Canadian life insurers in better shape than their US counterparts: EY report

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(Toronto, 14 March 2013) Canadian life insurers enjoy a relatively good position compared to their US counterparts, says EY. But companies need to creatively adjust their products, business strategies and services for growth in a competitive market characterized by lower margins and changing demographics.

“The Canadian life insurance market is made up of a few large companies and a number of small and medium-sized ones,” says Doug McPhie, partner and Canadian Insurance Leader at EY. “They need to tackle challenges differently depending on their size.”

EY’s 2013 Canadian life insurance outlook outlines five key things Canada’s life insurers will need to consider — regardless of their size — to respond to challenging market forces in 2013:

  1. Rethink strategy for sustainable advantage
  2. Manage the persistent slow growth, low interest rate environment
  3. Address changes in distribution and consumer demographics
  4. Position the business for regulatory and accounting change
  5. Turn operational excellence and technology into competitive advantage

“Larger insurers continue to enjoy robust assets and market share, but have difficulty growing organically,” says McPhie. “They’re looking to move into lines outside their core business or grow through foreign acquisitions.”

In contrast, McPhie says, smaller insurers should consider focusing on niche market opportunities. And — given the need for scale in the current economic environment — the best strategies for some small insurers may be joint ventures that allow them to offer complete insurance solutions.

The report notes that smaller insurers are likely to find implementing significant regulatory and accounting changes particularly onerous. But understanding the details and impact these changes will have on existing processes, controls, resources and IT is critical.

“Regulators are demanding the highest level of transparency, while solvency, capital calculation, adequacy and risk are also in the crosshairs,” says McPhie. “Layer on top of that emerging accounting standards, and insurers — large and small — really need to make sure that their systems, people and data are prepared and capable of implementing the new requirements. Their potential profitability depends on it.”

While they may maintain a better overall position compared to their US counterparts, McPhie says Canadian insurers can learn about operational excellence from their southern neighbours.

“US insurers were forced by the economic crisis to take significant steps toward operational excellence,” he explains. “Canadian insurers need fundamental process changes — such as investments in technology, predictive modelling and consumer analytics — to achieve similar efficiency, compete more effectively and increase margins.”

“Canada’s life insurers have a lot to consider in the coming year,” adds McPhie. “But with thoughtful responses to changing market forces, they can achieve their profitability targets and maintain a favourable position relative to their US neighbours.”

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