10 Dec 2007 14:30 Africa/Lagos
Ernst & Young Issues 2008 US Outlook for the Life Insurance Industry
NEW YORK, Dec. 10 /PRNewswire/ --
In 2008, regulatory issues will confront the insurance industry and put increasing pressure on companies to become more efficient, enhance technology-related processes and alter their business models, according to Ernst & Young's Global Insurance Center. Moreover, in spite of continued financial growth, life insurance companies need to maximize existing opportunities to meet the growing demand for cost-effective products for baby boomers and the underserved middle-market.
"While net operating gains in the insurance sector are expected to increase in 2008, insurers can by no means become complacent next year," said Doug French, Managing Principal of Ernst & Young's Insurance and Actuarial Advisory Services. "The fundamentals of the insurance industry seem to be inevitably shifting, and executives must work constantly to stay ahead of these trends that will affect their product lines, their investment strategies and their corporate infrastructure."
Ernst & Young has identified the seven important issues that may shape the life insurance sector in 2008:
1. Retirement Income: The best prospect for organic growth in the
insurance industry is found in the 35 million middle-wealth baby
boomers facing the realities of retirement. As they shift their
defined contribution plans, they may seek predictable, low-cost,
income-producing financial products. That said, insurance companies
could be more aggressive in competing with other financial services
institutions that target this segment.
2. Financial Events: Over the past five years, insurers have increased
their investments in alternative asset classes, which has led to
greater credit risk exposure. Now is the time to take action and
focus on building risk infrastructure and creating more transparency
commensurate with the nature of these important investments.
Organizations that embrace the people, systems and processes to
accurately comprehend and manage the risks of these asset classes may
gain an edge.
3. Technology: Insurers could take a comprehensive view of data
governance and management as they attempt to create a more efficient,
interconnected technology environment. In 2008, many insurers may
still be forced to expend resources integrating data from disparate
systems, but they could quickly move ahead of the trend toward
centralizing IT infrastructure (data centers, servers and converged
4. Offshoring: As insurance companies challenge their growing expenses,
they may become increasingly reliant on alternative sourcing
strategies, especially as outsourcing service providers expand their
offerings. However, insurance companies need to implement risk
management programs for outsourcing/offshoring, because risks from
service interruption, customer data, information security and privacy
exposures could far outweigh any benefits from cost reduction.
5. Solvency II: The implementation of Solvency II (SII) may pose a
considerable challenge with far reaching implications for insurers.
Besides the extensive improvements to systems, processes and data SII
calls for, the convergence of accounting, risk and actuarial
information may also challenge traditional actuarial practitioners to
develop more sophisticated financial and risk management
methodologies and more efficient deployment of capital.
6. International Financial Reporting Standards: Regardless of the
implementation date being delayed, there is no time to waste for
International Financial Reporting Standards (IFRS) preparation.
Companies need to develop a plan that includes steps to assess the
impact of the proposals on their financial statements, educate key
employees and constituents, and evaluate the readiness of their
organization for implementation.
7. Tax Issues and Implications: Debate on tax rules that would require
dividends to again be taxed as ordinary income, raise the capital
gains rate to 20 percent, and change current estate tax regulation is
not expected to heat up until after the 2008 election. Essentially, a
new President and Congress may be forced to deal with many tax
decisions, most of which may require tax increases. Unfortunately,
the impact of future tax legislation on insurers and any implications
this will have on product offerings may remain unclear for some time.
"The life insurance industry seems to be on firm financial ground, which is good news: insurers are doing many things right. But, in some ways, the obstacles for continued growth have never been higher," said French. "To remain competitive, executives must continue to foster innovation in their products, develop new ways to manage and oversee both risk and capital management, and prepare now for a torrent of new regulations that may very well revolutionize this industry in the next decade."
The complete Life Insurance Industry 2008 Outlook report can be found at www.ey.com/insurance.
About the Ernst & Young Global Insurance Center
The Global Insurance Center is the hub of the Ernst & Young network of professionals dedicated to serving the global insurance market. It connects our people around the globe, sharing information and experience on current and emerging industry issues. Our goal is to help global insurance clients address their complex issues by drawing on a broad range of services including: assurance, tax, actuarial and risk management, transaction advisory services, and technology advisory to support these services.
About Ernst & Young
Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 130,000 people are united by our shared values and an unwavering commitment to quality.
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Source: Ernst & Young
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