Planning & Pandemic

How The Life & Annuity Industry Has Been Remade by COVID-19

Scenarios for resilient leaders

A new study by Deloitte tries to envision a road map out the pandemic for life and annuity industry. Access the report here.

In the wake of COVID-19, Deloitte and Salesforce hosted a dialogue among renowned scenario thinkers to consider the potential societal and business impact of the pandemic. What this illuminated was that insurers must prepare for the future, but uncertainties make it difficult to predict. These scenarios explore how the life insurance and annuities (L&A) industry landscape may develop over the next one to three years and helps leaders explore some of the potential medium-term implications of COVID-19.

The life insurance and annuities industry has faced significant headwinds over the past few years, which have been further exacerbated by the COVID-19 pandemic:

  • Sustained low-interest-rate environment
  • Elevated expectations around customer experience
  • Challenging operating environment for agents
  • Workforce and workplace uncertainty

Given the numerous uncertainties, we explore how the insurance sector might evolve over the next one to three years so leaders can:

  • Explore how trends we see during the pandemic could shape what insurance may look like in the medium term.
  • Have productive conversations around the lasting implications and impacts of the crisis.
  • Identify decisions and actions that will improve resilience to the rapidly changing landscape.
  • Move beyond responding to the crisis, and towards recovering in the medium term.

Four Covid-19 Scenarios For Insurers

The Passing Storm

  • Life insurance faces a near-term impact as a result of the economic downturn; however, the industry recovers as the economy bounces back, returning to normal.
  • Market volatility and low-interest-rate environment hurts investment income.
  • As the pandemic recedes and the economy recovers, insurers may lose urgency around business transformations, reverting to old ways of doing things.
  • Market consolidation slightly accelerates as valuations of insurers decrease and large carriers look to assert strength by increasing their book of business.
What this illuminated was that insurers must prepare for the future, but uncertainties make it difficult to predict...

Good Company

  • Customers’ trust in L&A carriers increases due to surge in financial wellness–led offerings and increased engagement with financial advisers.
  • Investment income continues to be depressed in zero- or negative-rate environment, with carriers looking for new sources of yield.
  • Customers share more data with companies in exchange for insights-driven relationships and customer-centric approaches with tailored solutions.

Sunrise In The East

  • Slow recovery and long-term near-zero interest rates result in strained balance sheets and declining investment income and revenues; insurers partner with private equity and offshore (APAC) investors to increase capital and ability to sustain profitability.
  • Incumbents accelerate adoption of digitization and automation across the insurance value chain to stay competitive in a global market.
  • Insurtechs partner with incumbents to drive operational efficiencies and lower costs to serve and offer innovative products (such as the convergence of life, health, and wealth).

Lone Wolves

  • Large insurers consider selling certain business units or in-force blocks to improve cost structures and tighten expense management to maintain operations and shore up other lines.
  • Long-term low-interest environment challenges insurer profitability, pushing some companies to merge or exit certain business lines.
  • Customer retention increases as a result of a sustained low-interest environment.
  • Digitization and automation are driven by mandate as customers become paranoid about physical interaction.