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Innovate and experiment to fail and win: a new formula for survival and successDuring a challenging time, the industry is poised to do well by doing good2015 Retail Life Insurance and Annuity Executive Survey

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Executive summary

The insurance industry continues to face an unprecedented range of strategic and operational challenges. The results from EY’s 2015 Retail Life Insurance and Annuity Executive Survey show many forces of change — some long-standing and some emerging — that are shaping the strategic agenda for senior leaders and, at some carriers, causing something of an existential crisis. In many areas, the need for action is clear; there is widespread consensus among survey respondents regarding the need for more innovation, better technology, greater focus on the customer and attracting new talent. In fact, the key findings and selected respondent comments included on the following pages show that the industry’s leaders are fully engaged with the challenges and are looking forward in driving the industry to do well by doing good.

At EY, we are committed to building a better working world — one with increased trust and confidence in business, sustainable growth, development of talent in all its forms and greater collaboration, and we’re excited to see so many executives in the life and annuity industry sharing our commitment.

But just because the needs are well defined does not mean they will be easy to overcome. With a sluggish global economy as the backdrop, the industry faces many hard choices regarding the products it sells, how it sells them and to whom it sells them. As such, the industry’s leaders called for a repositioning of insurers’ basic value proposition to make it more meaningful for customers throughout their lives. They also pointed out the industry has significant work to do in connecting with and attracting a new generation of workers.

The increasing focus of executives on innovation and transformation underscores both the imperative for fundamental change and the need for strategic evolution. While the headlines may seem mostly negative and recent performance has not been encouraging, the industry’s top leaders are clearly driving forward and promoting change on multiple dimensions.

In many areas, the need for action is clear

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Key findingsOngoing macroeconomic sluggishness Despite upticks in the US and the UK, the global economy remains in the doldrums, with many nations still struggling with the fallout from the financial crisis. Low interest rates, demographic changes, rising health care costs and the risk of future bubbles are limiting wealth creation opportunities for many industries and depressing growth prospects for most carriers. Naturally, these are top concerns for senior leaders who want to drive a mature industry into a new era of expansion.

The innovation imperative in the era of permanent disruptionThe industry has never been considered highly innovative, but competitive pressures and increasing client expectations have made innovation an imperative. In today’s context, innovation no longer means launching new and different products; it means fostering and delivering innovation in sales, service and operations. While a few skeptics remain, the industry as a whole has never seemed more ready to challenge traditional thinking and adopt new ways of completing sales, engaging customers and managing the business.

The flexing of distribution models and return of information asymmetryThe impact of market, technology, demographic and regulatory forces on distribution models will be profound. New channels will not necessarily replace but will complement the traditional in-person model. And there is little debate whether advisors’ roles and compensation models will change, but there is some uncertainty as to how fast the transition will occur and where the ultimate endpoint falls. More and better data, plus advanced analytics, may ultimately give insurers an informational advantage over consumers in terms of visibility into behavioral biases and incentivized behaviors, which could be used to increase levels of purchases and renewals. Finding, attracting

and retaining sufficient talent Once upon a time, claiming that chief HR officers held the most important job in the industry might have seemed laughable. No longer. Talent management and human capital issues are approaching near-crisis urgency at some carriers, with severe shortages of qualified workers at every level of the organization. The bottom line is that executives believe that the industry’s workforce must look like more like its future customer base — more diverse in age, outlook, ethnicity and religion.

The rapid evolution (and rising uncertainty) of consumer protection regulationThe regulatory field is fast-changing and executives have grave concerns about the potentially game-changing nature of the Department of Labor’s proposed conflict of interest rules that expand the industry’s fiduciary duty to consumers. Everyone wants common-sense protections against abuse and fraudulent behavior, but those threats must be balanced against the pressing need to provide the middle market, in particular, with advice regarding retirement products and services. Data security and privacy are important as well, but most executives are focused on the potentially massive impact and final details of the changing fiduciary rules.


About the surveyDuring the summer of 2015, EY interviewed executives at approximately 20 leading US insurance manufacturers, distributors and reinsurers as part of an ongoing effort to understand how the life insurance and annuity industry can surmount current challenges and move forward. The objective was to understand the views and concerns in the eyes of industry executives and stakeholders — and to outline the industry opportunities and challenges from the perspectives of customers, distributors and manufacturers. The interviews focused on the global economy, innovation, distribution, talent issues and consumer protection.

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for insurers, as consumers feel they have less money for life insurance and retirement savings. These effects could hit the middle-market segment particularly hard. This group is currently underserved by the industry, according to nearly all respondents. At the same time, millennials are marrying later and thus postponing the purchase of life insurance, which means income protection and retirement planning products will likely need to play a larger role within insurers’ portfolios.

Low interest rates negatively impact earnings and reserves, and some respondents felt that drove companies to look for alternative asset classes for yield. Others identified a heightened awareness for the detrimental impacts of rising interest rates. As one respondent pointed out, “We have managers that have never experienced rising rates before, and consumers that have never had to deal with it.” For instance, a potentially huge debt refinancing crisis looms if interest rates rise; as loans are refinanced, consumers will have even less money to save for retirement or to purchase life insurance products.

Stagnant wage growth, rising health care costs and increased health insurance premiums could crowd out share-of-wallet gains for insurers. In the face of these economic challenges, the industry must develop offerings that reflect the real-world needs of consumers, from affordable annuities for the middle market to more sophisticated life and health policies that leverage the Internet of Things. The bottom line is the global economy will be an obstacle to growth for insurers, until the return of broad-based prosperity and wealth creation.

In looking forward, the respondents stressed the long-term view. Such a perspective recognizes that the current environment reinforces the need for strategic risk-taking and continuing analysis of business models. Thus, many carriers are likely to experiment in

Ongoing macroeconomic sluggishnessIn the aftermath of the global financial crisis, insurance executives are justifiably worried about macroeconomic trends and the prospect of slow growth. As a whole, the global economy is still struggling to gain momentum. Global growth in 2014 was lower than initially expected, according to the World Bank. Overall, it is expected to rise moderately to 2.8% in 2015, and average about 3.2% through 2017.*

Although the United States and the United Kingdom are showing improvement, the global outlook remains questionable. Negative interest rates and devalued currencies trouble some major economies. Financial malaise lingers in Europe and Japan. China is undertaking a cautiously managed slowdown. Equity markets are highly volatile, and there is a widespread fear of “the next bubble,” such as an emerging debt crisis in the US. Few respondents believe that an uptick in the US economy will restore growth for the life insurance and annuity industry or lead to broad improvements globally.

It is not surprising that retail life and annuity executives express concern about the full range of macroeconomic indicators, given the industry’s unique sensitivity to many of these forces. Consider demographic trends. Japan is facing a 40% population decline in the next 40 years, with huge impacts on a wide range of industries, including insurance. In the US, we have a growing population, but the inability of the insurance industry to penetrate this growing market remains evident. Stagnant wage growth, rising health care costs and increased health insurance premiums could crowd out potential share-of-wallet gains

different markets. Survey respondents also recognize that the maturity of the industry makes it particularly sensitive to macroeconomic challenges. The bottom line is that a sluggish global economy will remain an obstacle to growth for life insurers and give C-suite leaders even less financial margin for error in the future.

What survey respondents say:• “The US economy as a whole may

perform well, but that doesn’t necessarily extend to the insurance industry.”

• “Several players will continue to focus on penetrating the middle market (or experimenting with it), but we don’t see a super expansion due to [Americans’] nervousness around share of wallet and wage growth. “

• “It’s not going to get easier. Margins will get tougher. More consolidation.”

• “We’ve been lucky in the sense that we haven’t had any shocks to [the economy], because I think it could unravel pretty easily.”

• “We rely on the global economy to do well.”

• “The penetration of life insurance in the US has decreased and our population has doubled.”

• “The ability to change quickly is key in this environment.”

• “The biggest risk is geopolitical risk across countries. [There’s] nothing we can do about that.”

* “Global Economic Prospects: The Global Economy in Transition,” World Bank Group, June 2015.


survey respondents emphasized their readiness to embrace the new market realities and resulting innovation imperative. To an unprecedented extent, the industry accepts that it must re-think everything about the way it operates or face dire competitive — even existential — consequences.

In terms of recent progress, early adopters of technology have been making significant investments in research and development. For instance, some insurers now offer discounts to policyholders willing to utilize sensors that track their movements and health. The success of such high-profile programs has made it clear that telematics in the insurance industry is no longer a futuristic scenario, but rather a here-and-now opportunity. Thus, the fast followers are doing just that, and hastily re-allocating resources toward R&D.

New competitive threats are driving insurers forward on the innovation front. Any company, from any sector that possesses large amounts of data about people and their relationships, could become a player in the financial services arena. As such, the industry faces a diverse and daunting range of potential competitors from banks and credit card companies, to makers of wearable technology and personal devices, to search engines and big online retailers. That is why forward-looking insurers are considering partnerships with such companies, as well as entirely new business models and dramatically re-engineered customer relationships. It is important to note that respondents did not unanimously accept that view. Some pointed out that data aggregators did not necessarily “have the expertise to tie data to mortality and morbidity.”

Rising consumer expectations are another driver. Today’s buyers look to interact with companies through new devices (such as smartphones and tablets) and new channels (like video chatting and text). One respondent

commented on customer expectation for “a seamless high tech experience.” Self-service tools that are optimized for mobile devices are being developed at many carriers, with some executives predicting that the IT function will become one of the largest and most important functions at insurance companies.

It’s no surprise that improving the customer experience is high on the strategic agenda, according to survey results. Specifically, several respondents spoke of working to improve the experience through which consumers access advice. The good news is that providing guidance through new channels (such as video chatting) would be less expensive than a traditional over-the-table and in-person sale.

So where should innovation come from and which form should it take? Survey respondents cited a few main areas.

Sales and service: The focus will be on driving customer engagement with well-integrated, personalized and meaningful digital experiences and a streamlined application process. Here again, insurers are focused on empowering agents with better tools, including mobile, tablet and video platforms to connect with consumers as they build out more robust channels for research and self-service.

Product and market: The industry must develop offerings that reflect the real-world needs for consumers, from affordable annuities for the middle market to more sophisticated health policies that leverage the Internet of Things. As providers of historically “low engagement” products, insurers are challenged to build and maintain strong and flexible client relationships. As one respondent stated, the industry “must learn to engage with consumers on the basis they determine … and figure out how to lock-in and re-engage with customers” at different points of their lives. Failing to do so does a “disservice” to both customers and shareholders.

1 2 3 444 445The innovation imperative in the era of permanent disruptionAs we continue to do business in an era marked by a continuous disruption and new competitive threats, the insurance industry, which has never been considered leading edge or particularly nimble, must work to increase the pace and scope of innovation. “Innovate or die” was the succinct description of one survey participant.

The impact of shifts in product focus and different customers on distribution cannot be overlooked. That’s why some carriers are providing advisors with new, proprietary tools, as well as systems for underwriting, for digital applications and for managing customer relationships. Carriers are also evaluating their distribution models as a whole, including their compensation models.

It’s clear that technology will be the driver of innovation. Carriers can leverage considerable advancements in digital technology to make step gains in their ability to engage customers consistently, across more channels, with richer experiences. But it is important to recognize that innovation is the job of every function of the enterprise, not just product development. One respondent put it this way:

“As an industry, we confuse innovation with product development … if we don’t learn the difference … and don’t learn how to become far more innovative much more quickly, we run the risk of being disintermediated by those that can run faster.”

True, some executives believe their organizations have already done much in the way of innovation, and more than a few consider the focus on innovation to be something of a fad. But, overall,


Operations: The industry is finally updating or retiring old legacy systems (especially those for policy administration) that can be 20 to 30 years old. It’s the end of the capital cycle for big systems that were put in place in the 1980s or 1990s. Accelerated or automated underwriting, the use of electronic forms and straight-through processing are new ways insurers are seeking to modernize and enhance operations. For underwriting, the goal is to make underwriting decisions in seconds, not hours or days. Even as these cycles shorten, new data sources — very much including big data — will be brought to bear to enhance the accuracy of decisions. Data aggregators are playing a role at some carriers already. Last, the development of straight-through processing, especially in the transfer business, is seen as a potentially large source of cost savings as it would help simplify the process of IRA rollovers and 1035 exchanges.

Technology: Better mobile apps, more advanced analytical capabilities and better data integration are pointing the way forward. Advanced carriers are using data mining and predictive analytics to help determine when policies will lapse and how products are being used. Others are partnering with makers of wearable technology to track consumers’ health behaviors — a potentially revolutionary development for insurers. One respondent pointed out that “EKG data from smartphones is as good as a medical office EKG.”

Many respondents reported significant progress on several of these fronts; however, the industry must also recognize that customer expectations move in only one direction — upward. For example, high-net-worth consumers want their data quickly and in a usable form; they want to view information on their annuities just as they see data on their stock portfolio. For insurers, this means innovation and customer experience enhancements are a

continuously moving target. Now that early adopters have demonstrated success with a few high-profile programs, more insurers identify themselves as fast followers than in prior years. Investments in innovative capabilities are likely to be significant, but insurers can build substantive business cases based on badly needed performance improvements. Improved understanding with better harvesting of lifetime customer value is one way to achieve such ROI.

It is likely that cross-functional teams will be established with the sole purpose of driving innovation. Cultures that accept experimentation and failure as necessary components of innovation will be more likely to remain relevant and, ultimately, succeed in the next innovation-driven era. As one respondent described the way to drive innovation, “We must fail fast and fail forward.”

What survey respondents say:• “In today’s world, everything has

to be mobile first. Not desktop, not email, but mobile first.”

• “You just have to suck it up and pay for [innovation] as an additional cost.”

• “You have to make it so that [innovation] is a team of people’s primary responsibility, rather than just a good afterthought to their other responsibilities.”

• “If someone finds a real simple, painless, almost fun way to buy life insurance, that would change the world of the insurance industry.”

• “Those that can use and make the most sense of data will have a competitive advantage going forward.”

• “Everyone’s saying ‘customer-centric,’ but it’s one thing to say it and another thing to do it.”

• “We put in accelerated underwriting tools you couldn’t have done 10 years ago because the processing speed and algorithms hadn’t been built.”

• “Automated underwriting offers a better process, lower cost and increased traction, but we need to be sure that our [insurance] clients are comfortable with the risk.”

• “Predictive analytics will be an effective tool in the middle market because of the number of risk classes and low concentration of risk.”

• “I don’t know that technology is the limiting factor or all alone the enabling factor … I think the missing ingredient is getting people to view life and disability insurance as critical as auto and home insurance.”

• “[Technology] is fundamentally upending, and allowing new competitors to come into and interrupt traditional business models … [None of us] are safe.”


The flexing of distribution models and return of information asymmetrySurvey respondents are clear-eyed about the shifts away from traditional distribution models, as well as rising consumer empowerment and the breakdown of the information advantage insurers have traditionally enjoyed. Historically, the industry has operated with a high degree of opacity, due to the low-engagement nature of the insurance business, where products are “purchased and then put in a drawer,” as one survey respondent put it. Overall product complexity means consumers lack visibility into the costs and inner workings of complicated products. In this context, the traditional distribution model made sense, with predominantly face-to-face distribution with commission-based agent compensation and a general focus on affluent markets.

But today the playing field has changed. Customers have unprecedented access to product and pricing information, thanks to the internet. Their preferred shopping methods have changed globally, with a pronounced preference for mobile shopping and self-service channels that are available 24/7. Today’s consumers are more comfortable with self-service and have educated themselves to a greater extent than in the past. Further, technology is challenging the traditional advice model and facilitating the emergence of new, low-cost, online-based advisor models. These so-called robo-advisors have had a major impact, according to survey respondents. Consumers seem especially attracted to the objectivity of the advice and the continuous updating of guidance.

It is important to note a few contrarian views among survey respondents. Some expressed little faith in internet sales, questioning whether average consumers understand their own insurance needs. Similarly, robo-advisors may only be appropriate for select people who are comfortable with the significant information input required to make such models work.

Still, the overall impact is clear: the insurance advice model is changing. Customers who still engage advisors may only seek to confirm purchase decisions, rather than guidance on the purchase decisions themselves. Further, customers now expect a high-quality, customer-centric experience and seamless, high-tech digital experiences. Survey respondents recognize that the industry has struggled to deliver these in the past.

One distinct trend is the shift toward omni-channel distribution. With an omni-channel approach, insurers offer a range of channels to suit the diverse purchasing preferences of consumers. For example, a consumer may come to the company digitally and then switch to an advisor for a more personalized service experience. Additionally, the mix of channels will vary by product. Improving the efficiency of traditional advisors is another priority. The need to digitize steps in the sales process is driving the significant investment around client relationship management (CRM) and electronic applications for agents, as well as an improved underwriting process.

The key is to change the role of the agent at the point of sale to unlock customer lifetime potential, not just take an order or close a sale. Such a transition would require a new focus on providing holistic advice for customers based on a deeper knowledge of their needs and finding the right offering for those needs. “Life-cycle selling,” or a program to re-engage throughout a customer’s life after the initial sale, may open up significant cross-selling

opportunities, such as integrating 401(k) plans with options for life, health and disability.

If this strategic evolution were to succeed, insurers would not only have to develop new products, but also shape an entirely new value proposition for consumers. One respondent exhorted the industry to become more “involved in protecting, monitoring and advising on health rather than just being involved at death.”

Looking forward, “more digital” does not equate to “no face to face.” In fact, even as new distribution models grow, in-person contact will remain predominant, according to survey results. According to one executive, “I can’t believe that a meaningful amount of life insurance can be distributed without human contact.” Another disagreed, stating that “a significant portion (not majority) of sales will be agentless.”

Whatever the exact percentage of sales that move to direct channels, it is clear that digital platforms are here to stay. Thus, the carriers with the most advanced capabilities — especially in terms of mobile — are most likely to win. Further, customers will have more freedom and authority in choosing how they want to engage with the company; carriers and their distributors will not set the terms of engagement, as in the past. One respondent highlighted the need for “peaceful coexistence between channels.”

Beyond channel orientation, the more significant step may be adapting to consumer expectation and perception about the value of life insurance products. Providing a good customer experience, both at the point of sale and throughout the customer’s lifetime, will be the key. One respondent mentioned the need to “actually own customer relationships,” rather than “producer relationships.”

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In any case, significant re-calibration of compensation models, a highly sensitive issue in the past, appears likely. It seems clear that simpler, fee-based compensation with fewer bells and whistles is a possibility. Looking ahead, one respondent described the future vision this way:

“An agency model where we provide technology, a product set and regulatory compliance/oversight tools [to attract producers], and if the compensation that’s been built into those products is sufficient, [agents will] be the judge of whether they want to sell the product or not.”

This model applies to both life and annuity sales. Robo-advisors will continue to gain traction, potentially diminishing commission on annuities, but there is a clear and pressing need to keep such products attractive to consumers.

While the internet has closed the product knowledge gap between insurers and customers, information asymmetry will re-emerge in the long term. Yes, the internet has given customers more access to pricing and product information, which benefits consumers, but this is a temporary phenomenon. Once consumers react, with the addition of advanced analytics, insurers will once again have more and better data, which may ultimately give insurers an informational advantage over consumers.

What survey respondents say:• “Buying habits are changing, and

we’re going to have to change with them.”

• “The fact that the middle market isn’t as penetrated as it needs to be — that’s old news — but there are swaths of current customers on our books that are underserved.“

• “There are false distinctions between [agency/brokerage, worksite and direct] distribution channels. The reality is if you go omni-channel, you have to direct people to the environment where they’re most comfortable working. It’s the customer’s call.”

• “We find that a lot of the people either calling/using the internet do eventually want an agent — maybe not on that transaction, but it at least gives leads to agent to cross-sell.”

• “I can’t believe that a meaningful amount of insurance can be distributed without human contact.”

• “I don’t see much pricing power as an industry … so you have to be able to differentiate around service and experience.”

• “We think a lot of our products will be best presented and reviewed via the internet, only to have a follow-up by a call center or an individual. We see that combination needing to peacefully coexist for a long time.”

• “At some point you just accept the consumer has full transparency and work from there.”


There is an opportunity for the industry to tell a clearer and more persuasive story about its mission and important societal role in helping individuals and families secure financial protection. The rising generation of workers is seeking such purpose as they choose their career paths.

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Finding, attracting and retaining sufficient talentTalent management and human capital issues have become so critical to the industry’s future outlook that one survey respondent expressed a belief that the chief human resources officer had the most difficult and most important job in the C-suite.

The talent shortage affects every layer of the organization, with a lack of sufficient candidates to fill senior executive roles and significant gaps in technical skills. In seeking top, executive-level talent, the industry seems less lucrative than others, and doesn’t seem especially cutting-edge.

Then there are the generational issues; the insurance industry is simply not attractive to young people, respondents believe. The industry’s image as staid, risk-averse and only interested in profits simply does not appeal to the brightest and most promising young people, who likely view technology companies as their employers of choice. Diversity — both cultural and geographic — is another dimension. Several executives commented that the employee base must ultimately reflect its future customer base.

Executives recognize the deep need to find new talent — like data scientists and digital experience designers — is not merely about burnishing the industry’s image. Rather, the industry will bring more data scientists and more skilled IT resources on board — largely because a larger resource base in these areas will likely drive market leadership. As one executive stated, companies “that can use and make the most sense of data will have a competitive advantage going forward.”

Undoubtedly, there is a clear and pressing need to replace an aging workforce, especially in critical areas like underwriting. Multiple respondents also highlighted the need for more “people” people in the industry. In addition to a variety of quantitative skills, new insurance talent must still possess the desire to help people.

Taking a more strategic view, the talent gap reflects the need to foster innovation-centric and entrepreneurial cultures and to develop next-generation capabilities. There is an opportunity for the industry to tell a clearer and more persuasive story about its mission and important societal role in helping individuals and families secure financial protection. The rising generation of workers is seeking such purpose as they choose their career paths. We need to talk about our values and how we have to be good stewards for the future, as our people have done in the past. As one respondent stated, “We have to walk the walk.” Here again, doing well and doing good are synonymous.

Talent management programs will continue to evolve, with more opportunities for enhanced acceleration of careers. This is important for demographic reasons, thanks to “a generational shift in expectations,” cited by one respondent, who added that, “Digital natives have come to expect more transparency in terms of their opportunities.” The agent network could certainly stand to get younger, if only to smooth the transition of appropriate business to digital channels.

These generational shifts in expectations portend the need for the HR function to change, as it may be a microcosm of the overall need for industry transformation. Many respondents believe new performance measurement systems will be established, with greater flexibility in work locations and a re-think of both geographic footprints and real estate strategies.

We believe the talent questions are “another face of the relevancy question,” according to one executive; insurers must “look relevant as an employer in the same way can we look relevant as a product provider.”

What survey respondents say:• “No one wakes up and decides that

they want to go into insurance.”

• “Financial services companies are heavily regulated and slow moving and we are competing against cool companies for talent.”

• “[We have the] same problem attracting talent as attracting customers.”

• “We want our employee base to look more like our future customer base, which means more diverse in age, outlook, ethnicity, religion … There are geographic implications, too — you can’t be representative if you’re not in locations that are representative of your population profile.”

• “Digital natives have come to expect more transparency in terms of their opportunities. There is a generational shift in expectations.”


The rapid evolution (and rising uncertainty) of consumer protection regulationConsumer protection considerations are rapidly evolving. There are many regulatory initiatives underway that are aimed at better educating and protecting insurance customers, though respondents are naturally concerned about the impacts. In doing so, one participant called for the industry to do a better job in promoting a “common-sense” regulatory regime.

The highest-profile initiative is the proposed conflict of interest rule of the U.S. Department of Labor (DOL), which expands the definition of investment advice and the scope of fiduciary services. The proposed DOL fiduciary rule could change the way annuity business is written, how retirement plan participants are advised and how advisors are compensated. One respondent likened the proposed regulation to “an unstoppable train. The only thing we can do is try and influence the direction.”

Further, the proposed DOL fiduciary rule could cause radical changes in the way companies interact with their distribution partners, with big impacts on the advice model, product disclosure, compensation and CRM. Many respondents indicated that they are expecting advisor compensation to be levelized as a result of the rule, further accelerating the transition to fee-based compensation for advisors. Some respondents believed that the advisory model would become much less attractive. One went so far as to say, “The DOL Fiduciary Rule in its current form will destroy the annuity

business.” The final wording of the DOL conflict of interest rule will ultimately determine its impact, but increased compliance costs are inevitable. In general, most executives see large, “maybe even massive impacts on operations.”

From the perspective of advisors, their increased risk may make them hesitant to provide anything more than generic advice. Further, enhanced compliance monitoring and surveillance procedures will likely increase the time to complete transactions. Under the proposed rule, some advisors may prefer to limit their offering to simpler, low-cost products such as passively managed ETFs instead of more complicated products such as annuities. Advisors may conclude that it’s not worthwhile to focus on the middle market. The bottom line is that increased complexity and higher regulatory hurdles in the process of presenting and recommending some products may lead advisors to sell away from our industry’s solution set.

Looking ahead, some executives believe that because of increased litigation law firms will benefit more from the proposed DOL fiduciary rule than consumers, whose lives and financial security may not be made better because of the fiduciary requirements of agents. One respondent expressed a common sentiment: “Regulation is making it harder and harder for the middle class to get advice.” Another added, “Consumers without advisors will be hurt and there will be unexpected consequences.”

Several respondents brought up the UK market, which has seen significant regulation aimed at protecting consumers, as an instructive example. Some executives have gone as far as to say that these “best interest” regulations make it unaffordable to sell products to consumers. All the respondents talked about wanting to prevent abuse, but they indicated that regulators have so far failed to define reasonable windows or parameters for

advice to be given. Respondents fear a similar effect in the US market, where an unintended consequence of such regulation might mean the middle class would not be served by the financial services industry in the future. One respondent commented, “It will be more challenging, and more limiting in terms of where they would be able to get financial advice.” This is a critical concern, since many annuity leaders eye the large and currently underserved middle market as a future growth engine.

More than one respondent believes that consumers need to be protected from themselves, while there is uncertainty about what else they need to be protected from. Respondents indicated that in the long term, regardless of the regulatory rules that get written, technology, consumer demand and market forces are going to continue the push to 100% transparency over time.

As the long-term trend plays out, some respondents are already considering the regulatory scrutiny that may occur as companies adopt advanced data management and analytics tools. Companies will soon have better insight into not only what consumers want, but what they are willing to buy, given the right incentive. That concern is over the horizon for now.

There is also concern around personal privacy and data security. In particular, life insurance agents felt this issue was much more significant, given the data collected through the underwriting process. When it comes to the risk of data breaches, most respondents are of the belief that “no one is safe.” That very much includes governments, which have already been victimized. The news coverage of security incidents leads to greater consumer interest in the measures companies take to protect their data. That interest varies by age; many executives feel that younger people have already ceded their privacy, while older generations are more concerned and more reluctant

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to share personal information. Some executives are wary of a “regulatory freak-out,” which may occur because a large cyber incident “is going to happen eventually and regulators will have to do something.”

What survey respondents say:• “Some [regulations] are set up with

good intentions, but in terms of how it actually impacts the day-to-day sale — it can make it exceedingly complex.”

• “My impression of what’s happened in the UK is that people have been left on their own, and it hasn’t been good for the lower and middle markets.”

• “Big problem [with consumer protection] is that [regulators] don’t really know what consumers need to be protected from. It could be that sometimes they need to be protected from themselves and their behavioral biases … there is no fundamental, central principle that you can manage to … the details are so important that you still don’t know where you’re going to end up.”

• “[The proposed DOL fiduciary rule] will end up re-pricing the entire industry, getting rid of commissions, speeding up transition to a fee-based model and breaking down what you are charging for into components.”

• “Data breach is not a question of if it will happen, but when it will happen.”

• “With social media, the next generation that most of our [life insurance] sales will come from in the next five to ten years has already conceded their privacy.”

Companies will soon have better insight into not only what consumers want, but

what they are willing to buy, given the right incentive.


Bottom line: focus on experimentation, innovation and doing wellAs difficult as the current market is, senior industry executives are driving their organizations forward. They see particular opportunity in currently underserved markets, such as the middle market, with its urgent need for financial security and more life insurance in the face of strenuous economic conditions. This is not only an opportunity to grow profits, but also perform an invaluable societal function and once again do well by doing good.

But to seize it, carriers will have to devise and deploy new strategies and tactics. They must embrace them in an experimental mode, measure their performance carefully and then drive the successful innovations aggressively across their operations. Such experiments will be necessary in terms of product development, digital channels, distribution models and core operations.

For a traditionally risk-averse sector, transformation is no small task. In some cases, fundamental business models will need to change. Certainly, an infusion of younger, differently skilled talent is necessary. But in a time of widespread change, where there is broad consensus about the need for change, substantial competitive advantage will go to those firms that move most quickly and boldly forward. Our respondents summed it up this way, “When we do right by the consumer, we do well as an industry,” and “companies that think, innovate, experiment, fail and win will beat the relevance challenge.” As an organization focused on building a better working world, we at EY couldn’t agree more.


For additional information, please contact:

Doug FrenchPrincipal Ernst & Young [email protected]+1 212 773 4120

EY | Assurance | Tax | Transactions | Advisory

About EYEY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US.

EY is a leader in serving the global financial services marketplace

Nearly 43,000 EY financial services professionals around the world provide integrated assurance, tax, transaction and advisory services to our asset management, banking, capital markets and insurance clients. In the Americas, EY is the only public accounting organization with a separate business unit dedicated to the financial services marketplace. Created in 2000, the Americas Financial Services Office today includes more than 6,900 professionals at member firms in over 50 locations throughout the US, the Caribbean and Latin America.

EY professionals in our financial services practices worldwide align with key global industry groups, including EY’s Global Wealth & Asset Management Center, Global Banking & Capital Markets Center, Global Insurance Center and Global Private Equity Center, which act as hubs for sharing industry-focused knowledge on current and emerging trends and regulations in order to help our clients address key issues. Our practitioners span many disciplines and provide a well-rounded understanding of business issues and challenges, as well as integrated services to our clients.

With a global presence and industry-focused advice, EY’s financial services professionals provide high-quality assurance, tax, transaction and advisory services, including operations, process improvement, risk and technology, to financial services companies worldwide.

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This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.

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