Building competitive advantage Achieving distinctiveness in new product development will require leading capabilities across customer insight-led design , risk assessment , pricing , and claims management . In most cases , insurers will likely focus on building these capabilities in a few core product categories consistent with their risk appetite , return expectations , capital efficiency , investor considerations , and ability to develop competitive differentiation .
In product categories where they don ’ t have competitive advantage , insurers will increasingly seek to exit . This trend is already underway , as the US M & A market builds on the $ 620 billion of life and annuity assets that
have already traded to private capital – backed platforms .
We anticipate there will be a “ middle ground ” where carriers can leverage their own capabilities , or partner with others , in specific product lines . Because unbundling will lead to more fluid competitive dynamics , insurers will also have to welcome new kinds of collaboration .
As a result , models such as white labeling , coinsurance , and flow reinsurance are likely to grow , and insurers may increasingly distinguish between product design , distribution , and balance sheet risk retention . Indeed , this is already happening : By 2020 the volume of flow reinsurance reached rose
from $ 407 billion in 2015 to $ 598 billion in 2020 ,
General account asset management
General account asset management has become a critical source of value creation . Moreover , the wide disparity in performance — among insurers with more than $ 50 billion in assets , top- and bottom-quartile performers are separated by 135 basis points of yield — provides further impetus for unbundling .
The prolonged impact of historically low interest rates forced investment managers to reconfigure their strategic asset allocations . Many insurers shifted toward high-yielding debt , structured products , and private credit . In 2020 , according to McKinsey research , North American insurance companies allocated $ 355 billion to alternative asset classes , up from $ 184 billion in 2010 .
Building competitive advantage
Insurers that want to continue to own asset management must have strong asset origination capabilities , as well as industryleading talent , identifiable proof points of investment alpha , and risk management capabilities .
Distribution
For many insurance carriers , the distribution function holds a particular place of pride . Even so , they are thinking about earnings streams from distribution in different ways , because they have witnessed how investors reward pure-play distributors , such as brokerages , independent marketing organizations , and field marketing organizations . These entities have generated 2.6 times the total shareholder returns ( TSR ) of life insurance companies and garner significantly higher price-earnings multiples .
Market dynamics and trends
Historically , life insurers have invested heavily in their captive distribution . For many , this is no longer economically viable . The commoditization of many insurance and annuity products , coupled with the increasingly open architecture of insurance distributors , has resulted in the slow and steady shift away from affiliated agents — from
half of all individual life insurance policies sold in 2000 to a third in 2020 . Independent agents , banks , and broker – dealers have captured the difference in share .
Building competitive advantage
For insurers that no longer have captive distribution or that do not want to maintain it , the focus will shift to managing thirdparty intermediaries . These insurers will want to build unique value propositions that go beyond product features and pricing , such as more digital and analytics capabilities and technological connectivity . The goal : a seamless end-to-end experience .
Operations and technology
Life insurance is one of the very few industries — within and outside financial services — that have seen cost ratios increase over the past 20 years . But that does not tell the full story . There is a wide disparity in efficiency across US life insurers : top performers have half the expense ratio of their bottom-quartile peers . Technology and operations-related costs represent a big part of the difference .
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