Lessons Taught, Opportunity Sought

The lessons of the last financial crisis were painful for many insurers but with some new experience under their belts, tremendous opportunity exists.

The message was delivered both by executives of Ernst & Young , New York, who discussed a research paper based on interviews with CEOs and panelists speaking during the annual life insurance executive conference sponsored by E&Y, The National Underwriter Co., and its parent, Summit Business Media, Erlanger, Ky., last week in New York.

The research paper is based on interviews with CEOs done in August and September and focused on accelerating growth while managing risk. Going forward, according to these CEOs, risk management will act as a filter for developing new products, attracting new business and strategically directing the enterprise. This is important, because according to the report which quoted one CEO, “Insurance leaders who think that turbulence is largely past may be in for a surprise.” The report suggests that any management team that is not re-thinking the business model has a problem.

The report suggests that some are re-evaluating their core competencies and taking on risk more judiciously. This shift includes reworking product offerings so that carriers and policyholders better share risk.

This reevaluation, the report continues, will also include serving the baby boomer population while also appealing to the Generation Y group. In order to serve the Y Generation, significant investments in technology may be needed as well as better use of social media outlets, the E&Y research suggested.

This past summer, many companies were undertaking a “rethink” looking at issues such as what is held on the balance sheet and what are the limits of that balance sheet, according to Doug French, E&Y principal-financial services. For instance, a decision may be made to reduce the amount of variable annuities that are written, he explained.

International accounting standards that are being developed will accelerate the examination described in the report, according to Henry Essert, E&Y’s executive director-financial services. French added that the new standards will create greater transparency.

Companies will also need to think of new ways to grow, he adds. French says that selling face-to-face in the middle market is too expensive and younger people don’t really want it. So, he continued, new ways of reaching consumers such as selling through social media must be developed.

Essert says that products offered will extend beyond term insurance. One needs to look at the definition of simplicity and realize that a lot of products are not as complicated as they seem and can be sold through social media outlets. It is a matter of explaining these products so that the consumer can understand them, he says.

During panel discussions experts offered some ideas to consider when they examine risk. Helen Galt, senior vice president, chief risk officer and company actuary with Prudential Financial, Newark, N.J., says that the recent financial crisis was to a large extent precipitated by fraud, so going forward that is one of the issues insurers will have to look at when assessing future risks.

Ellen Lamale, senior vice president and chief risk officer, Principal Financial Group, Des Moines, Iowa, expressed concern over cyber crime and said that she works with an internal company panel with the charge of looking at risks that are really “out of the box” and go beyond normal risks that insurers usually consider.

Mark Puccia, managing director with Standard & Poor’s Corp., New York, said that in general, companies have “adequate” risk management programs in place. He cautioned, however, that as the economy improves, companies will need to be careful not to reach too far for yield, particularly if an extended low interest rate environment materializes. Risk management programs do make a difference, he explained to attendees. Those companies that had programs in place and were performing well, did “less worse” than companies that did not have strong programs in place, he noted.