This is Juergen Weiss from the insurance research team. The Head of the German regulator, Jochen Sanio, did articulate concerns about the future business model of life insurers. The current interest rate on the capital markets and the interest rates guaranteed by life insurers wouldn’t match he said. Mr. Sanio added hat insurers will have to plan in more detail which guarantees they can afford and how they will be able to finance these.
Gartner has published a number of research notes on this aspect including one which deals with variable annuity products and another one that analyzes the aftermath of the economic crisis. Although the life insurance industry has weathered the economic turmoil quite well in the last few months (compared to their banking peers) there are no reasons to believe that the situation will become better in 2010. Unemployment rates are high, many markets are saturated and customer loyalty is eroding.
IT will play an increasingly important role in this environment to help life insurers to deal with these challenges. Being able to reduce operational costs, to improve straight-through-processing and to increase the number of interactions with clients will for example be key to remain competitive. And all of these goals will have to be achieved in an environment of flat IT budgets. According to Gartner’s latest IT Key Metrics data IT spending in the insurance industry will even slightly shrink in 2010 compared to the previous year.
But without better IT support including the modernization of outdated legacy applications the business model of life insurers will be at an even greater risk as it is already because of the economic environment.