NU Online News Service

Insurers have experienced alarming decreases in return on assetsand face legislation and other forces making their businessincreasingly competitive, a consulting firm report has found.

The study by Deloitte suggests that firms that are successfulwill master technology and social media to interact better with awidening age spectrum of customers and employees.

Deloitte, which used its Shift Index analysis framework to makeits study, said since 1972 return on assets for insurers had gonefrom 2.6 percent on average to negative 1.1 percent in 2008.Excluding 2008 life insurance results, industry average ROA wasstill only 0.9 percent.

While the study found the insurance industry has had a lowercompetitive intensity because of regulatory and capitalrequirements, "increased competition from outside the industry andother developments will impact competition in the future."

The report said action in several states to require increasedcommission disclosure and movement away from commissioned salesagents to direct channels suggests a potential increase incompetitive intensity.

Commission disclosure, the report said, will drive downcommissions on more expensive products, and companies will bepressed to design products that "have a clearer value to theconsumer."

Federal legislation being contemplated for regulation of theindustry, Deloitte suggested, could make it easier for newcompetitors to enter the market by alleviating administrativeburdens, but this could be offset by tougher minimum and solvencyrequirements.

Alice Kroll, a Deloitte director and one of the authors of thereport on insurance, said Deloitte is promoting the notion thatcustomers should be able to reach companies whenever and howeverthey want to--in person, by instant message or other methods."There is multifaceted communications potential," she said.

Deloitte said that the insurance marketplace is experiencing achanging demographic, with customers becoming more involved in thepurchasing process and becoming less loyal to brand particularly inproperty and casualty.

The firm predicted that as members of the Gen X and Gen Ydemographics become an increasingly powerful customer segment, theywill likely demand transparency in price, service andfeatures--with more direct competition being the probableresult.

Insurers, the report noted, are struggling "to attract toptalent to the industry and are dealing with issues arising from anaging workforce (e.g. loss of institutional memory as workersretire) [and] these difficulties in attracting talent andrecruiting a fresh workforce to the industry may inhibit futuregrowth and innovation in the industry."

Kroll said, "Successful companies need to portray themselves asexciting places to work with opportunities for employees to fulfilltheir creative needs not just the company's."

According to the report, firms on the cutting edge "areexploiting smartphone technology to link agents, customers andcompanies and employing advances in financial economics andcomputing power for more sophisticated financial and riskmanagement."

Those companies that are effectively deploying technology tobetter connect with the customer "could result in a greaterperformance gap between the top and bottom performers over time,"said Deloitte.

The report found the life insurance sector was generally laggingbehind P&C in applying technology.