Perspectives Q3 2022 Perspectives Q3 2022 | Page 28

LIFE INSURANCE
Unbundling value from page 27
Market dynamics and trends Complex legacy-technology systems are the biggest bugbear . They create complexity , increase costs , and hinder insurers ’ ability to launch new products and to manage existing portfolios . Many insurers have tried to address this by outsourcing to technology providers . But that can lead to delayed transitions , cost overruns , and inadequate service .
Building competitive advantage Technology and operations are critical at every touchpoint along the customer journey . Insurers that want to maintain such ownership will need to develop a new set of capabilities , including : Modern cloud-first approaches to managing applications and data Artificial intelligence ( AI ) and advanced analytics to address complex issues across data extraction , premium calculations , reserving , and operational tasks A culture of software engineering and more agile ways of working Closer collaboration between the business and technology sides .
Building these capabilities will be difficult , taking away focus from their core business . This will create the next generation of services providers to offer modern , customer-centric , integrated , end-to-end solutions for open and closed blocks .
Possible archetypes defining the future
Putting it all together , we believe three archetypes will emerge , with insurers making deliberate choices across the value chain as they build new capabilities and shift their business models .
Product origination specialists : These insurers will have distinctive customer insights , risk assessment , product development , and underwriting capabilities with privileged access to distribution . They will retain the most capitalefficient products on their own balance sheets . For the rest , they will work with providers via coinsurance , reinsurance , or white-labeling arrangements . Insurers in this archetype will predominantly seek partnerships in asset management while selectively building investment management capabilities in-house . They will increasingly unbundle operations and technology to specialists .
Drastic market shift : In 2010 , US public life insurers were the leading providers of individual life insurance , with 42 % of the market . Mutual companies now account for 56 %.
Balance sheet specialists : This group will combine their distinctive risk assessment capabilities with their strong balance sheet capacity and investment expertise to absorb various risk types . They will have the leading asset and risk management talent , with distinctive asset origination capabilities . Distribution will primarily come from institutional partnerships ( such as funding agreements , pension risk transfer , and flow reinsurance ) or inorganic sourcing ( such as the acquisition and divestiture of legacy blocks ). These insurers will also likely unbundle their operations and technology functions . This archetype will largely be relevant for privately-held insurers with access to long-dated , permanent capital sources .
Integrated insurers : This archetype — and there will not be many — is composed of insurers with distinctive capabilities across the value chain . They will have strong capital positions , either through scale or through structural capital advantages , and they will have select sources of distinctiveness in general account asset management and distribution . Some carriers that fit into this archetype might choose another archetype for some of their business , while retaining the integrated model for others .
Reassess , reimagine , re-engage
Life insurance unbundling is already under way , as carriers accept that they can be distinctive in only one or two parts of the value chain . The key is to choose where to be and then adapt the business model to get there . To do so , insurers must first reassess each of their businesses and identify where they can be most distinctive . Then , they must reimagine how they can maximize value from that part of the value chain . Finally , they must re-engage with their employees , customers , and investors to bring them along .
The stakes are high : the top 20 percent of life insurers capture 97 percent of the economic value . But insurers that don ’ t try will find it increasingly challenging not only to compete but to survive .
28 Perspectives Q3 2022