FORECAST. The Executive Perspective

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1 FORECAST The Executive Perspective Industry leaders predict what s ahead for sales and profi ts, information technology, customer service, human capital and more. By Jennifer C. Rankin 8 January 2015 RESOURCE

2 cover focus Life insurance companies continue to recalibrate in the face of new regulations, evolving technologies and customer expectations, and more. Of great concern are new regulations at both federal and international levels as well as the possibility of tax policy changes for industry products. Another year of low interest rates is the most difficult challenge of all. It s against this backdrop that Resource asked insurance industry leaders to share their thoughts on what 2015 holds for sales and profitability, information technology, customer service and human capital. We also asked them to identify the greatest challenge the life industry faces and how it should deal with that challenge. The executives who participated in our annual forecast include a cross section of the board of directors of LL Global, the umbrella organization for insurance industry trade associations LOMA and LIMRA, plus industry analysts and other officials. They are: James D. Atkins, FSA, MAAA President & CEO Legal & General America Christopher O. Blunt, CLU, ChFC, CAP Co-President, Insurance & Agency Group New York Life Mark Breading Partner Strategy Meets Action Christopher J. Calabro, CLU, ChFC Vice President, Career Agency Distribution Ohio National Financial Services John A. DelPozzo, CLU Senior Vice President, PGA Distribution Ohio National Financial Services Rino D Onofrio President & CEO RBC Life Insurance Michael R. Fanning Executive Vice President, U.S. Insurance Group MassMutual Nick Lane Senior Executive Director Head of U.S. Life & Retirement AXA Lincoln Financial Group (Management Team) Joseph R. Monk, ChFC, CLU, LLIF Senior Vice President & CAO, State Farm Life Vice President, Health & Mutual Funds, State Farm Mutual Tom Scales Research Director Celent Michael S. Smith, FSA, MAAA, CFA President & CEO, U.S. Insurance Solutions Voya Financial Neil Sprackling President, Life & Health America SwissRe 1 SALES What is your prediction for sales, premiums and profits for our industry as a whole in 2015? What products look particularly strong or weak? ATKINS: I believe sales will decline in 2015, as measured by total premiums and total face amount. Profits will either maintain or improve as companies realign their portfolios for regulatory changes, including AG48 and illustration requirements on indexed universal life (IUL) plans. I believe products such as whole life and term [life] will increase in terms of total face amount sold, but at lower average amounts than previously, as sales through the worksite, direct to consumer aggregators and other alternative channels continue to grow. I also believe that there will be an increase in annuity sales as the Baby Boomer market continues to enter retirement. Addressing that same demographic, sales of long term care solutions will increase as companies enter the market with re-engineered products to meet the increasing demand. Most of the increase in long term care will be in combination products. Universal life and IUL sales will suffer, due to the protracted low interest rate environment and more onerous regulations. BLUNT: We expect that life insurers in 2015 will continue to face pressure from low interest rates and the shaky economic recovery. The good news is that the market opportunity for life insurers remains strong. Millions of Americans lack individual life insurance and those who have it often don t have enough a finding that was borne out in our own life insurance gap study. In fact, the magnitude of the gap between the life insurance coverage people think they have and what they actually have has grown dramatically since 2008, from about US$ 290,000 to US$ 320,000. For us, the key to this market opportunity is our career agency system. Our agents are the cornerstones of our success. We saw sales increase in 2014 and we are looking forward to another good year in Text Continued on Page 12 9

3 2015 Forecast Participants Jimmy Atkins Legal & General America Chris Blunt New York Life Mark Breading Strategy Meets Action Chris Calabro Ohio National Financial Services John DelPozzo Ohio National Financial Services Rino D Onofrio RBC Life Insurance Forecast Highlights Key decision makers from a cross section of insurance industry companies participated in the 2015 forecast. According to participants: Sales, Premiums and Profits Life insurers will continue to face pressure from low interest rates, which hurts investment returns, and the shaky economic recovery, which hurts consumers. Pressures on consumer demand from low wage growth, ongoing price increases and pared-down product guarantees, says one executive, along with life insurers focus on capital efficiency and pull back of capacity from capital-intensive products, will remain a drag on sales growth this year. Despite these and other obstacles, there are a number of market opportunities. Millions of Americans are uninsured or underinsured and the recent financial crisis has compelled many to consider the safety and guarantees of life insurance. Retiring Baby Boomers, who will shift their retirement accounts strategy from accumulation to decumulation, should spur demand for annuities, which provide a steady income stream. They also should spur demand for long-term care insurance, which carriers are increasingly re-engineering as combination products that meet a variety of needs. Increasingly important target markets are the Millennials and Gen X, who want conservative savings vehicles, easy to understand propositions, and digital offerings. Group/ voluntary sales will continue to grow, particularly as more products get added to exchanges/employer portals. While agents are the cornerstone of sales success at most companies, alternative distribution channels will continue to grow. On the upside, the U.S. economy and employment are improving. Generally speaking, sales should tick up, while overall profitability is uncertain. Information Technology Predictive analytics and data mining tools have captured the attention of the C-suite in a big way. I believe predictive analytics and big data are key to industry growth, says one executive. Life/annuity insurers are especially interested in using analytics for customer and market insights to enable more sophisticated segmentation approaches, innovative new products, and enhanced service of inforce policies, says another. Consumer-facing platforms that communicate with them in their preferred media and preferred style will emerge and be well-adopted, says one executive. Online and mobile environments are playing a growing role in engaging and communicating with the consumer, especially social media. Many companies also are considering gamification to educate consumers about insurance and to drive sales. Several executives are interested in wearables particularly devices that aid healthy living. Finally, industry executives continue to tout the benefits of order entry technologies (e-app, e-ticket, e-signature and e-delivery) as well as automated underwriting tools (supported by big data and analytics) to simplify processes and fulfillment. Customer Service Customer service is more important than ever. Exceptional customer service is a lever to retain and organically grow business, says one executive. Delivering it requires a welltrained, customer-centric staff and robust service-empowering 10 January 2015 RESOURCE

4 Mike Fanning MassMutual Nick Lane AXA Joe Monk State Farm Tom Scales Celent Michael Smith Voya Financial Neil Sprackling Swiss Re technologies. It also requires a new mindset, because customer expectations have changed. They no longer compare us to our traditional competitors, says one executive. These days, their baseline is the best the Internet has to offer, so we may be compared to a credit card company, a cable provider, or even an online shopping vendor. In addition, says another executive, In an interconnected, social-media-driven world, bad experiences and reviews can quickly escalate and have the potential for a greater ripple effect than ever before. Customer service and relationship building are vital to the success of insurance companies and the industry as a whole, according to the executives. Human Capital All major industries have the same requirement the need to attract and retain the best and brightest talent says one executive. Nonetheless, they and the insurance industry must scale some roadblocks. These include outdated technologies, overly complex work processes, inflexible work arrangements, and underinvestment in training, outside education and networking opportunities. Soon, Millennials will comprise the largest portion of the U.S. workforce and several executives believe attracting them will require up-to-date technology, meaningful work, professional development, and strategies for work/life balance. As one executive sums it up, Most agree that the industry needs more young talent, more innovative thinkers, and more people with experience outside the insurance industry. That does not mean that existing employees, roles and hiring approaches should be abandoned. On the contrary, companies still need to hire individuals with actuarial degrees, hire and train new underwriters, and pick up talented people to staff other traditional roles in the company. However, more partnering with universities, an active presence in the social/mobile universe, willingness to try new ideas, and experimentation with new technologies help to create more interesting and fulfilling career opportunities. This applies not only to the home office, but to the field force as well. We need to continue to promote the value of a life insurance advisor, says one executive. Our business was built on going into business for your but not by yourself. I believe that today s college graduates seek entrepreneurial opportunities and the life insurance business is a natural. The industry needs to do a better job of promoting the career. Industry Challenges The stubborn persistence of the low interest rate environment and increasing regulation are the top two concerns of insurance executives. Meeting rising employee, customer and producer expectations is another. Executives also are grappling with the implications of emerging technologies, new business models and non-traditional competitors. They face a delicate balancing act of current operational success and investment in the future. The investments and energy required to support ongoing operations and continually improve operational efficiencies are substantial, says one executive, which makes it difficult to allocate the funding and talented individuals to rethink, redesign, and retool the business to be successful in the future. Special Issues Survey participants also discussed what they think the insurance industry will be like in 10 years and how insurance companies can help solve the retirement challenge. Their views on these topics will be featured in the February and March issues of Resource. 11

5 We expect that life insurers in 2015 will continue to face pressure from low interest rates and the shaky economic recovery. Continued from Page 9 BREADING: It appears that interest rates will remain low and will challenge insurers, particularly for annuity related products. However, improvements in the U.S. economy and employment as well as an orientation to conservative investment vehicles in younger generations will open up new or increased sales opportunities in Sales should tick up slightly, while the level of profitability will hinge on investment returns, which makes overall results difficult to predict for Product development will evolve around withdrawing for retirement for Baby Boomers, savings vehicles for Millennials and Gen X, and simplified, easy to understand propositions for digital offerings. We expect an increased focus on educating consumers on retirement through new media, gamification, and other vehicles to help drive sales. CALABRO: Based on current trends, we expect the industry to finish flat for the year. Margin compression will continue to pressure earnings. Whole life sales will continue to be strong and interest in IUL will continue to grow. DELPOZZO: I believe that sales of permanent insurance will continue to lead the industry. In this low interest rate environment, the safety, competitive [internal rates of return] IRRs and guarantees of permanent life insurance will appeal to consumers. As for overall sales of the industry, I would expect modest growth. Unless the industry can figure out a way to attract the Millennial generation, and be easier to do business with, I think our industry will only experience single digit growth. D ONOFRIO: We anticipate that sales with remain relatively flat due to economic conditions and the total amount of premiums will remain relatively similar to The low interest rate environment will continue to have a large impact on insurer profitability. This low interest rate environment will likely have a greater impact on organizations that have higher concentrations of longer tail products and associated large inforce blocks of business. We anticipate a continued downward trend in universal life, with whole life and term [life] picking up for If interest rates climb we anticipate a re-pricing of universal life. FANNING: I think we re going to see overall life insurance industry sales continue to remain flat, or perhaps only gain one or two percent. We just haven t seen a lot of significant changes in either new product development or increased consumer demand heading into Additionally, since life insurance products are interestrate sensitive, from a premium and fees perspective, I think we ll experience the same flat to small growth, and we ll see profits continue be squeezed. The longer interest rates remain low, the more the industry will experience both margin and profit pressure. From a product perspective, in the current interest rate environment, whole life looks particularly strong. While this isn t a new trend, whole life has been gaining share and I think it will continue to gain. Whole life is growing at a faster rate than term, universal life and variable universal life. LINCOLN: [We expect] industry sales and premium [to rise] slightly (three to five percent) driven by term [life] and increased consumer appeal for accumulation products like indexed universal life (IUL) and variable universal life (VUL). IUL continues as the high growth product and VUL regains momentum especially in a low interest rate environment. Guaranteed universal life (GUL) appears to be making a comeback but it s uncertain if that is short-lived given the low interest rate environment. Expect profits to be pressured by low interest rates, seeing low single digit growth (three to five percent). New business profitability is better than past years. Increased competitive pressure will apply stress to new business profitability as the year progresses. MONK: We expect to see a slight increase in policy sales as companies continue to reach the middle market through multiple distribution channels, such as direct mail, online and phone sales. Term [life] sales and final-expense products will likely also continue to increase as companies target the middle market. Indexed universal life and indexed annuities sales should continue to be strong given the interest rate environment. Premiums are likely to be relatively flat for the overall industry and profits will continue to be impacted by the low interest rate environment. SCALES: Our belief is that group/voluntary sales will continue to grow, particularly as more products get added to exchanges/employer portals. We anticipate life and annuities will be stable, but profits could continue to be under pressure, primarily as a result of investment returns. SMITH: Generally, I avoid making predictions like these because too many factors can influence the result. Overall, if we stay in a relatively low-interest rate environment and 12 January 2015 RESOURCE

6 continue to see low to modest economic growth with stagnant income levels for most of the U.S. population, one wouldn t expect a significant rise or decline in overall industry-wide sales activity. Also, if interest rates stay low, one would expect to see increasing market share for indexed products and a continued reduction in the share of secondary guarantee universal life products. SPRACKLING: I am an optimist in general; however, the reality is that the business environment remains challenging for life insurers. For the industry, while balance sheets are solid and capitalization continues to improve, the recovery of new business remains weak. Pressures on consumer demand from low wage growth, ongoing price increases and pared-down product guarantees, along with life insurers focus on capital efficiency and pull back of capacity from capital-intensive products will remain a drag on sales growth next year. The economy is expected to gain strength in 2015, which will bolster somewhat consumer demand, but premium growth will remain below its long-term trend. Industry profitability has rebounded but is still below pre-crisis levels. GAAP ROE, for a sample of large public companies, is struggling to reach 10 percent on average, compared to 14 percent prior to the crisis. Low and declining investment yields, weak premium growth, and legacy issues will continue to pressure earnings in the near term. If this sounds a bit grim, the longer term outlook, I believe, is very promising. The current life insurance product landscape is geared toward savings products but protection business is gaining share. There is significant potential for life insurers to grow mortality and health business given large protection gaps and rising consumer awareness of underinsurance. Moreover, in the current environment mortality and short-tail health business is attractive because its profitability performance is less sensitive to interest rates than it is in the savings segment. Thus life insurers will intensify efforts to diversify sources of revenue and expand distribution and consumer analytics capabilities to reach underserved markets. This is the great crock of gold at the end of the rainbow. 2 TECHNOLOGY What new technologies have the greatest potential to help our industry and how can they help? How is your company using them? ATKINS: I believe technology that enables automated underwriting [as well as] targeted sales solicitation and platforms that offer a richer, more friendly customer engagement experience will continue to have the greatest potential. This includes external databases, predictive analytics, and data mining tools for companies own data. Access to the information from these sources will enable companies to continue to find ways to make the insurance buying process less painful and the price more affordable for the middle market. Technology will enable companies to better identify their targeted market and will help direct marketing and advertising to the customers most likely to buy, offering insurance solutions most appropriate to their profile. Consumer-facing platforms that communicate with them in their preferred media and preferred style will emerge and be well-adopted. The combination of simplicity and friendliness largely made possible through technology may be key in beginning to close the coverage gap in the U.S. BLUNT: We re especially interested in using social media platforms to help reach our customers, and constantly thinking about how to best integrate social media across our organization. What s key is that the platform aligns with our business goal: to support our agents and our existing marketing communications channels. Our focus is making the most of social media while staying true to our corporate culture, our reputation for integrity, and our rigorous standards for compliance, security and governance. BREADING: Insurers are investing in technologies that help in two primary areas: improving customer acquisition and gaining new, differentiating insights. Producer portals, mobile sales tools, and e-apps are big focus areas for companies looking to improve acquisition. Business intelligence and analytics investments and projects continue to expand across the enterprise. Life/annuity insurers are especially interested in using analytics for customer and market insights to enable more sophisticated segmentation approaches, innovative new products, and enhanced service of in-force policies. CALABRO: E-application will help lower [not in good order] NIGO applications and increase speed to issue. E-illustrations that can pre-fill applications will also help. The ability to household customer data will enhance the customer experience. DELPOZZO: I believe predictive analytics and big data are key to industry growth. I believe that within the next five years, someone will figure out a way to apply, issue and deliver a life insurance policy in the same day. Our company is looking into ways to utilize technology to be easier to do business with. D ONOFRIO: We anticipate that new underwriting automation will play a greater role in simplifying processes and fulfillment. We also anticipate online and mobile environments to play a significant role in engaging and communicating with the consumer. We anticipate a continued increase in behavioral analytics to play a significant role in defining and targeting consumers and predictive analytics in underwriting and pricing their policies. 13

7 FANNING: From a technology standpoint, I believe our ability to successfully utilize big data and data analytics will help further the industry. Our friends in the property & casualty area have had about a decade head start in this area. For the life insurance industry, the use of these advanced technologies will not only help us target and generate new customers for our products, but also enable us to mine the data to find ways to get them to buy more of our products based on the information we can cull. The advancements in these technologies will also enhance our ability to underwrite. One of the biggest inhibitors for people buying life insurance, we believe, is that the process isn t customer-friendly especially when it involves drawing blood and waiting for doctors reports that can take weeks to receive. Using data to better predict mortality will speed the process and eliminate a lot of negative aspects of the underwriting process. We ve also taken steps to build a pipeline of people who can help us though the ability of taking a deeper dive into the information we gather. This past year, we implemented a program with colleges near our Springfield headquarters with the goal of providing recent graduates who are new MassMutual hires with an affinity for data science, with a big incentive to join the insurance industry and help us achieve its data and analytics goals. Working with professors at Amherst College, Hampshire College, Mount Holyoke, Smith, and UMass Amherst, we have created a professional development curriculum that combines full-time employees within our data science team. Interested and qualified graduates of the computer science, physics, statistics, and data science programs at the colleges, among others, therefore are able to round out their educations while working on real-world projects. LANE: Digital technologies hold the greatest potential for the insurance industry, because they help to address consumer expectations around choice, speed, efficiency and price point. Digital technologies are not an end in themselves, but developments like touch technology, easy-to-navigate user interfaces, and apps are the most effective means to help companies get closer to their customers. When you can walk through a product on a mobile app, advisors can do their jobs without setting foot in an office, so they can be closer to their customers. LINCOLN: There are two primary technologies that will help our industry: Electronic order entry and predictive analytics. Order entry technologies for new business (e-app, e-ticket, e-signature and e-delivery) will reduce turnaround times, improve the customer experience and reduce processing costs. The use of data and predictive analytics will accelerate underwriting decisions and drive down underwriting requirements. Also, the incorporation of big data with advanced analytics will drive process improvements and improved decision making. We are using all of these technologies and have robust plans to grow adoption of e-platforms. MONK: Technology that supports making the life insurance process simpler for customers and agents will have the greatest potential of helping our industry. Functionality like electronic applications and mobile capabilities will continue to be used more widely as the technology improves. Customers will benefit from the ease of use and agents will see the improvement in issue time and completed applications. State Farm has been using an electronic application with signature capability for more than 10 years and plans to expand agent capabilities to further simplify the experience. As our industry considers leveraging the widespread use of tablets, it could increase product availability and make the purchase process even more accessible. Additionally, as underwriting models continue to mature, more instant answer or simplified issued products may be available at reasonable prices. SCALES: Celent sees a number of technologies of interest, and areas of investment. Individually, they re all interesting, but what would be particularly exciting would be the company that manages to put them all together to shakeup the industry. We are curious whether that will be a current carrier or whether a new entrant could really come in and revolutionize the business. For example, we see potential in wearables, particularly devices that aid healthy living. However, our research shows that industry trust in client use is low, likely due to both unfamiliarity and a perceived risk of fraud. That said, wearables appear to be gaining traction in health markets, which makes sense as anything that improves your health lowers their direct cost. We still see room for growth in classic [straight through processing] STP technologies certainly not new ideas, but still plenty of mileage left to go within our industry. This goes hand in hand with a shift to web and call center sales direct to consumer and the increased use of mobile for both sales and service. Related to STP, we see more use of predictive technology, along the lines of IBM s Watson, for guided advice / FAQs and more. Lastly, continued, significant investment in Big Data and analytics. The wealth of data in insurers is huge, but they have not leveraged it well. 14 January 2015 RESOURCE

8 There still seems to be concern about channel conflict in using customer data, but that time has passed if the carrier doesn t use it, a competitor will. When we are discussing analytics, we cannot forget that sources of data are evolving as well. Think of the direct link between your social media posts and your life events. Surely there is an opportunity to make sales of life insurance when someone posts pictures of their new baby on Facebook. Similarly the post pictures of my retirement party certainly leads to an opportunity for retirement products or post-retirement planning. As mentioned, imagine how a new entrant, not constrained with any perception of how the industry has always worked, could use technology to change the landscape. SMITH: First, I d point to increasingly sophisticated education and planning tools our industry has created to help consumers understand their retirement plan needs, and the types of life insurance products required to protect their retirement assets. These tools will help consumers avoid getting stuck in the purchasing process and allow them to make informed, confident decisions when buying life insurance. Second, we ve made significant progress developing data sources and analysis processes that will reduce the amount of time and the number of steps customers need to take during underwriting, while still securing the information we need to compete with products that require a traditional approach. For example, Voya recently launched a new process called Orange Pass. This process offers a combination of expedited underwriting and a shorter application experience that can help take weeks off the fulfillment period, with the potential for policies to be issued in as little as five business days. SPRACKLING: The digital and social media world is set to revolutionize our business both in terms of distribution and risk assessment. We are already seeing the influence and impact of technology in the form of electronic applications and underwriting platforms. These developments will only accelerate and will ultimately become the standard form of interacting with customers. The new world will also see online platforms becoming major enablers for accessing and distributing insurance and these will come from areas outside the traditional insurance sector. Other technologies such as wearable devices that store customer information will become powerful sources of data for risk assessment. As a reinsurer, Swiss Re is investing significant resources in understanding how the industry can integrate the various new forms of technology into distributing products and assessing risk, particularly in the area of data analytics. We are on the cusp of the biggest revolution in underwriting life insurance risk as the worlds of traditional assessment and predictive data merge to the consumers benefit. 3 CUSTOMER SERVICE What is the importance of customer service and how can the industry make sure it provides the service that today s customers expect? ATKINS: Exceptional customer service is a lever to retain and organically grow business. It is also a key component in presenting the industry as a whole in a positive light. Well trained, customer centric staff are at the heart of any customer service center. Technology is a significant strategy to improve the customer service experience; specifically, robust web sites for 24 x 7 self service, advance telephony software and internal systems to streamline transactions and inquiries. BLUNT: The way we see it, our industry exists to serve the financial needs of our policyholders and beneficiaries, so we are constantly working to elevate their experience with New York Life. That can be challenging in a world where more things are digital and automated, so one of the things we re focused on is ensuring that customers can speak to a live person, whether it s an agent who can help assess their needs or a service professional if they have questions about their policy. That calls for training employees and agents and optimizing customer communications, and we re always looking to achieve excellence in these areas. BREADING: The expectations of many customers are high regarding digital, mobile interaction and real-time response. This creates a challenge for insurers, especially for products that require only a couple of interactions per year. Customer service is important, and insurers do need to provide modern options and capabilities to customers. But for many companies it is important to be selective focusing on those transactions, interactions, and documents that will have the most impact on the customer experience. CALABRO: Customer service presents an opportunity for a company to differentiate itself in a positive way. While technology will continue to help enhance the experience, a focus on basic employee customer service skills will continue to be important. DELPOZZA: Customer service and relationship building is the key to any business. It s conceivable that a life insurance company can have a 100 year relationship with a customer. As a result, it s imperative that companies continue to provide service in a manner that the customer demands. This could be face to face, Internet, call centers or through the mail. D ONOFRIO: Customer service expectations have changed due to customer experience with other services, primarily services driven by technology. This is a world of immediate information and gratification. Speed of response and seamless 15

9 interaction with direct insurers is critical to meeting customer expectations. An expectation of customization and personalization is prevalent in all industries and this will require all providers to have a deeper understanding of their clients if they wish to succeed. FANNING: Customer service really encompasses two categories the acquisition of that policyowner or customer and, just as important, is how well we service him or her. We know that the experience that someone has who has been onboarded with one of our products probably sets the stage for the balance of [the] relationship he or she has with the firm. It gets a bit more difficult in our business, as we have an intermediary and we are not always 100 percent sure about how much service that intermediary provides or doesn t provide. We need to makes sure that the onboarding is a shared experience between the insurance company and the intermediary. Where this becomes really important and where we have lacked as an industry is how do we take that service experience and turn it into an offer-making experience; not just servicing that particular policyowner or customer, but also using superior customer service to enable us to be able to cross-sell or upsell into other products and/or services. We also need to maintain a high level of customer service to ensure that the policies we do have in-force stay on the books longer. Much of this can be tied to back to the technology story, which can also help us provide better customer service, by being able to reach our policyowners and customers through the technologies they use, and by knowing more about these people and their insurance needs. LANE: Customer expectations have changed they no longer compare us to our traditional competitors. These days, their baseline is the best the Internet has to offer, so we may be compared to a credit card company, a cable provider, or even an online shopping vendor. Customers are requiring new competencies and forms of interaction. For example, customers now seek multiple interaction channels that will meet them at each stage of their financial life-cycle. They expect convenience, simplicity, a proactive seller with tailored products, unique experiences, and trust. Within the context of the customer journey, mobility and mobile technologies play a part in each key stage research, awareness, sales, servicing, and relationship management. The customer relationship has been and always will be what our industry is about. LINCOLN: Customer service is increasingly important in all aspects of the relationship, from sales to ongoing servicing. An increasingly adept technological consumer will mean the need for increased online interaction. The industry can address these changing needs by: 16 January 2015 RESOURCE Benchmarking our customer experience against the best in financial services. Comparing ourselves to other life carriers is no longer enough. Technology standardization and increased usage of simple on-line/mobile capabilities. Carriers that do not upgrade their customer experience may see turnover in their block and/or lost future sales. MONK: Every company believes service is important to customer satisfaction and improving overall retention. We re consistently faced, however, with determining how to deliver the service customers expect, when they expect it and through the channel they want. We have to be prepared to offer 24/7 service in all aspects of the customer experience, especially since other industries are defining and driving customer expectations. Our industry needs to also constantly be focused on how we match individualized service and product accessibility that customers expect at an affordable price. Research focused on the customer experience is one way to stay on top of trends and expectations. SCALES: Reduced returns from investment can only focus minds on managing the core business and associated expenses. The challenge is how to improve service and lower expense at the same time. This also leads to making money from existing customers. Consequently, loyalty, understanding a customer s risk profile and future opportunities become way more important. We are also seeing new generations of buyers that have totally different expectations of customer service, both in the sales cycle and in service. It is hard to imagine a 25 year old buyer asking an agent to come to their apartment and do a paper application on their kitchen table. There is an expectation of self-service and automation reaching the point of distrust of a carrier that cannot provide these services. Clients are no longer patient enough to stick around to fill out forms, sit in call queues and repeat the same information multiple times. Just look at the most common transactions beneficiary changes, bank changes, address changes all easily implemented on a mobile platform, no matter how antiquated are your core systems. Simply put, service needs to be simple, accessible anywhere and informative. Imagine how a new entrant, not constrained with any perception of how the industry has always worked, could use technology to change the landscape.

10 We are seeing new generations of buyers that have totally different expectations of customer service, both in the sales cycle and in service. SMITH: In our world of instant information, customers can gain a great deal of knowledge in a very short amount of time. Increased education leads to high expectations, especially as it relates to the online experience and responsiveness of a claims payment. In an interconnected, social-media-driven world, bad experiences and reviews can quickly escalate and have the potential for a greater ripple effect than ever before. As carriers, it s imperative that we put ourselves in the shoes of our customers, take the time to understand how they want to interact with us and compare our processes with those expectations. One way to address this is to break our processes into specific customer journeys that start with a need and end with a solution. We need to build a journey that effectively delivers the desired outcome of advancing our customers financial goals and protecting their retirement security. SPRACKLING: We now live in the world of instant fulfillment and consumers will no longer tolerate a three-week turnaround for their life insurance policy. Once they have decided what product they need, they want it here and now. We are certainly enhancing the point-of-sale experience for the consumer through new technology; however, there is a growing expectation from the consumer that a life insurer will provide on-going excellent customer service beyond policy acceptance and claim payment. It s all about return on information and a consumer will increasingly expect something more from their insurer. For example what should the insured expect in return for providing personal medical information through the underwriting process? Should this extend to a regular dialogue about health and well-being, much as we see through the health insurers? Table stakes are increasing and the service that a consumer demands will consequently be greater. CAPITAL How can the industry attract and develop the kind of employees it needs to be successful? 4 HUMAN ATKINS: All major industries have the same requirement the need to attract and retain the best and brightest talent and organizations with an engaged workforce will typically outperform their competition. The insurance industry as a whole has not done a good job of marketing [itself]. The industry is viewed as being slow to change and slow to apply newer technologies. We are also known for using complicated processes to get the work done nothing gets done quickly in the life insurance industry. While the industry is changing and there is a lot of innovation going on, the message has not made its way to the new workforce: the Millennials (born between 1980 and 2000). Soon, Millennials will comprise the largest portion of the U.S. workforce. They gravitate toward companies that offer challenging, unique experiences, where learning is encouraged and collaboration is king. They thrive on change and live in a fast paced digital world but they also want balance in their lives. More importantly, Millennials want to make the world a better place they want to make an impact while doing meaningful work. So what better industry is there to be in than the life insurance industry one that provides financial security to people and in their time of need protection against financial loss? As an industry we need to: Advertise the meaningful social purpose that life insurance serves Change the focus of our products from death benefit protection to being the cornerstone around which a personal financial strategy can be built a strategy that can provide comfort in knowing that at any stage in life, financial decisions can be made knowing there is protection Embrace new technology, especially technology that makes it possible for employees to work wherever, whenever Celebrate innovation Embrace training and outside education and networking to keep ideas and skills fresh Create a culture where multiple generations of workers will find the work environment supportive of their individual life/work styles and conducive to working in teams BLUNT: We place great emphasis on the need to hire, develop and retain top talent across the board, at both the corporate and agency level. New York Life s success is due to the formidable distribution channel we have in place a foundation of more than 12,000 agents across the country. Each year we embark on a national recruiting effort to bring in new agents, men and women from all walks of life who share our commitment to helping people achieve their financial goals and making a difference in the community. It s also important to us that our agents and employees reflect the diverse communities we serve. 17

11 New York Life is consistently recognized as an employer of choice for our commitment to women and to individuals who represent cultural markets. BREADING: Most agree that the industry needs more young talent, more innovative thinkers, and more people with experience outside the insurance industry. That does not mean that existing employees, roles, and hiring approaches should be abandoned. On the contrary, companies still need to hire individuals with actuarial science degrees, hire and train new underwriters, and pick up talented people to staff other traditional roles in the company. However, more partnering with universities, an active presence in the social/mobile universe, willingness to try new ideas, and experimentation with new technologies help to create more interesting and fulfilling career opportunities. CALABRO: By focusing on the importance of what the career offers to its clients. New agents may be more attracted to the profession. A focus on training, mentoring and team selling will also positively impact recruiting. DELPOZZA: We need to continue to promote the value of a life insurance advisor. Our business was built on going into business for yourself but not by yourself. I believe that today s college graduates seek entrepreneurial opportunities and the life insurance business is a natural. The industry needs to do a better job of promoting the career. D ONOFRIO: The kind of employee that will make an organization successful is one who cares about the place they work. They ll look for an organization whose culture they connect with and are inspired by. These employees want to work in an environment where creativity is nourished and encouraged; an environment where every voice is heard and then collectively they champion the best answer. These are the parts of an organizational culture that let each employee know they can make a difference. In the world of technology employees are used to having information at their fingertips. Companies also have to maximize the speed and amount of information that is shared to and between employees. FANNING: As the DNA of how our consumer interacts with us continues to change, we need to develop people with the critical technical skills around digital, mobile and social. And because we operate in a highly regulated industry, we need to attract, hire and retain the talent that has the ability to use that technology in an effective way that works within the confines of our industry. At MassMutual, we have created internship programs around these same dynamics and, of course, have created the previously discussed data science program. There is an extremely strong tie between the people that we are recruiting and customer expectations. Much of this begins with who the employee of the future is going to be Millennials and college grads whose mindsets are different than those of Baby Boomers and Gen Xers. They want to do something for the greater good; there s a social and moral imperative to work that they do. Additionally, the value that our industry creates for families and businesses needs to be discussed more. We need to take the industry perception of that salesman in a plaid sports coat to make it more of the purpose of why the institution of insurance exists. As an industry, we need to rebrand ourselves about what that value proposition is and how we can best deliver that. Taking it a step further, to leadership roles, historically you needed to be a full subject matter expert to be seen as a leader or future leader of a company. Now, while possessing industry knowledge is still vastly important, quality leaders now have the ability to remove obstacles and help develop skills within their teams. LANE: I think one of the next big opportunities for the industry is women and diverse markets. If you look at the U.S. economy over the last 50 years, it s been driven by women entering the workforce. If you look at the demographics of our advisor force today, we do not have that same level of representation. So, as we move forward, I think the freedom and the benefits we have with our products and solutions are great for female advisors and are great for diverse markets. I think that s really going to propel our industry going forward. LINCOLN: Create an industry climate that shapes growth, innovation, and challenges the status quo, enhancing the overall industry profile so that it s viewed as dynamic by younger generations. [Forge] partnerships with colleges and universities developing curriculums specific to establishing critical skills to the industry. Continue to attract and retain technical talent, like actuaries and underwriters. Acquire talent from 18 January 2015 RESOURCE

12 Let s face it: Our industry is not on the leading edge of alternative ways to support our employees. nexus industries to stir innovation, drive customer centricity and straight-through processing. Increase engagement with employees in their 20s to leverage their skills and insights. MONK: In order to provide the expected customer experience, we need enthusiastic, well-trained and engaged employees and leaders. This means continuing to evolve our recruiting and training programs to attract and retain the best and brightest available. It also means remaining competitive with tangible benefits like health insurance and meaningful intangible benefits like culture, work-life balance, and opportunities to grow and create value for customers. LOMA and LIMRA both play a role in developing successful life insurance industry employees. SCALES: Invest in technology. No one wants to join a dinosaur. The work environment needs to be engaging. Firms need to provide a high degree of personal freedom. Let s face it: our industry is not on the leading edge of alternative ways to support our employees. Ideas such as work from home and flexible schedules have impacted other industries, but only in a limited number of insurers. A perfect example, in use by some carriers, is a part-time position scheduled within the school day. Peak calls are often over lunch, and centered on Monday. A call center position from 9-2 on Monday through Thursday would be perfect for a stay-at-home parent. Even better, the role could be performed from their home. SMITH: I believe this is a question most companies and not simply those in the insurance industry are asking themselves today. We have aging Baby Boomers sharing the workplace with Gen X and Millennials, who communicate and approach their careers and the world in very different ways. We have an increasingly diverse, globalized workforce. Meanwhile, the pace of changing technology continues to transform the way we conduct business. Some of the steps Voya has taken to attract and retain top talent are: Flexible work arrangements that include part-time and post-retirement opportunities Supporting diversity through the creation of employee resource groups and partnerships with business organizations that set standards for diversity and inclusion Building and continually enhancing our overall talent management strategies, which include career development plans, rotational assignments and customized training courses Incentive programs for employees who refer qualified candidates for open positions SPRACKLING: This is one of our greatest challenges. How can we make the life industry an appealing place to build a career? I, like, many others, fell almost accidentally into life insurance and after 30 years I am absolutely delighted that I did. I am convinced that with all the change in the digital world and data analytics, life insurance will become an increasingly attractive profession. Yes, we will always need technicians in the shape of actuaries and risk managers; however, we will also need individuals focused on data analysis and adoption of technology. Our primary focus should be on highlighting the benefits of the products we offer and how they help the end consumer and society at large. This message needs to reach people in all walks of life schools and colleges, university graduates, careers fairs and expos, recruitment companies and public educations forums. If we get this right, we will see the next wave of new talent entering our industry. 5 CHALLENGES challenge? What is the greatest challenge the life industry faces in 2015 and how can it deal with this ATKINS: Far and away, the biggest challenge facing life insurance companies is the shrinking of traditional distribution outlets and the need to develop new, successful alternatives. Distribution experiments need to be happening now to find the successful successor model. Additionally, the stubborn persistence of the low interest rate environment is a problem because we don t know if it is here to stay or where it is going. If we knew, we could deal with it. Further, for companies, continued access to capital to enable organic growth at a healthy return continues to be an issue, especially with recent regulatory developments, including AG48, Solvency II, etcetera. In addition, companies need to offer simpler insurance solutions with high perceived value tied to life cycle events. Most Gen X and Gen Y individuals do not have enough life insurance nor do they fully recognize or appreciate the need for the insurance. There needs to be a steep increase in the level of understanding of the risks and consequences for which our products and services offer financial protection. The life insurance industry can help deal with this challenge by offering simpler products at fair prices reflective of engagement with the customer rather than reducing our offerings to a commodity. The insurance industry is likely still too large and could benefit from further consolidation. In addition, the insurance industry needs to find ways to reach new customers and to design and price products that flex to the needs of their potential customers. 19

13 BLUNT: Our two biggest concerns are low rates and regulation. Low rates put pressure on earnings, and also lead people to put off purchasing decisions at a time when more Americans need to be building their own social safety net. On the regulatory side, we think it s important that regulators protect against certain activities that reflect short-term thinking and could weaken our industry overall. We need to remember that the life insurance sale is never an easy sale, so making sure companies are safe, strong and transparent is key to maintaining the trust of the millions of families and businesses that put their financial futures in our hands. BREADING: The greatest challenges the industry faces are how to innovate and aggressively invest to position for the future. Many insurers are concerned about rising customer/ producer expectations, and the implications of emerging technologies, new business models, and non-traditional competitors. The investments and energy required to support ongoing operations and continually improve operational efficiencies are substantial, which makes it difficult to allocate the funding and talented individuals to rethink, redesign, and retool the business to be successful in the future. CALABRO: Attracting new agents to the business and increasing retention rates should be a focus. Rewarding agencies for recruiting quotas with no productivity hurdles does not change the paradigm. Increased federal regulation is also a concern as in the long run the customer may suffer via higher prices. DELPOZZA: Regulation. D ONOFRIO: The greatest challenges the industry faces today are: Being relevant to a younger generation who does not understand how insurance fits into their financial well-being. Demographic shifts creating less opportunity for life insurance at older ages and greater needs for health, medical and long term care products and insurers ability to price these products given the inherent risk and low interest rate environment. A shrinking middle class and tradeoffs consumers are making on how they spend their disposable incomes. How to meet this challenge? Create products with more risk sharing elements. 20 January 2015 RESOURCE

14 The increased pace of change in the regulatory environment will be the greatest challenge for the life industry in LANE: One of the big issues facing the country and our industry today is how to provide financial protection for the modern American family. Fewer than 40 percent of American consumers today are properly insured. I think we have to talk about the modern family, because the definition of the family has changed, and we have to evolve to protect that family today. LINCOLN: Regulation and declining consumer relevance for what our products/solutions do for clients. Regulation adds tremendous cost and/or complexity to our solutions, in turn, reducing consumer appeal. Regulation will continue to be a challenge until the industry unifies on key issues. Additionally, the industry can combat declining consumer interest through: Product simplification A focus on alternative benefits (long-term care, income generation, cash accumulation) Simplifying our processes and language to make our solutions more accessible and understandable to consumers MONK: The increased pace of change in the regulatory environment will be the greatest challenge for the life industry in With new regulators at both federal and international levels, our industry could see many changes in reserve standards, capital standards and reporting standards. These challenges could impact product offerings as well as efforts to simplify the customer experience. Consistent with 2014, managing through these challenges means being an active participant in the process, and using industry associations to understand the issues facing our industry and educating regulators is important. SCALES: Celent sees two major challenges. The first is continued low investment returns. The solution is to manage your expenses and differentiate your offerings with unique features, stellar service and reasons that make a customer want to buy, rather than be sold. Another issue that continues to be on the radar is core systems whose age is measured in decades. The fact that large insurers are putting new business on systems implemented in the 1960s, and supported by programmers past retirement age, goes beyond surprising. Too many companies consider it just an issue for IT. It is well beyond that and should be a major focus of chief risk officers at all companies. Not only do these systems make it hard to compete in a modern world, they are approaching the point that they simply cannot be maintained. As one industry veteran commented, It is a 140 year problem. They have policies on their systems that are 70 years old, and have likely been converted to a new system more than once. Policies being added to the system could potentially be on the system for another 70 years, or even more. The fact that these core systems are not seeing investment is just short of stunning. Now, having said that, we are seeing insurers invest, or at least show a willingness to invest, [at a level] we have not seen in the last five or so years. SMITH: The changing regulatory and tax policy environment creates certain challenges for our industry. We must continue to work with regulators to strike an appropriate and sustainable balance, ensuring that consumers have their best interests protected, while providing them with access to affordable life insurance products from financially secure carriers. It is unclear what, if any, tax policies can be enacted at the federal level in 2015, but changes to our industry and the products we offer are certainly in play. Close monitoring, as well as active engagement with policymakers, to communicate the importance of our products for the financial security of Americans, are essential in positioning the insurance industry for success in 2015 and beyond. SPRACKLING: We should put aside the macro economic factors that affect our industry over which we have little or no control and tackle the issues that we can directly influence. For example, we need to continue the journey to simplify our products and processes and enhance the understanding, and thereby appeal, of life insurance. We need to do a much better job of educating the public on the value of life insurance, its affordability and ultimately providing insurance to the millions of Americans who remain chronically underinsured. How? By extending the reach of insurance beyond the traditional channels of distribution and embracing companies and industries with a close affinity to health and well-being. 21

15 FORECAST 2015 A Closer Look Now that you ve gotten the big picture from the C-suite, it s time to delve into some particulars. Here, a seasoned industry consultant does just that. By Steven M. Callahan, CMC, ChFC, CLU, FFSI, FLHC, FLMI/M Practice Director The Nolan Company T he economics for 2015 continue to slowly improve, but still leave a lot of room for growth before achieving prior, industry sustaining levels. Various experts expect real GDP will continue to hover in the three percent or so range; unemployment will continue to taper down to below six percent; low inflation will hover around 2.1 percent, setting the stage for continued low interest rates; and,fed Funds will rise slightly to.5 percent over time. Premium growth is expected to range between two and three percent overall, with policy count continuing to remain flat to down, emphasizing the focus on the affluent and the continuation of under serving the middle market. The financial rewards for distribution to the middle market remain insufficient to adequately motivate enough distributors to penetrate that market deeper than current efforts. Over time, this disparity will become an increasingly critical gap in coverage as the size of the underserved grows disproportionately with the more affluent. 22 January 2015 RESOURCE

16 Profitability remains driven by low interest rates and their impact on investment returns. Rates have been low awhile now, and as investments have matured, that has forced new and creative strategies for near term investing and hedging to improve returns and position for flexibility. The continued low margins in life insurance paired with technology investments and other advances are slowly eroding the room left for general investments and operational improvements. Still, despite the continued low returns on investment, successful efforts in new products, increasing select market penetrations, enhanced distribution techniques, and costcutting, insurers continue to show improvements in return on expenses (ROE) [that are] likely to continue into Although consumer sentiment continues to improve slightly, the life industry continues to suffer health issues. Flat to negative growth in both policy count and net premiums across all lines bodes poorly for a sustainably large and growing industry; some form of change is becoming imminently more important. Indexed universal life (IUL) has become increasingly popular as a means to participate in variable market upswings, while providing some protection against the downswings. Variable universal life (VUL) has returned to the forefront concurrent with the market s improvement, continuing to show positive results. Both of these products are currently benefiting from a good bit of attention and product development effort and will continue into 2015 assuming market stability continues to be popular with the distribution channels and buyers. On the other hand, previously popular add-ons like long term care seem to be in a temporary hiatus, likely to show marginal growth at best in the year ahead. Product design is focusing on returns, guarantees, flexibility, and conservatism for the company (in other words, greater care with the guarantees offered). The rate of new product ideation and initiation continues to accelerate, counterbalanced by the implementation-inhibiting influence of legacy systems, complex interfaces, and limited resources. Companies able to conceive creative and potentially competitive products are finding significant challenges in getting their products to market, which will continue into All told, companies will be challenged to grow cost effectively as market competitiveness and running rate costs continue to be impacted by: An inability to retire old products or systems, resulting in complex operating environments Problems improving distribution channel effectiveness, further clouded by multi-line exclusive agent (MLEA) tactics Lag time between product ideation and introduction, resulting in lost market opportunity Difficulty overcoming internal complexity created by the need for product modularization Cannibalization of inforce policies as business shifts lines within a company Increasing operational complexity as more solutions and systems are added to the mix The infrastructure challenges impeding companies from successfully and rapidly bringing new products to market combined with the over-emphasis on the affluent and under serving of the large middle market are systemic issues that have to be solved before the industry will successfully return to a trajectory of growth. Evolving Technologies Most companies probably find themselves facing technological saturation; a constant deluge of new opportunities, partially implemented systems, carryover legacy remnants, complex vendor relationships, and infrequently met date or return on investment (ROI) goals. Change has come fast and furious, with the demands of implementation and integration at times seeming insurmountable. The core needs remain the same, and in many cases are not that particularly new: Implementing improved PAS solutions, enabling faster speed to market with more flexible products Digitalizing insurance processes, forms, and transactions from point of sale through claims delivery Integrating multi-modal servicing into the operation, ranging from traditional calls to social media Extending sales support, product education, and point of purchase to the web and mobile tools Cleansing and supplementing risk and client data to drive improved predictive modeling Capturing complete transaction-supported views of the customer and their lifetime value Investments in the life and annuity industry continue to revolve predominantly around straight through processing; enhanced underwriting risk assessments; policy administration system upgrades, wraps, and replacements; sales enablement tools (mobile, social); service extension mechanisms (portals, social, mobile); and, analytics. The projects are large, 23

17 multi-year, multi-million dollar, and resource intensive. Year to year reviews keep many of these projects top of mind for most companies, with limited capacity to add many new ones per year, and a constant demand for implementation effectiveness checks. Even today, too many projects suffer from scope creep, missed dates, cost overruns, reduced functionality, and inadequate testing. Finding the right mechanisms for rigorous governance and monitoring of large, complex technological projects remains the Achilles heel of many a CIO. The current game changer remains the tremendous potential offered by big data and advanced analytics. Advances in analytics are offering an ever-increasing ability to mine, sift, sort, and present an assortment of data views based on constantly adapting models. The process of risk assessment is becoming increasingly accurate, especially as externally accessible data elements along with advanced medical testing bring increasingly informative individualized data elements to the process. Improved risk assessments drive more accurate, and more competitive, pricing, leading to greater profitability across desired market segments. The challenge remains the collection, collation, and meaningful modeling of the vast amount of mixed-form data available. Moving forward as wearables become more integral to everyday life and the breadth of testing available continues to increase companies will eventually be challenged with the decision of how discrete to make pricing so as to optimize market share opportunity. Until then, the risk assessment process continues to benefit from improved modeling and medical advances as tools to inform the expertise dependent evaluations. Analytics play an equal, and more immediate, role in helping to guide the improvement of agent deployment and effectiveness as models of market potential, agent productivity, prospect demographics, and projected profitability help direct the recruiting, training, and product-targeting used by the sales force. Enhanced awareness of the alignment between agent and prospect characteristics, models on agent strong and weak product points, market saturation models, and propensity to buy predictors contribute to improving the effectiveness of distribution channels. Given the ramp up costs of a productive agent over the two to three years it takes, and the still-high drop rate between recruit and success, agent effectiveness remains a tremendous opportunity for improving profitability, market share, and customer satisfaction. It is an area where modeling has not yet reached its full capabilities The economics for 2015 continue to slowly improve, but still leave a lot of room for growth before achieving prior, industry sustaining levels. STEVE CALLAHAN for many companies as reliance remains with the tried and true management structures and training protocols. For those who have integrated analytics as an operational element in field management, the tradeoffs profiled offer some difficult decisions often altering long standing beliefs and previously believed best practices. Customer segmentation has been an area that has benefited a great deal from the attention of analytics over the last few years. Much progress has been made from the early demographic profiles to today s customer segmentations based upon transactional, demographic, psychographic, and behavioral analytics. The detailed segment profiles many companies have been able to develop have enabled them to tailor very specific advertising, product combinations, and offering methods specific to a unique combination of attributes. When done properly, the close rates are enhanced and customers feel more satisfied from what is a more individualized look at their situation. The ability to model prospects and customers to increasingly detailed levels translates directly to improved distribution effectiveness, more efficient product development, custom segment offerings, and tailored service delivery. The market expectations of product, sale, and service continue to increase, and through the diligent use of analytics, those expectations are being met. Further into the horizon there are advances that will continue to improve the ability of companies to tailor their products and services to their client s needs; for today, the challenge remains finding the time, talent, and resources to reap the benefits of what is already available. Service Differentiation Given the intensity of competition, consumers have high expectations, with convenience and simplicity foremost in priority. This means companies are faced with the challenge of providing service across a wide range of means, from direct personal contact to fully automated web transactions on a 24/7 and in many cases multi-lingual basis. Flexible, quickly configurable modular systems are critical to the entire customer lifecycle, including prospecting, selling, and servicing. Furthermore, failure to address the increasing cultural differences with products, collateral materials, service centers and distributors will mean not delivering on growing consumer expectations for individualized attention. As products become more similar than different, and distribution channels converge and overlap, customer service has become one of the key sources of competitive differentiation. 24 January 2015 RESOURCE

18 From cycle time compression, to 24 hour availability, to multi-modal accessibility, customers of insurance companies have an increasingly complex and diverse range of expectations. The demands on today s insurers far exceed those of only a decade ago when call centers, fax machines, and sales support staff were able to address most of the needs. The quality of customer service delivered at every contact point, from pre-sale through claim, represents an equal to possibly even greater source of differentiation than the product sold in many instances. Competitive advantage, especially in today s multi-generational and culturally diverse marketplace, accretes to the carriers able to cost-effectively deliver personalized service consistently. The importance of customer service has been advocated, presented, and strategized fairly consistently for most of this decade; however, the translation of strategies into fullydeveloped reality remains a partially fulfilled goal. Companies still deal with fragmented service delivery, intertwined across call centers, fax machines, s, interactive voice response systems, and customer portals. Some advances have been made in monitoring social media, tracking market sentiment, improving range of coverage and responsiveness, and slowly extending into newer technologies. Despite significant effort to date, the use of portals, digitizing service to once-and-done exchanges, the offering of service alternatives across multiple modes, and the achievement of a consolidated single view of service history across all modes and functions each remain at early stages in the capability maturity cycle. How can world class customer service be achieved? Straddled with legacy systems and disparate product sets, with dispersed service teams and functional separation, and with multiple distribution systems and markets, delivering a consistent, world class service experience has proven difficult to consistently achieve. The challenge is in looking at service holistically, across the enterprise and across functions, and then aligning investments, operations, and technologies to deliver a coherent end-to-end experience to each and every customer. It requires a coherent enterprise-wide service strategy that is persistently applied across functions, supported by timely investments in carefully selected technologies. Attempts to achieve service superiority driven by discrete departmental or business line strategies can prove overly costly and, in the long run, ineffective. There are too many moving parts involved, too many overlapping costs, and the convergence of markets, channels, and products are driving service towards an eventual multi-faceted solution. Exceptional customer service requires a consolidated service vision, a laser sharp focus on purpose and results, and exceptional delivery on a well-planned roadmap that fully envelops realization of service as a product. What else is needed? Link corporate goals and reviews to total service delivery across the enterprise Install a service governance structure to monitor performance and maintain consistency Establish service metrics with monitoring focused on customer engagement and experience Implement customer service as a strategy coherently across all areas versus silos of service Communicate purpose and progress transparently and consistently Build on existing talent as the foundation for enterprise service delivery Recruit top talent, making service delivery a higher level job with broad abilities to solve problems Integrate coaching, role modeling, and mentoring as an expectation across service teams Continuously invest in training on a rolling basis incorporating persistent tactics reinforcement Leverage social media, analytics, data warehousing, and similar technologies to enhance delivery The importance of customer service and the reality of service as a competitive differentiator depend upon a company s staff, the training and tools they are continuously provided, the culture of service developed and instilled, and the compensation and rewards systems used to acknowledge success. Success awaits companies able to blend the right strategy with a motivated team of properly trained, empowered, and incented staff. Human Capital Addressing the talent demands facing the insurance industry involves a number of challenges. The industry tends toward conservatism appropriate for its risk centric role expertise is earned through experience and has been acquired by tenured professionals after years of apprenticeship-like exposure to changing times, measuring impact often takes years and can be unforgiving of wide variances, and the challenges of legacy systems and operationally entrenched methodologies make change a gradual process. Environmentally, these factors The current game changer remains the tremendous potential offered by big data and advanced analytics. 25

19 act as barriers to entry for the youngest generations of talent (Millennials and Gen-Y). Another unfortunate reality is that our industry, while having made significant progress in the last decade, still remains one facing a multi-faceted diversity challenge at the top tiers. Attracting new talent often requires the evangelism of similarly situated talent to generate appeal and comfort, which can be a challenge. Complicating factors is the question of defining what kinds of employees are needed in tomorrow s world in order for a company to be successful. Will the blend of operations, sales, new business, actuarial, financial, marketing, and so on remain close to the same or will the technological and cultural advances of the last decade change the nature of insurance manufacturing and sales enough to require a new blend of talent to succeed? For companies to address the challenge of talent management into 2020, designing the company of 2020 becomes a necessity, a difficult endeavor during these times of rapid advancements and changing industry dynamics. Will social media adept, multi-tasking competent service staff be required for contact centers and business management, leveraging the in process advances being integrated slowly by companies today? Or will the continued slowly enhanced use of the functionally aligned service departments persist, allowing a targeted acquisition of talent? Do underwriters gradually become the equivalent of geneticists able to interpret complex tests indicative of probable future health issues, or remain interpretatively adept at gleaning probable risks from a wealth of medical records and tests? Do actuaries and data scientists end up working hand in hand developing discrete rate classes at heretofore unheard of levels of segmentation, or will the broad categories and rating structures remain fairly consistent with improvements in their application? Whatever path companies take, there is evidence of characteristics that, over time, will become increasingly more relevant determinants of recruiting and retention strategies. For one, new talent will find coming to an office where the technological condition is years behind what they have in their own homes problematic. Companies will need to more effectively harness and generalize the use of advanced technologies across their operation to hold persistent appeal for new generations of talent. Acceptance and integration of social media and multi-modal communications methods both internally and externally will be a necessity, along with the controlled expanded proliferation of personal computing devices to further empower individuals and teams to achieve their goals. New generations of talent, research indicates, prefer the dynamics of teamwork and the need for a purposeful goal. Successful recruiting will be built upon leveraging the use of high performing teams equipped and challenged to address a cross-functional organizational need. Remote work will also become an increasing necessity, reducing brick and mortar footprints while opening up the organization to a virtual supply of diverse skills found globally. Globalization along with the requisite cultural sensitization will open the door to even more talent once the remote framework is established. With progress, these changes will bring greater agility and flexibility as the organization is able to resource new demands quicker and adapt to change faster. Management practices, salary structures, incentive pay systems, rewards and recognition, hierarchical relevance, advancement versus relevance opportunities, work life balance, employment fluidity, and a staged shift from employeremployee to something akin to business partner are also requirements for longer term success in the new markets ahead. Looking at these various changes in contrast to the current state of the industry profiles the slowly increasing gap between the future labor pool and the current employment environment. The change is unlikely to be an overnight one, certainly more gradual as most organizations have excellent depth of talent and experience in place today. Yet with time, that intellectual capital will be increasingly eroded by retirements, deaths, and moves. Insufficient progress to replenish or replicate that talent appears to have been made given the decades it took to build some of the current talent. Logical steps are clear; companies need to: Assess their current situation Determine their exposures and long term needs Evaluate the sourcing and talent options available Develop a roadmap for thoughtfully pursuing sustainable talent acquisition and management Appealing to the younger generations against the Amazons and Googles of the world perhaps even in the insurance space will prove disconcerting for those not willing to invest today in a strategy to position their company to appeal to younger generations, offering a challenging workplace where growth and success are recognized and rewarded. As the challenge increases, the role of Human Resources in ensuring the strategic viability of a company will similarly increase. It seems like forever that the mantra people are our greatest asset has been in place yet a quick generational and 26 January 2015 RESOURCE

20 Companies still deal with fragmented service delivery, intertwined across call centers, fax machines, s, interactive voice response systems, and customer portals. cultural density test across multiple companies is easily done and quickly profiles the real extent of the issue. Talent management is an area ripe for innovation within organizations; the ones to figure out the secret sauce to acquiring and retaining new talent will have a distinct advantage. Unfortunately, the industry already is suffering from a diminishment in key talent pools sales, claims adjusters, marketing experts, service representatives. The time to start building for tomorrow s needs has passed, putting many companies in catch up mode. Preparing and attracting the next generation of talent is not a task to be underestimated in terms of complexity or necessity. Forward looking companies have already put in place strategic plans to address these needs and distinguish themselves with the next generation of talent. Complex Challenges The industry is on the cusp of unavoidable disruptive change. There will be an inevitable and likely rapid shift from current business models to new and in some cases revolutionary ones. Profitable, sustainable growth remains the key challenge as the industry continues to undergo shifts, mergers, consolidation, product set simplifications, and distribution channel extensions. For long standing companies, each new idea has to be implemented within a framework of decades of legacy systems, processes, and structures, all acting to mitigate the full potential of the new idea. There is no avoiding the year on year decline in policy count sold, the increasing disparity between the covered and the underserved, the extensive emphasis on investment products and the affluent market to the detriment of the masses, and the unknown extent of long term costs associated with experimental guarantees and internal product cannibalizations. For the average carrier trying to find a path to profitable growth, there remain many challenges to overcome: The accumulation of multiple versions of legacy system and process weight The cost of new technologies that offer tremendous leaps forward yet require money, time, and staff Demands for alternative distribution channels and methods, and associated channel conflict resulting Infrastructure and staff expertise limitations effectively blocking the implementation of great ideas Asset-liability and investment term issues, demanding careful portfolio management Near term demands for delivering on financials at a potential cost of investing in the future Options for addressing these challenges exist, but each brings both risk and some elements of potentially undesirable side effects whether in dilution of brand, channel conflict amplification, reduced margins, increased risk, or undesirable partnerships. Some possible avenues to achieve profitability include: Shifting models from a commission based sale to an advisory role in partnership with other advisors Cross-market partnerships incorporating the insurance practice in with other financial services Reducing or compressing distribution by traditional agent and broker channels Reduction in lines offered, specialization, niche market targeting, or consolidated service offerings Extension into direct customer acquisitions by leveraging social media, affiliations, and associations Closed block sales, selective outsourcing, risk assessment and management process automations Shifting focus to the much faster growing and far more profitable non-u.s. emerging markets The last, focusing on emerging markets, is a path several industry leaders have contemplated and are carefully pursuing. When looking at comparative growth rates within other countries versus the U.S., it is hard for a company large enough not to turn a great deal of its attention to these international markets. While it serves those companies well to do so, it also exacerbates the problem with better serving the U.S. market in a profitable, and affordable, manner. The companies able to break the shackles of legacy constraints and standard practices and shift to new business models, innovative distribution methods, and rapid product introduction will be the ones able to fully benefit from the opportunities the U.S. market continues to offer those willing to find the solution. 27

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