Recent research of De Nederlandsche Bank (DNB) confirms that the future of the Dutch life insurance sector is under pressure. Life insurers still have stable revenues but face decline. Their income from ‘new business’ is decreasing significantly and has been for a long time. It is crucial that Dutch life insurance companies don’t postpone fundamental choices regarding their business model any longer.
Their income from ‘new business’ is decreasing significantly and has been for a long time. It is crucial that Dutch life insurance companies don’t postpone fundamental choices regarding their business model any longer.
The main trends that put life insurers under pressure are the declining number of new insurance products sold, increased demand for transparency on products and margins and growing regulatory pressure including increasing capital requirements. Do insurers have what it takes to reinvent themselves to be of value in the (near) future?
Current situation is no insurance for a sustainable future
There are several reasons for the reduced number of insurance products sold. Two key reasons are the introduction of fiscally attractive saving products offered by banks and the disappearance of a market for unit linked insurance product. Attractive savings products by banks have led to the disappearance of the insurers monopoly on fiscally attractive savings products. The market for unit linked insurance products disappeared due to discussions and cases about misleading conditions, in the Netherlands known as the ‘Woekerpolis affaire’.
Life insurers also cope with numerous internal challenges that put the business model further under pressure. Mergers and acquisitions created very complex (it) organizations and cost levels are still relatively high.
These external and internal challenging circumstances force the life insurance sector to redesign its value proposition.
Rethink the Life Insurance Business Model as the life line
Insurance companies have to rethink their business model. They need to adapt to the way the market and their customers are changing. Their value proposition needs to fit the needs, and should answer the questions of their customers. The way insurers handle and maintain the relationship with their client needs to fit the desired experience while the cost and revenue structures need to become profitable for the long term again.
It is time insurance companies (re)discover their core competencies and develop a value proposition in which their core competencies can expand. With (re)discovering and expanding core competencies, insurance companies have the chance to add value and improve relevance to the customer.
Embracing digitalization is an example of how possibilities will open up for the life insurer. Digital technology is shaking up the historical roles of the insurer, intermediaries and service providers. Providing numerous insights that can reduce risk and costs for the insurer and add value for the customer simultaneously. In KPMG’s 2014 report ‘Transforming Insurance’ we have already seen that only 37% of the insurance companies have aligned their digital presence with the strategy. Embracing digitalization can provide direct contact with clients by rethinking the distribution model.
“The key question is whether life insurers have the time and capabilities to implement the changes needed to survive.”
However, does improving the customer interaction process really make enough difference when clients no longer see the added value of the insurance products offered? The key question is whether life insurers have the time and capabilities to implement the changes needed to survive. Without improving relevance to the customer, the insurers are destined to meet the same fate as companies like Free Record Shop and V&D.
The Financial Services Strategic Consulting team of KPMG is experienced in supporting organizations in the financial services industry with analyzing and redefining their business model.
Authors: Jelle Dijkers, consultant Financial Services Strategic Consulting and Suzanne Jongsma, consultant Financial Services Strategic Consulting