TowerGroup: Life Insurance Industry Must Shift Product Mix, Adjust Distribution and Focus on Cost Containment During Economic Crisis
2008-11-09 00:08:01 -
- Although the U.S. life insurance industry is not as deeply impacted by the current economic crisis as other segments of the financial services industry, the interconnectedness of banks, asset managers, brokerage firms, and insurers themselves means it is not immune. New research from TowerGroup finds that the economic events of the past year have caused rapid changes in consumer behavior and have diminished the overall attractiveness of some life and annuity insurance products. These changes will force insurers to rapidly shift their product mix and refocus their distribution to remain competitive.
Life insurance companies have a heightened exposure to debt and equity markets through their massive investment portfolios, and many of the popular variable annuity products carry investment risk to both consumers and insurers. The circumstances that brought AIG into the current financial crisis are not pervasive in the insurance industry, but AIG's downfall has caused panic among policyholders and contributed to an ongoing erosion of investor and consumer confidence throughout the industry.
TowerGroup believes that insurers will continue to suffer short-term pain through 2009 as the long-term impact of the credit crisis on the economy becomes clear. For the remainder of 2008, investors and policyholders will see continued write-downs in insurance investment portfolios as they unwind themselves from bad bets on financial stocks and exposure to the credit default swap market.
The industry overall remains well capitalized and is positioned to take advantage of new opportunities for products and services in the future. In the short term, TowerGroup expects that profit pressures will cause life insurers to pull back on noncore initiatives, while customer-facing projects, product development, and risk management continue to garner full funding and support. Yet TowerGroup also believes that many life insurance companies are underestimating the impact of an extended market downturn and its potential effect on products that carry guarantees, causing them to hedge risks inappropriately.
The TowerGroup report titled "Guilt by Association or Real Trouble? Outlook for US Life Insurers' Profitability and Spending" is authored by Rachel Alt-Simmons, research director in the Insurance practice at TowerGroup. To request a copy of the research or to arrange an interview with Alt-Simmons, please contact Rachael Adler at +1.917.595.3047 or jlavina@cooperkatz.com. Those interested in subscribing to a TowerGroup research service may call +1.781.292.5200 or email service-info@towergroup.com.
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About TowerGroup:
TowerGroup is the leading research and advisory services firm focused exclusively on the financial services industry. A respected source for trusted information and advice, TowerGroup brings many of the world's leading financial institutions, technology companies, and professional services firms a deeper understanding of the business and technology issues impacting their organizations. Headquartered near Boston in Needham, Massachusetts, and with offices in North America and Europe, TowerGroup serves a global client base. Visit www.towergroup.com for more information.
For TowerGroup:
Jorge Lavina, +1-917-595-3047
jlavina@cooperkatz.com
