Consumers' Choice

The life insurance products carriers are offering have been meeting the needs of the retirement community, but of greater concern to the industry is the younger generation, according to Rachel Alt-Simmons, senior analyst at TowerGroup.

"You have this next wave of millenials rolling through, and their saving and spending behaviors are very different," says Alt-Simmons. "The retiring generation traditionally has been a generation of savers. The new generation is a generation of spenders."

The issue will be how insurers can get that younger generation to invest in long-term products and developing those lifetime relationships, she points out. Some recent pension reforms have helped, particularly with participants having to opt out rather than opt in for their 401(k) plans, but Alt-Simmons indicates she has been shocked at some of the plan participation rates she has viewed. "Why would you not want to put in a little bit of money when you see how it can grow over time?" she asks. "Younger people need to get over the live-for-the-moment mentality and think about the future. How the product companies help them with that is the real challenge. You have cultural issues you are trying to address with financial products, and getting those things aligned may be challenging."

Insurance companies need to take a hard look at how they interact with their customers so they aren't left behind, continues Alt-Simmons. "Asset managers and banks are infringing on the insurance companies' turf with some of their retirement products," she says. "The companies that are going to come out winning are those with a wide variety of ways to interact."

At the same time, insurers need to examine their internal operations, advises Alt-Simmons, to provide the tools IT needs to do its job. For example, prior to joining TowerGroup, she worked for 10 years with a major insurance carrier, and as she developed her team, she looked for young people out of college. "You'd give them a task, and they'd do it a million times faster and a million times better, and then they would ask, 'What's next?'" she says.

Some of the things the younger workers wanted as a team were to set up a discussion board and a team blog, she reports. "They would ask, 'Why not put the information in a place where we all can get at it? Why are we repeating tasks when this information can all be centralized?'" she says. "There is a lot of demand for networking options because people can do it at home, so why can't they share and collaborate at work?"

Alt-Simmons believes these issues become important when examining the number of people in the insurance industry on the verge of retirement. "There is a lot of knowledge captured there that could be lost," she says. "We need more collaborative knowledge-management techniques and tools to let people collaborate and communicate in innovative ways."

In addition, banks and the large asset managers have invested more in consumer information than insurers, remarks Alt-Simmons. This has allowed them to predict more of what consumers want and to offer products in a flexible and nimble fashion. "One of the most difficult things to do is to launch a new product," she says. "The more complex the products get, the faster your systems have to be. If you are running legacy systems that are 20 to 30 years old, you may be bolting on pieces to get it to work. And the product life cycle is down, in some cases, to under a year. It used to be five years."

Annuities have not captured a big piece of the retirement pie, she relates, but now there is a huge group of people around the world retiring, and everyone is after that money. "I think the people who will come out on top first have to offer products that are meaningful to people and provide value," she says. "Second, they are going to have to be easy to do business with, and that's going to require an upgrade in technology."

The U.S. market is fairly mature, while in Europe and Asia Pacific, there has been a lot of reform, and those markets are starting to open up. "You are seeing big players from Europe and the U.S. trying to tackle those markets with new products," she says.