Transforming The Core

A New Lease On Life

Examining the forces that will reshape the life insurance industry through 2022

by Ed Majkowski, CPA

Mr. Majkowski is Insurance Advisory Leader for EY, responsible for its advisory businesses, markets and clients in this region. He is a Board Member and Past President of the Society of Insurance Financial Management. Visit

The past decade’s low growth rates, lack of trust in institutions and declining policy sales are forcing life insurers to redefine their value propositions to stay relevant for new generations of consumers. Optimizing costs while investing in the right technologies and talent are also top agenda items. The willingness to take bold action will separate the leaders from the laggards. It will also enable some insurers to convert significant opportunity today into significant value tomorrow.
Multiple studies have found that there is a considerable life insurance coverage gap for Americans.

While a significant portion of middle-class customers have not saved enough for retirement, the industry has fallen short in communicating the importance and value of its products to consumers. A return to profitable growth has to be at the top of the strategic agenda for life insurance executive for both the near and longer terms.

The transformation opportunity is huge for life insurers and promises significant upside. Yes, there are hard choices and significant technology investments to make, but firms that get the talent and toolsets right will be able to gain market share at sustainable margins. They will also free themselves to design and launch holistic value propositions keyed to financial wellness and major events in the lives of consumers.

Now’s the time for life insurance executives to be focused and pragmatic in their problem solving, but also creative and optimistic in looking to future innovations.

Key Trends: Richer Value propositions

The following trends highlighted below are based on a survey of EY’s insurance professionals’ point of view and are rated based on their likelihood and impact during the next three years1.

All of these trends are important to the industry, but many of these will influence the industry only on a longer time horizon or are less likely to come to fruition. For instance, we believe both AI and the IoT will have profound impact on the life sector, though the full force of these technologies won’t be felt for a few more years.

Others – such as the significant opportunities related to “connected insurance” products, especially in health and subscription models – will depend on the actions of insurers in the near and mid-terms. We also recognize that the impacts will be felt differently by different insurers. 2

1. Deliver financial well-being: Richer value propositions can strengthen consumer relationships
With the US facing a serious retirement savings gap, many financial services firms (including life insurers) are positioning their brands around financial wellbeing. Employer interest is growing because financial stress is a drag on employee productivity and health. Financial wellbeing is a hot topic in boardrooms and C-suites, too.

For life insurers, whose products have always been about financial security, there is a clear opportunity. The first step is to understand financial stress impacting consumers and then deliver products, services and tools that can help alleviate that stress. Obviously, no one life insurer (or bank or brokerage) can meet every consumer financial need across their lifetime. That’s why collaboration, as well as the multi-partner ecosystems are likely to grow in importance. Individual firms will seek the right niche in a broader value chain and slate of offerings; insurers can play a lead or contributing role in developing such platforms.

The focus must be on trust and transparency in both marketing new offerings and developing services. Consumers must easily grasp why they need a certain product, what the value is and how much it costs. Such information may be best communicated relative to specific life events (e.g., buying a home, starting a family, retiring) where consumers need guidance.

In this sort of relationship, product sales will fluctuate; advisory services and fee-based models are likely to grow, while commission-driven product sales are likely to shrink. Subscription models are likely to gain traction, as well, with consumers paying for access to advisors and product features that they can more flexibly turn on and off as their needs dictate. This evolution reflects the need for insurers to shift from product-centric business models to value propositions founded on customer-centricity.

The right mix of technology and talent holds the key to success. A mix of advisory services and robust digital tools are necessary to engage consumers how and when they prefer. Digital channels will be necessary for research, education and some transactions. But the ability to speak to a highly skilled professional and dedicated specialists at the right time will be very appealing to customers, even digitally-oriented millennials.

2. Win the war for talent: Key roles must be re-skilled and the employee experience redesigned
Life insurers are focused on revamping their workforce and talent base for a number of reasons:

Significant numbers of workers, including agents, will retire soon
More administrative and back-office tasks will be handled by bots, AI and machine learning
Life insurers are losing talent to banks and asset managers, primarily due to compensation

The aging workforce provides an opportunity to reskill, hire younger and more diverse workers, and bring on more technology and digital skills. Leading insurers are now seeking “STEM” (science, technology, engineering and math) skills and experience. The main focus for life insurers should be to ensure that jobs and skills are well matched.

Operational excellence and cost optimization are critical not just to improving near-term results, but also to meet longer-term goals related to transformation and innovation. Indeed, operational excellence can help free funds that can be invested in customer-centric innovations...

Consider the impacts in different parts of the organization:

  • Life insurers will examine more data and more diverse types of data, as traditional forms of number crunching are handled by AI.
  • Wealth Advisors, agents and brokers in the future must develop a more diverse set of skills, from using digital tools to relating to customers and articulating the value of products and services, especially relative to life events. Life insurers must find ways to help their distribution partners become more innovative, and stay focused on growth.

Beyond the need for new job descriptions and more tech-savvy workers, life insurers must take other steps to attract and retain the talent they need. Changing the culture and enhancing the work environment are the priorities. Dress codes are being loosened or eliminated. More teams now combine suits, jeans and sneakers.

Culture change at this scale requires careful planning, including employee experience design, journey mapping and segmentation for employees. Senior leaders may also consider how the corporate mission translates to millennial, Gen Y and Gen Z workers, who are looking for a clear sense of purpose from their employers.

3. Achieve operational excellence and cost efficiency: Costs must come down and processes be made more efficient to fund transformation and growth initiatives
Operational excellence and cost optimization are critical not just to improving near-term results, but also to meet longer-term goals related to transformation and innovation. Indeed, operational excellence can help free funds that can be invested in customer-centric innovations.

A first step is transcending the significant constraints of outdated and inflexible legacy systems. For many life insurers, the age of core processing platforms prevents them from achieving operational excellence by limiting the adoption of digital toolsets, restricting process automation, complicating the collection and analysis of data, and blocking cloud migrations.

Insurers will need to develop a clear plan to achieve operational excellence across the organization, with direct links to tangible benefits and the broader business strategy. As operational excellence is a complex undertaking, business and tech leaders must work together in identifying the processes that need optimization and automation. They can also map technology plans to future business needs, such as new products and specific capabilities.

The business case for updating the core should include tangible efficiency measures and cost improvement metrics, given that many executives are frustrated by the limited returns on investments in upgraded technology. But new investments must also directly link to innovation initiatives. The good news is that most significant cost savings and performance improvements are likely to come from bigger and bolder innovation.

For many insurers, migrating to the cloud should be a priority. Cloud-based environments make it easier to integrate sales and service channels. They also promote greater flexibility, efficiency and data sharing across the value chain. As more insurers have become aware of these benefits, the industry is experiencing record levels of cloud adoption.

New technology isn’t the only way life insurers can transform the core. Some are selling closed books of business where managing them is too large a burden. Others are engaging third-party administrators (TPAs) and spinning off businesses. Indeed, life insurers would do well to consider the full range of sourcing options as they seek both lower costs and more innovation. Executives should apply the lessons learned from past investments without losing their taste for bold action and move past “modular” thinking and the widespread fear of platform overhauls.

 4. Manage persistent regulatory pressures and focus on customers’ best interest: Compliance investments can promote capital efficiency, competitive advantage and customer satisfaction
Regulatory issues are still very much on the radar. The overall environment and requirements are as complex as ever. Regulators are focused on multiple issues, from data security and privacy, to financial regulation and reporting, to fair sales practices and ensuring companies operate in the best interest of customers.

Financial regulation and reporting requirements are also increasing. Insurance contract accounting changes under US GAAP and IFRS is still a concern for most life insurers. Similar to what is happening in other regions, recent regulatory actions and proposals indicate that customers’ best interest will remain a major focus area, one that will require considerable management attention for insurers and intermediaries. Insurers’ commitment to maintain their fiduciary duty is also under increasing scrutiny.

Imperatives for life insurers

  • Start with customers: Work back from the consumer perspective in defining how financial well-being translates to specific offerings across the customer lifecycle, including around key events, such as buying a home, starting a business, having children, saving for college, etc.
  • Focus on people, talent and culture: Move people and culture-related issues and objectives to the top of the C-suite and board agendas.
  • Find a path from regulatory compliance to competitive advantage: Link compliance investments to those that create business value; find the overlaps between regulatory requirements and performance improvement opportunities, especially relative to technology upgrades
  • Plan to pay off the longstanding technology debt: Start with core system modernization, including cloud migrations and new sourcing strategies, then follow the plan diligently and measure progress carefully; Ruthless simplicity of business offerings supported by cloud based and modern technology is critical.



1- US and America Insurance Outlook
2- NextWave Insurance reports
2- NextWave Consumer Financial Services