LIFE INSURANCE
Unbundling value for life insurers :
Time for a fresh approach
Since the end of the global financial crisis in 2008 , US equity markets have boomed , yet most public US life and annuity insurers have been left behind . Recent developments , including the expectation of federal interest rate hikes , may help . But problems that have challenged the industry for decades — earnings sensitivity to external factors , opaque risks that are difficult to underwrite — are not going away . In addition , there are new competitive pressures . Specifically , the emergence of private capital-backed platforms has changed the game in new product development , where such platforms have become leaders in several categories .
Ramnath Balasubramanian , Senior Partner , McKinsey and Company , New York
Asheet Mehta , Senior Partner , McKinsey and Company , New York
Andrew Reich , Associate Partner , McKinsey and Company , London
Rajiv Dattani , Associate Partner , McKinsey and Company , London
Changing market dynamics , such as the shift towards independent channels , new technology , and evolving investor perceptions , raise new strategic questions .
Struggling to modernize
US life insurers also face drastic changes in other parts of the value chain . In general account asset management , a significant spread has emerged between top- and bottom-quartile performers . Changing market dynamics in distribution , such as the shift towards independent channels , new technology capabilities , and evolving investor perceptions , raise new strategic questions . Finally , many life insurers are struggling to modernize operations and technology .
By “ unbundling ” themselves from their weaknesses , and doubling down on their strengths — insurers can get ahead of the competition . Here is a look at how to do just that .
Market dynamics and trends
New-product development has historically been perceived as an area of distinctiveness . Shifts within the marketplace , however , have led to a clear division in natural ownership among public life insurers , mutual insurers , and private capital – backed insurers .
Over the past ten years , private capital – backed platforms have entered the sector , and expanded their footprint , from legacy back books to new-business generation . These platforms now have significant market share in some retail annuity sales categories . In fixed and fixedindexed annuities , for example , they account for 20 percent and 40 percent of new business , respectively . Even in variable annuities , where public insurance carriers have maintained their leadership position , they are pulling back by focusing on investment-only variable annuity products and reinsuring or selling back books to private capital – backed platforms .
26 Perspectives Q3 2022