Major economic uncertainty, like what we are currently living through, is never attractive to an industry which insures against risk. Over the last few years, complicated financial products, significant new regulations, and gyrating investment performance have led to major changes in the levels of success enjoyed by individual carriers. The least impacted were the most forward looking while those that charged into the newest financial derivatives are shadows of their former selves.
The extended period of lower employment is challenging health insurance providers by reducing the number of lives covered in their group business while increasing the opportunity in the individual market. Healthcare reform and state-level regulation have changed the rules governing who can be denied coverage, how the youngest adults obtain coverage, and what can be charged for certain coverage. New Medical Loss Ratio mandates will challenge many providers and may lead to some exiting certain markets. Broker commissions are sure to be squeezed by MLR requirements potentially impacting distribution models. Finally, rules allowing increased competition across state lines could lead to consolidation within the industry and may foreshadow the end of state by state regulation of other insurance lines.
Until recently in the Property + Casualty arena, most policyholders purchased obtained their coverage through local agents. Today, the direct channel is the main source of revenue growth, leaving many carriers strategizing on how to grow without alienating intermediaries. Investment losses and increased advertising costs are hitting profitability, with larger players also using M&A as a method for expansion.
Commercial lines carriers weathered the financial downturn better than other insurers, despite the impact of declining employment at their client firms. Differentiation remains a challenge in this market, with many buyers and intermediaries believing that all carriers have similar capabilities. A better understanding of buying decisions and competitor positioning is critical for business success.
Life Insurance carriers remain fiercely competitive with prices of term life policies continuing to fall. Staying ahead of the curve in this industry requires the quick adoption of competitor’s best practices, whether that be in customer service, back office operations, or advertising. Perhaps most interesting is speculation that health insurance companies will expand into the life insurance market as healthcare reform causes them to sell directly to individuals. To provide this coverage, payers will need significant amounts of data on their policyholders, which can be leveraged to cross-sell life insurance.
Insurance carriers are seeing their playing fields evolve more rapidly than ever before, with the implementation of best practices considered table-stakes. Setting strategy without a clear understanding of where an industry is going or how change drivers will impact business plans is increasingly dangerous. It is no surprise then that Fuld is seeing dramatic growth in the need for its competitive intelligence in insurance research and strategic gaming businesses.
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