Tuesday, December 18, 2012

Insurers Must Embrace Technology to Survive

Doing business "the old way" doesn't work anymore

As we approach the close of another year, it’s become even more obvious that doing business the “old way” doesn’t work too well anymore. Sure, if it ain’t broke, don’t fix it – but that doesn’t mean you can forgo maintenance and upgrades.

A review of Q3 earnings reports and financial ratings of the oldest and largest life insurance companies illustrates this point. Despite some increases over the same period in 2011, the industry’s giants continue to experience premium declines.

While these declines do not indicate an immediate threat to the stability of these companies, it’s hard to ignore the telltale signs that things might only get worse.

For example, MetLife Inc (NYSE:MET) announced yesterday that 2013 earnings are expected to be significantly below original expectations and projections, citing continued low interest rates and the unanticipated utilization of annuity features sold back in the 1990’s as the major causal factors.

The company’s plan to decrease the solicitation and sale of variable annuities with lifetime guarantees, combined with efforts to withdraw from the banking industry, may result in the successful reduction of expenses and liabilities that contributed to its current financial detriment.

However, it’s difficult to imagine a dramatic turn into more positive territory considering MetLife’s plan to steer consumers away from its most successful financial products.

Despite experiencing similar challenges, Prudential Financial Inc (NYSE:PRU) and New York Life appear to have a better handle on the effects of flat interest rates and baby boomer utilization of product guarantee features. Prudential released Q3 earnings reports last month, which failed to meet initial projections.

However, the stock has still been touted as a top pick and analysts have set an optimistic price target between $64.00 and $70.00. Clearly, the elimination of under-performing ventures and the acquisition of stable competitors such as Hartford Financial Services Group Inc (NYSE:HIG) should help Prudential remain one of the top performers in the industry.

In a similar Q3 report, New York Life illustrated a double-digit increase in sales over last year’s same period, but an overall decrease in premium YTD. Still, the company plans to increase dividends next year by more than $100 million, which translates to approximately 8% increase over this year.

Record annuity sales of over $1 billion, combined with a 20% increase in the sale of whole life products, puts New York Life in a comfortable position compared to many of its struggling competitors.

It’s no secret that the insurance and financial services arena may be one of the most cutthroat of all industries, with carriers struggling to find new and innovative ways to reduce costs and attract consumers.

In the face of historically low interest rates and the absence of expectations for increases in the near future, the big question is: How much longer can these industry goliaths continue to survive? Profit margins can only be trimmed so much, and cutting expenses has already led to the substantial elimination of both departments and ventures within most companies.

Reorganizing priorities and closing under-performing segments, although effective in the short-term, may not be enough for sustainable long-term growth. Insurance companies have a tendency to move slowly with respect to changes in processes and procedures, a fact that may threaten market share and stability in the future.

As technology evolves and the number of transactions conducted online increases exponentially, continued success in the insurance industry will require embracing this evolution. Staying on the cutting edge of technology to facilitate sales to consumers and tools to agents is paramount to attracting the droves of up-and-coming young adults who are more comfortable buying on the internet.

Simply put, the old ways of selling insurance are becoming less effective and companies need to focus their efforts on creating a new platform that caters to the tech-savvy generation.

This article is a Twisted Nonsense Exclusive! (12/18/2012)

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