For each of our markets we have considered the business imperatives, business trends, and the impact that emerging technologies and solutions may have in addressing these.
Imperatives
DEMOGRAPHIC CHANGES
Rising longevity and falling fertility threaten the sustainability of pay-as-you- go public pension schemes. Pension funds and insurers will remain under pressure for the funded component of the pension system to continue to help to address this increasing demand and we will therefore continue to see changes in pension schemes with new products to support this change. Employers are rapidly moving away from providing costly and risky direct benefit schemes to direct contribution schemes.
FOCUS ON WEALTH MANAGEMENT
Wealth Management remains a strategic growth area. High net worth individuals remain a highly targeted and potentially very lucrative market. There is a growing focus on selling to those with significant investment wealth, although market and service segmentation remains an imprecise science. There is also the onshore / offshore issue, particularly around balancing the demands for transparency and privacy.
LEGITIMACY OF CREDIT RATING AGENCIES
How capital adequacy is accessed has been questioned in the light of the massive failures and credit crunch losses in the Financial Services industry as a whole over the last 18 months. Credit agencies needed to rebuild their credibility.
Business trends
Overall, the life industry’s major concerns are focused on investment returns, particularly as they directly affect a company’s ability to pay out on savings products such as annuities and pensions. The likelihood of an ongoing period of low interest rates will fuel this concern further.
Customer management, both in selling and in servicing, also raises a number of concerns particularly in terms of retail sales practices and distribution channels where regulatory interest is increasing through the Retails Distribution Review.
REGULATORY SCRUTINY
Governments are expected to continue scrutinising the life insurance sector. Government priorities are increasing the transparency of cost and return, and further regulating acquisition, compensation, and selling practices. The Dutch government, for example, is likely to reduce the fiscal benefits of life insurance.
A huge shake-up in regulation is occurring as the days of self-regulation come to an end. There is need for a stronger, more global pan-European regulation as markets are now inter-linked through the global financial economy. Solvency II will be revisited in light of the recent financial turmoil to ensure that it meets the needs of this new era of regulation.
CONTINUING COST REDUCTION AND INCREASING CUSTOMER FOCUS
Life insurers are focused on reducing costs by improving efficiency in new business, underwriting, customer service, and claims processes. Increased competition and further industry consolidation will remain.
Duplication, lack of agility, and redundant legacy applications are the cause of inefficiencies and high costs, which are driving product and process consolidation, refinement, and streamlining. Legacy systems need to be re- platformed, simplified, and standardised. In the back office, organisations are focusing on process improvement, such as the separation of business processes from monolithic back-office applications.
There will be a move towards front-office investment for improved servicing and increased customer intimacy and retention. Efficient customer service, multi-channel distribution, and self-service are key to maintaining customer relationships whilst at the same time cutting the cost base. Pension simplification and depolarisation is going some way to protect consumers by increasing disclosure transparency.
CONSOLIDATION
There is further market consolidation through mergers and acquisitions (M&As) as insurers focus on core competencies. This includes the growth in run-off of non-core books. One particular focus area is the merger of smaller players in the industry, where the merger brings skills benefits, particularly around administration and management.
PRESSURE ON SALES
The selling of mortgages and mortgage-related life insurance, which accounts for a large percentage of the total sales of individual life insurance, has decreased dramatically as a result of the credit crisis. The prolonged economic downturn has had a negative effect on consumer confidence and, as a result, on the sale of life insurance. In the Netherlands, with the commercial introduction of Banksparen, a savings account with the same fiscal benefits as individual life insurance, the demand for life insurance for estate-planning and Wealth Management purposes is expected to decrease permanently.
Failure to address the needs of the client base around fruitful long-term savings and investments will require smarter alignment with customer segments. Communication and transparency are important issues for customers and communication channels need to be tailored to meet the different needs and expectations of different customer segments.
Impact technologies
Customer Relationship Management and Business Intelligence are popular for understanding customers and building relationships.
Added to this, Master Data Management can help to provide a consistent single view of the customer across multiple systems.
Enterprise Content Management and Identity and Access Management will ensure that secure content is accessed only by those entitled to view it.
There will be increasing Legacy Management to move from costly, monolithic systems to loosely coupled, more agile systems, namely Service-Orientated Architecture (SOA).
Innovation Management will go a long way to ensuring the best innovative ideas are brought to maturity swiftly.
Mobile applications enable access to real-time information from anywhere for individuals working outside of the office.
Social media software can help organisations reach consumers, in particular those of Generation Y, gather their thoughts and opinions.
Mobile advertising is becoming increasingly important. Platforms for Governance, Risk, and Compliance can help address
regulatory pressures.
Web 2.0 will enhance the areas of knowledge transfer and collaboration, both internally and externally.
Grid Computing and Virtualisation can provide agility and help to reduce costs whilst reducing energy consumption.
We are starting to see pension providers using social media software for claim handling.
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