Mastering the Game.Insurers are up against new formidable competitors who have less to lose. The underlying economics of the insurance business is changing, making traditional strategies and operational approaches unsustainable. The competition is now a financial-services game, played on a global scale against recognized competitors, as well as against "attacker" competitors, who don't value the "old" rules of the game but want to win every bit as much as the traditional players and have less to lose. What will it take to be a player? Here are the top issues that insurers will need to master in the years ahead. The Global Landscape The greatest growth potential for traditional products exists in developing countries. Insurance premiums as a percentage of gross domestic product are much lower than in the developed economies--2% in many instances vs. 6% to 8% in most developed markets. In addition, the projections are for higher GDP GDP (guanosine diphosphate): see guanine. growth over the next several years in developing markets. The introduction of the euro The introduction of the euro took place principally between 31 December 1998, when the exchange rates between the euro and legacy currencies in the Eurozone became fixed, and early 2002, when euro notes and coins were introduced and the legacy currencies withdrawn. , along with changes in cross-border regulation, also makes the European market attractive to U.S. insurers. Meanwhile, leading European players, which have become dominant global players, have been acquiring insurers in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. . Nine of the world's 20 largest insurers are European, up from just four in 1987. U.S. insurers need to accelerate their global expansion before European companies It may never be fully completed or, depending on its its nature, it may be that it can never be completed. However, new and revised entries in the list are always welcome. This is a list of companies from the countries in the European Union. have successfully staked out dominant positions around the world. Consolidation The rationale behind specific mergers and acquisitions includes more market share, broader product range and international expansion. But behind all mergers is a desire to achieve greater scale and all the benefits it can bring-- lower unit costs, increased global reach and additional resources to make strategic technology investments. The best companies achieve these benefits by executing mergers more effectively than others; it has become one of their core competencies A core competency is something that a firm can do well and that meets the following three conditions specified by Hamel and Prahalad (1990):
The repeal of Glass-Steagall will lead to some acquisitions of insurers by U.S. banks and of banks by the stronger U.S. insurers, but don't anticipate wholesale acquisitions in either direction. The motivation for such transactions is to gain a greater share of financial purchases by consumers, acquire growth products, enter new markets, reduce operating costs operating costs npl → gastos mpl operacionales or acquire new capabilities. If an insurer cannot offer a bank-- or conversely con·verse 1 intr.v. con·versed, con·vers·ing, con·vers·es 1. To engage in a spoken exchange of thoughts, ideas, or feelings; talk. See Synonyms at speak. 2. a bank cannot offer an insurer--at least one of these reasons, then transactions are likely to fail. The real winners may be the giant European financial-services players such as Axa, ING, Zurich, Aegon and Allianz, who can now buy banks, in addition to the purchases they have already made of U.S. insurers. These companies have experience operating enterprises that sell both insurance and banking products to consumers, something that most U.S. institutions lack. But whether diversified financial-services institutions succeed will have less to do with regulations and everything to do with consumer attitudes: Do consumers really want to consolidate their finances with one institution? Products and Services The demographics of North America Demographics of Canada, the United States and Mexico. Black
Chinese
Asian Indian
Consumers also are seeking advice on how to navigate the maze of available financial products. Insurers that can evolve their sales force from "product peddlers" to financial advisers will create a sustainable competitive advantage. Customer Reach Access to a vast array of products at any hour of the day or night through a multiplicity mul·ti·plic·i·ty n. pl. mul·ti·plic·i·ties 1. The state of being various or manifold: the multiplicity of architectural styles on that street. 2. of channels has driven a tidal wave tidal wave, term properly applied to the crest of a tide as it moves around the earth. The wavelike upstream rush of water caused by the incoming tide in some locations is known as a tidal bore. of rising customer expectations. Low prices and excellent service are no longer enough. Today's consumer is pressed for time and craves convenience. Yet most companies still depend overwhelmingly on agents to distribute their products, making little use of alternative channels like call centers, direct mail and the Internet. Insurers will need to get serious about alternative distribution, or they will soon become irrelevant to the lives of their customers. Achieving integration of information across channels will require installing the latest customer-relationship-management tools. Insurers will need to abandon their current product-oriented organizations and restructure instead around customer needs. This will require management to look at the customer from an enterprise perspective and not from the point of view of an individual product, business or channel. Dot-coms The Internet promises to transform the insurance industry over the next few years. But little is being done by insurers to realize its potential. A Deloitte & Touche study of the 20 leading property/casualty and the 17 leading life insurers in the United States found that only one offered policy sales online. With consumers coming to expect Internet access See how to access the Internet. as a minimum requirement, insurers need to catch up quickly. In fact, insurers probably should worry less about the competitive threat from traditional financial-services providers and position themselves for a new world order created by "dot-coms." They will increasingly affect the economics of the business, the ability to attract top-quality people and leaders and attractiveness in the capital markets. The Internet will likely accelerate the disaggregation dis·ag·gre·ga·tion n. 1. A breaking up into component parts. 2. An inability to coordinate various sensations and a failure to observe their mutual relations. of the value chain; most companies will be forced to choose between being a vertical portal A Web site that provides news, articles and services to a particular industry such as IT, finance and retail. It is the industry-specific equivalent of the general-purpose portal on the Web. Also called a "vortal." See portal, corporate portal, business intelligence portal and Web hub. specializing in the customer gateway, an aggregator of products produced by third parties, a product formulator or a service provider. Few insurers will have what it takes to remain an independent, vertically integrated provider. Technology Plays From achieving economies of scale to integrating customer data across multiple channels, technology will be critical to success. Yet insurance companies are underinvesting in the technology tools on which their survival depends. Insurers spend a much smaller percentage of their revenues on information technology than do other industries. Additionally, they spend about 15% of their information-technology dollars on new technologies, compared with more than 20% for financial services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. companies. The greatest investments will take place in customer-relationship-management technologies, data mining and sales-force automation. To meet these needs, companies are increasingly looking to purchase packaged software See software package. rather than design customized applications. Custom application development continues to be a competitive advantage in the infrastructure underpinning un·der·pin·ning n. 1. Material or masonry used to support a structure, such as a wall. 2. A support or foundation. Often used in the plural. 3. Informal The human legs. Often used in the plural. the core product/administrative arena. In the future, however, applications will be designed using an open architecture with object-oriented code so they can be easily updated and extended across product platforms. Insurers are competing with other companies for customers, and they are in a fierce battle for talent. The labor market labor market A place where labor is exchanged for wages; an LM is defined by geography, education and technical expertise, occupation, licensure or certification requirements, and job experience is tighter than it has been in decades for technology, sales and management professionals. The lure of joining an Internet start-up that offers stock options has only fueled competition. To get the talent they need, insurers will have to be creative, rethinking salary and benefits, leave, working conditions, training and recruitment. Where gaps persist, outsourcing and "offshore" programmers also will be employed. But given the wrenching changes necessary to meet all the challenges facing the industry, the skill in scarcest supply is one that always has been extremely rare: leadership. Value Shareholder value has become the yardstick by which corporations around the world measure their performance. And most insurers are coming up short. There are some important exceptions. An analysis by Strategic Finance of shareholder performance from 1994 to 1998 found that three of the top five financial-services companies worldwide were insurers: Aegon (No. 1), SunAmerica (No. 3) and Jefferson Pilot (No.5). Despite a few star performers, most insurers are facing bleak prospects due to stagnant stagnant /stag·nant/ (stag´nant) 1. motionless; not flowing or moving. 2. inactive; not developing or progressing. premium growth and heightened competition from banks and securities companies. In a 1999 survey by the Insurance Information Institute, 91% of the executives surveyed expected that the insurance industry would be less profitable in 1999 than in 1998. Insurers have increased efforts to grow revenues through international expansion, acquisitions of additional market share and forays into other financial products, such as asset management. But the benefits from these initiatives are long term, so insurers must continue to focus on reducing costs to boost returns. Unless they can increase returns, insurers will be takeover candidates or struggle to raise the additional capital necessary to acquire companies, build information-technology capabilities and attract the talent that they need to compete. As insurers demutualize demutualize or -ise Verb [-izing, -ized] or -ising, -ised (of a mutual savings or life-assurance organization) to convert to a public limited company , they will become subject to the scrutiny of the investment community. Wild Cards Symbols used to represent any value when selecting specific files. In DOS, Windows and Unix, the asterisk (*) represents any collection of characters, and the question mark (?) represents one single character. In SQL, the percent sign (%) and underscore (_) are used for matching text. Lurking See lurk. (messaging, jargon) lurking - The activity of one of the "silent majority" in a electronic forum such as Usenet; posting occasionally or not at all but reading the group's postings regularly. in the shadows are several unknowns that could significantly affect the strategic environment for insurers. * Increasing debt loads. The level of personal and corporate debt in the United States is greater than it has ever been. A rise in interest rates or a drop in the stock market could lead to increased defaults and bankruptcies. * U.S. trade deficit. If the spending/investment environment globally takes a turn for the worse, the flow of funds Flow of funds In the context of municipal bonds, refers to the statement displaying the priorities by which municipal revenue will be applied to the debt. In the context of mutual funds, refers to the movement of money into or out of a mutual funds or between or among to finance the U.S. trade deficit could significantly constrict con·strict v. To make smaller or narrower, especially by binding or squeezing. , resulting in a shock to the U.S. markets. * Electronic billing Electronic billing is the electronic delivery and presentation of financial statements, bills, invoices, and related information sent by a company to its customers. Electronic billing is also referred to as the following:
* Rate of technology innovation and deployment. If the rate of technology innovation and adoption accelerate even further, all industry trends will be on fast forward. * Geo-political turbulence turbulence, state of violent or agitated behavior in a fluid. Turbulent behavior is characteristic of systems of large numbers of particles, and its unpredictability and randomness has long thwarted attempts to fully understand it, even with such powerful tools as . The upheavals under way in every region of the world--from the recent economic and natural disasters in Asia to the armed confzicts in Europe-- could slow the globalization globalization Process by which the experience of everyday life, marked by the diffusion of commodities and ideas, is becoming standardized around the world. Factors that have contributed to globalization include increasingly sophisticated communications and transportation of the industry. Jeffrey Sawyer is Americas Insurance Industry Segment Leader, Deloitte Consulting, New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of .
The World Is Aging Fast
Year in which the portion of the
population age 65 and older
reaches 18.5%:
Italy 2003
Japan 2005
Germany 2006
United Kingdom 2016
France 2016
Canada 2021
United States 2023
and People Are Retiring Earlier
1995 1960
France 59.2 64.5
Germany 60.5 65.2
Italy 60.6 64.5
Canada 62.3 66.2
U.K. 62.7 66.2
U.S.A. 63.6 66.5
Japan 66.5 67.2
Source: U.N. Population Division,
Organization of Economic Cooperation and Development, International
Monetary Fund, all in U.S. News and World Report, March 1 1999.
Wild Cards * Increasing debt loads * Electronic billing and payment * U.S. trade deficit * Rate of technology innovation and deployment * Geo-political turbulence |
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