Deloitte: Industry Poised for Growth, Innovation Key

While the insurance industry faces challenges over the short and long term – due to a softening market, pricing pressure, and increased global competition – there is tremendous opportunity for carriers that pursue growth strategies in addition to cost efficiencies, according to Deloitte’s “Global Insurance Industry Outlook – Mid-Year Update 2008”, released today.

“The insurance industry faces a tremendous challenge as it pursues future growth. While profitable growth is the key to success in a mature industry like insurance, it can be prohibitively difficult to achieve through conventional strategies simply because the industry is mature,” said Rebecca Amoroso, Deloitte’s U.S. Insurance leader. “It is vital that insurance executives take a fresh look at the industry and seek fundamental change at all levels of the organization, from its people strategy to its client and product strategy to its processes and infrastructure.

“Insurers can drive growth by taking a holistic approach geared toward enterprise-wide improvements, including refocusing on their distribution networks, developing and delivering products geared toward the burgeoning retirement market, and understanding and realigning their business through analytics,” Amoroso said.

The report provides insight about insurance industry trends through a review of critical issues, an examination of core fundamentals and an analysis of underlying factors. Findings from the report include:

• Viewing distribution as a profit, not cost, center that drives differentiation and growth can help insurers achieve success through better alignment with agents and a multi-channeled approach towards marketing.
• The retirement market offers insurers a unique opportunity because, unlike competitors such as mutual fund companies, it is able to offer “guaranteed” products.
• New analytics tools like synthetic data and unstructured text applications add to the already powerful analytics repertoire and create opportunities for both profitability and efficiencies in claims administration, underwriting, marketing and distribution.
• Insurers need to manage across generations and look beyond recruitment to emphasize talent development and customized career options in order to compete with other industries for new talent and retain current employees.
• Enterprise risk management takes on an important role in the face of International Financial Reporting Standards, Solvency II (the updated set of regulatory requirements for insurance firms that operate in the European Union) and the move by rating agencies to include Enterprise Risk Management assessments in ratings.
• A refocus on the integration portion of M&A execution through upfront planning helps to achieve sustained success and growth.
• With the majority of life insurer IT budgets being spent on non-discretionary, legacy system support and operation, a refocus on cost reductions in that area should be considered and reallocated to virtualization, e-service and call centers.
• Insurers need to catch up with banking and securities sectors and execute a “build, buy or both” offshore strategy.

This is Deloitte’s 9th Global Insurance Industry Outlook. A copy of the report is available on Deloitte’s Web site at http://www.deloitte.com/us/insurance.