Crisis, Catharsis & CustomersLife Insurer Responses to the Great Recession

Presented byAdrian AllottSenior Consultant

25th May 2010

2 21 April 2023

Agenda

Prognosis for the 2010s

Outlook for Romanian life insurance

Life insurer responses

The need for life insurance

LI propositions in the new market context

LI products for the 2010s

LI distribution in the 2010s

3 21 April 2023

A sombre prognosis for the 2010s.

Productivity needs to catch up with incomes

Financial imbalances (e.g. public & private sector over-borrowing) need to be addressed

Demographic pressures will worsen. In developed countries the baby-boomers are starting to retire, while in developing countries fast growing populations are putting pressure on resources.

The price of oil will rise as easy-tapped fields are exhausted

Global warming may begin to have serious economic impacts (e.g. crop failures, rising sea levels, storms)

Economic growth in the next decade is going to be difficult to achieve in developed countries

4 21 April 2023

The Outlook for Life insurance in Romania

Continuing high levels of unemployment will restrict the size of the market

Salary increases will be minimal and personal finances remain strained, limiting disposable incomes

MoF / parliament unlikely to give deductibility given precarious stat of national finances

Employers seeking to cut costs unlikely to spend on employee benefits

Existing policyholders (esp. unit-linked) have been burned by poor investment performance and high charges

In Romania, no-one has the money to pay for life insurance?

5 21 April 2023

Life Insurers Batten Down the Hatches

Immediate cost cutting (e.g. in sales and marketing areas, but not only) to improve the value of the business

New administration systems, outsourcing and shared service centres to generate future efficiencies

Branch arrangements to improve capital fungibility, save tax and simplify regulation

Mergers and acquisitions to gain scale and improve unit costs

Sales and marketing activity is now too hard, too expensive & too unlikely to generate returns. Better to focus on internal activity.

But, running off a closed book is not a sustainable long-term strategy to create value for your shareholders….

6 21 April 2023

The Need for Life insurance in Romania

Risk covers (death, disablement, critical illness, incapacity, unemployment, accident etc.) more important than ever due to increased uncertainty and depressed expectations about future income

Retirement savings more important than ever due to inability of Pillar I pensions to provide adequate retirement incomes.

Education savings more important than ever due to declining ability of state education system to provide quality outcomes

The needs have not disappeared , although the money to fund them has, seemingly.

7 21 April 2023

Life Insurance Propositions for the New Market Context

Sooner or later Romanian life insurers will have to turn their attention back to their customers, who represent the ultimate source of value creation in their businesses.

Initiatives in both distribution and product design will need to be – tailored to the times in which we live, rather than to the economic

boom of the last decade

– based in the real needs of our clients and delivering them real value for their money

– capable of generating sufficient business volumes to warrant the expense of building the proposition

– thought-through and implemented thoroughly

8 21 April 2023

Life Insurance Products for the 2010s

Unemployment benefits (e.g. income replacement, loan instalment waivers and premium waivers) will be attractive.

Group life products should be able to gain traction, as should attractively-priced individual term insurances.

Savings products will need more efficient charging structures and some form of investment protection:– Low-risk unit-linked investment programmes

– Interest surplus endowments

– Crediting rate products

– Variable annuities (unit-linked with clip-on guarantees)

9 21 April 2023

Life Insurance Distribution for the 2010s

High-commission MLM-distributed product may become unsustainable as clients seek better value for money, regulators seek more transparency and insurers seek higher quality.

Non-loan-related bancassurance remains a largely untapped source of new business, with effectively only one full working partnership in the Romanian market.

Internet sales are on the way. By the end of the decade (regulation permitting) the internet may be be the major channel for sales of risk products, and will increasingly be used for savings and investment business.

Tied agency may evolve into an industry of professional independent financial advisers, as customers become more discerning.

10 April 21, 2023

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