first by generating maximum cash from existing products and services, then by reinvesting it in more specialized capabilities.
The life insurance industry faces permanent disruption from a number of new and ongoing challenges. These include a structural decline in the attractiveness and profitability of traditional life insurance products, new regulatory rules and restrictions, intense competition from alternative suppliers, and the digitization of the marketplace—all of which are driving new customer expectations.
To adapt and prosper, life insurers must maximize cash generation from declining parts of their business and reinvest that capital into specific, significant opportunities for growth.
BCG has identified four winning business models—each based on a core industry capability—that allow life insurers to create long-term value, penetrate new and burgeoning markets, and rebuild competitive advantage:
Regardless of the business model that insurers choose to focus on, the ability to integrate technology will be critical, whether in enhancing the customer experience, supporting the sales process (such as with robo-advice), using richer data to assess risk, or delivering the proposition at low cost. It is the digital insurance provider that will prevail.
By focusing on cash generation and the development of new business models, insurers can expect intensive organizational and financial implications. BCG can help guide the transformation by providing insurers with a roadmap for change and a structured process to define and deliver a smooth and effective transition, as well as by helping to build the skills required to achieve excellence in asset management, build attractive growth positions, integrate technology and a customer focus, and ultimately return capital to shareholders.
Many life insurers have managed to keep digitization at bay and hang on to their traditional agent-based, manufacturing-led sales and service models, even as other service-based companies have moved into a brave new online world. That won’t last much longer, though. A new digital ecosystem is taking shape within insurance markets, driven largely by new consumer demands for simplicity, self-service, transparency, and choice, and it is affecting every aspect of the insurance value chain. Companies that don’t adapt will quickly fall behind.
Digitization does not mean that life insurers have to completely give up their high-touch, high-information, brokered approach to sales and customer service. Digital solutions such as social media, mobile applications, video, and big data analytics can smooth the transition by tapping into new sources of customer data and making it faster and more efficient for insurers. This, in turn, will ensure customers get information the way they want it, while letting agents address those information needs and decision points that require a human touch.
Embracing digitization can also help life insurers:
BCG can provide life insurers with their own unique roadmap to digitization by taking into account the following four factors: