Debt, disasters, upheaval formed perfect storm
A perfect storm of economic uncertainty, the specter of new regulations, payouts for major disasters, political upheaval and heightened competition impacted insurance industry results last year.
These factors touched all varieties of insurance—property and casualty, life, B2B and perhaps to a lesser extent, health—and they elicited a variety of reactions.
The European sovereign debt crisis weakened the investment portfolios of many major insurers. Major earthquakes in New Zealand, Turkey and Japan—followed by a tsunami and nuclear crisis—required payouts that exceeded expectations. The year also included extraordinary weather-related events, such as Hurricane Irene in the eastern US and tornados in the Midwest.
Insurers planned for Solvency II, rules promulgated in Brussels that require EU insurance companies to maintain larger reserves to protect solvency. Meanwhile, insurers competed fiercely, facing the disruptive effect of online sales and aggregators, and struggling to improve distribution channels.
The key question was whether to sell direct or go through partners and intermediaries. With no single right answer, the insurers experimented with various approaches, attempting to improve the brand experience by simplifying purchasing.
They followed a linear logic. By winning in search, the brands expected to increase their share of quotes and convert the quotes into an increase in policies signed. As an added benefit, a shift to direct online sales could reduce reliance on agents and the size of commissions.
Strengthening the direct channel
To maximize search results and capture more leads, Allstate last year purchased an insurance aggregator called esurance. Esurance provides online visitors with quotes from Allstate and Allstate competitors because, as the website’s headline explains, “The key to saving is comparing, and you can do all the comparing you need right here.”
Ensurance complements the Allstate brand website and the brand’s agent network. And it enables Allstate to compete in the direct channel with companies like Progressive and Geico. The Progressive value proposition is about easy, transparent one-stop shopping where the consumer can obtain several quotes from competing companies. While Progressive may not always win the business, it receives a high share of quotes.
In the life insurance business, Metlife expanded its distribution into the midmarket by investing heavily in developing a website option for purchasing term life insurance without face-to-face agent involvement. The online approach addressed the fact that the US is relatively underinsured as a nation.
Also, simplifying life insurance with the online option lowered a barrier to purchase. Selling direct should make life insurance accessible to a younger, technology-oriented generation more comfortable engaging online than completing paper questionnaires. The online option potentially lowers costs and helps advance Met’s brand proposition of providing the right coverage at a reasonable price.
In B2B, Zurich similarly invested heavily in digital as a supplementary channel to its agent-generated business, in an effort to more effectively reach small business owners. Zurich intended to influence risk managers at small businesses to make the brand became a larger part of the decision process.
Financial turmoil, other factors impact insurers
Regardless of how insurers attempted to improve their results, however, too many factors last year were beyond their control. France’s AXA credited the diversification of its business for generally protecting it from these vicissitudes. But financial results for many brands reflected their vulnerability to political conditions and market fluctuations.
Those factors in part account for a 46.2 percent decline in net income for Allianz, the Germany-based insurer. China Life anticipated a profit decline of over 40 percent. Although the investment portfolio of Ping An performed well, a one-time accounting adjustment for the consolidation of Shenzhen Development Bank negatively impacted profits. Ping An, China’s second-largest insurer, intends to acquire Shenzhen Development Bank as part its strategy to become an integrated financial services company.
Insurers mostly escaped at least one of last year’s hazards, the ongoing erosion of brand reputation in the financial sector. Less public than the banks, insurance brands emerged less vilified.