European and North American Life Insurance CEOs CiteDistribution Effectiveness, Technology...

Business/Insurance Editors

NEW YORK--(BUSINESS WIRE)--Nov. 13, 2000

Tillinghast - Towers Perrin Studies Reveal Divergent Strategies

to Improve Distribution, Lack of Confidence in Preparedness for

Imminent Challenges

Life insurance executives on both

sides of the Atlantic recognize that conquering the economic and customer satisfaction challenges in distribution is key to future profitability and performance, according to Tillinghast - Towers Perrin's survey of 750 life insurance CEOs in North America and Europe.

The international management consulting firm queried CEOs of the 480 largest life insurance and pension companies in 25 European countries from Ireland to Slovakia, complementing its earlier survey of 270 life insurance CEOs in the United States and Canada. The results reveal broad agreement about the most significant issues facing financial services companies in the near future.

Distribution effectiveness and productivity dominate the thinking of CEOs. Fully 56% of the European respondents and 85% of the North Americans singled it out as one of their top concerns, well ahead of any other issue. There is broad agreement as well on the important role of technology in creating effective solutions, named by 46% of European CEOs and over 50% of the North Americans.

"The life insurance industry understands the need to open up more channels to the consumer, and expects IT to help it meet that challenge," said Richard Berry, a co-author of the study and principal. "But CEOs would be well advised to invest carefully in this fast-moving environment. Smaller companies will likely need to band together to contain their IT costs and plug their skill gaps."

This concern with technology does not mean that life insurers are jumping on the bandwagon of Internet sales, however. Nearly 90% of the Europeans believe that the Internet will emerge primarily as a channel for information and administration, and 75% of the North American life insurers agree, although simpler, commodity-like products are thought to be the most likely products for this channel. "The consensus is, `Internet sales? Not yet,'" according to Richard Batty, leader of the firm's European region and a principal. "But ultimately 60% of European CEOs expect it to be an important distribution channel, so get ready."

Among the other results:

- Customers, Technology Key Concerns: Changing market/customer demands (48% of
European CEOs, 42% of North Americans) and information/technology management
(41% of Europeans, 31% of North Americans) registered strongly with executives,
illustrating the broad agreement found in the survey about the most crucial
issues facing the sector.

- Worries About Competition: North American CEOs (63%) are much more worried
about increased competition and consolidation, their second most important
issue overall (compared to 26% for the Europeans--a sixth-place showing),
reflecting a superheated landscape characterized by increasing merger activity
and the entry of nontraditional players such as banks, securities firms and
investment managers--a tendency accelerated by financial deregulation.

- Lack of Preparedness: In one of the greatest surprises in the survey results,
a majority of executives in both regions admitted that they do not feel well
prepared to meet these challenges. "We asked the CEOs to rate twelve strategic
challenges," commented Batty. "But a majority of executives only feel well
prepared on four issues--including the two challenges they consider least
significant, globalization and the Euro."

The single biggest obstacle to progress, in a sector saddled

with legacy systems, is technology limitations--cited by

almost half the North American CEOs and nearly 40% of the

Europeans. The North Americans' greater concern with

competition emerges again; twice as many view the

hypercompetitive environment as an obstacle than their

European counterparts. Inadequate control of distribution

channels and difficulty of cross-functional integration were

also seen as significant obstacles to preparedness by all

respondents.

- Best Positioned Regional Players: The respondents were asked

to name the life insurance companies they consider best placed

to weather the challenges ahead. North Americans chose

Northwestern Mutual (its fourth consecutive nomination), The

Hartford, and Canada's Manulife, while the European winners

were Allianz, ING, AXA, and Generali. However, when asked to

name the best-positioned companies in the broader financial

services industry, North Americans chose Citigroup, Charles

Schwab and Fidelity. When the Europeans were asked a similar

question, they named the same four insurers plus Deutsche

Bank.

Apart from investing in technology, North American and

European CEOs favored divergent strategies for success.

Almost half the Europeans favored developing alternative

distribution channels as a top competitive strategy, while

the North Americans preferred improving their value

proposition to distributors and customers. Europeans also are

keen to improve customer service where North Americans would

rather lower acquisition and distribution expenses.

The Big Picture: "We believe that, in North America, companies have to take a disciplined, consistent approach to sharpen their market focus," Berry notes. "This means clear service offerings, alignment of market, product, and distribution approaches, and improved distribution productivity."

It is somewhat different in Europe, according to Batty. "The trend toward European integration necessitates a pan-European perspective. That means shaping a new company culture: hiring the right people for internationalization and leveraging the advantages of size. European life insurers will need to develop value-focused systems for monitoring distribution effectiveness, focus on customer needs, and improve their financial risk management."

Tillinghast - Towers Perrin asked CEOs to react to a variety of statements about the future of the life insurance industry. There was surprisingly broad agreement on certain issues.

- The Internet: The overwhelming majority of European and North

American CEOs agreed that the Internet will be a significant

channel for service and education, but only 60% (Europeans)

and about 40% (North Americans) believe it will be a major

distribution channel.

- The Importance of Brand: Similarly, CEOs agreed that brand

would be at least somewhat important by nearly equal, and

overwhelming, margins--over 90% in both cases.

- Internationalization: CEOs on both continents disagreed

significantly, and perhaps understandably, about the

importance of a global presence. North American life insurers

reacted tepidly, at best, to the proposition that financial

services organizations with global operations will enjoy a

competitive advantage, a bare 50% agreeing with it, versus

over 80% of the Europeans. In addition, 70% of European CEOs

expect a continued trend toward internationalization (as they

eye Southern and Eastern Europe, and even China).

Summing up the lessons to be learned from both surveys, Berry comments: "The news is that despite major political, economic, and cultural differences, European and North American CEOs are basically on the same page. They broadly agree on the challenges, the strategies, and the governing parameters. It's shaping up as an exciting millennium for life insurance."

About Tillinghast - Towers Perrin

Tillinghast - Towers Perrin provides management consulting to financial services companies worldwide. In addition, our risk management practice consults to a wide range of companies beyond the financial services industry. Our consultants help clients improve business performance through quantitative analysis, insight and execution. We work with clients to develop strategies that are tailored to their needs. Tillinghast - Towers Perrin is part of Towers Perrin, one of the world's largest independent consulting firms, with a staff of 8,000 in more than 20 countries.