Life insurers face battle to survive, says State Street

EMBATTLED life insurers should expand into emerging markets, divest non-core assets and tailor products to ageing populations to tackle the changing industry landscape, a report by US financial services provider State Street said yesterday.

Challenges include increasingly scarce capital, more stringent solvency regulations and declining traditional revenues, according to the report.

It found that firms should sell non-core assets to raise capital and prioritise core products and geographies, said State Street senior vice president Wade McDonald.

“There are very strategic decisions that need to be made around the shape of the business model in the future and where they prioritise their investments,” he added.

To manage demographic change in the West, insurers should offer more long-term care insurance products that fit customers’ changing lifetime needs, such as corporate wraps that combine healthcare, insurance and pension products.

“The shift from defined benefit to defined contribution is a positive for insurers, but firms must develop more outcome-certain income streams for the post-retirement phase,” the report said.

McDonald said firms should focus more on new distribution models. “The baby boomers are now coming up to retirement so we’re entering a phase of de-cumulation that requires new capability to allow people to effectively plan to live longer,” he said.

Expansion into younger, under-served markets such as Asia and eastern Europe should also be a priority, found the report.

And it said that insurers should outsource aspects of their portfolios to maintain returns. “It is going to become harder for insurers to deliver investment returns of four per cent or more because they have to reduce exposure to equities due to Solvency II,” it said.