tough market conditions had on the insurance businesses and the industry.

Responses to these questions provide an insight into the financial analysts’ thinking. More than 55% of the analysts expected the tough market conditions to still have a positive impact on the insurance providers leading the forefront in the insurance industry. Analysts also anticipated that the weaker businesses, which were unable to mold themselves and adapt to the challenges in the environment, will lose out on their share. They expected such businesses to either be acquired by the larger established businesses which were more stable despite the rocky economy or that they would be completely eliminated. However, their responses indicated that the top leaders would be automatically forced to enhance and strength their capabilities. They also expected that the top leaders would also be able to demonstrate added capacity for growth.

Research and studies on the state of insurance business within the economy show that organic growth might be considered more important as compared to inorganic growth. Financial analysts expect life insurance providers to focus their efforts more on the emerging markets as compared to mature markets. 44% of the analysts mentioned that it was critical that insurance providers focus their efforts on organic markets. Only 25% of the analysts felt that insurance providers should be concentrating on mature markets. However, 20% of the analysts also predicted acquisitions and mergers within the emerging markets. They believed that mergers would thus help contribute to the overall growth of the businesses. They do believe that organic growth will face some challenges over the next three years. However, analysts believe that insurance providers should try to better comprehend and forecast customer behaviors and requirements in order to be able to combat these challenges.

More than 35% of analysts say that understanding and predicting customer behavior would be a very key factor in being able to grow.
Other critical factors would include the capability of development and to be able to implement mulch-channel strategies for distribution. Analysts also believe that introducing new and relevant products to the customers would be a good opportunity for growth and expansion. This would also give them the opportunity to be able to break into new business markets. By focusing on mulch-channel expansion, they would also be able to better control their risk. They would also have more potential and liberty to enhance their asset management skills and capability. Analysts do understand that for life insurance providers, to be able to achieve the equity goal would not be an easy task, because the insurance industry is facing a much stronger push back than it has ever experienced before.

Demand in mature markets continues to be volatile and low. Customers do not have confidence in investments that are equity based and interest rates continue to be low. However, there are areas of opportunity for growth and expansion.

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