How to Breathe New Life into Life Insurance

MIKAELA BOYD: Today, life insurance
companies are under tremendous pressure. In the US, ROE is flat. Operating expense ratios are deteriorating. And distribution costs are rising. Insurers have been working to take out costs
for years, but have little to show for it. In fact, by underinvesting or restricting investment
in operations over the last number of years, they may have actually made the situation worse. Even more, customers are telling us they’re not pleased. In Bain’s annual survey of insurance customers,
the Net Promoter Score for insurers was just 4.5. Insurers are beginning to attack this with
digital, but they’re late to the party. In 2016, they spent only half of what their bank
counterparts did on IT as a percentage of total revenue. But the biggest impediment of all may be insurers’ own culture. Avoiding risk and change has been a
core part of insurers’ success to date. Leading insurance companies know
that transformation is possible, but only if they can overcome that inertia and change behavior. To do this, they have to set a bold vision and an ambitious
goal, say, cut costs by 25% in the next three years. They have to instill and build new operating models, ones that
drive accountability, weed out underperformance and reward initiative, all with a greater focus on customer. And as those operating models take shape, they can
then attack their legacy cost issues, using technology to streamline operations, sales and distribution. One leading life insurer transformed itself by
taking a three-year, 20% cost reduction target and driving a much greater focus on customers. They did this by reorganizing around customer
segments and moving away from functions. Bringing in a state-of-the-art CRM system
to better serve customers and agents, they took a 10% headcount reduction and filled
40% of the roles that remained with new talent. They drove 35% reductions in distribution. But the biggest change of all was actually
in culture, driving better decision making and bringing the customer experience back
to be the paramount goal of the organization.

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