Earlier this month Ernst & Young, the international accounting and consulting firm, issued a report titled, “US Life Insurance Industry Outlook.” Reading the report causes one to wonder: Are the people of E&Y really that simple-minded (and would go prove my long-held beliefs about consultants) or were they making an effort to get down to a level of discussion that the life insurance executives could understand?
The report starts with an Enquirer-like expose that, “The year 2010 will be difficult for life insurers …” Da! Can you just imagine the shock and surprise that some life insurance executives felt upon reading that statement? Some probably accepted the announcement with glee, knowing that they will have an excuse if their company does not do well this year. Thinking, “Hey, if the year will be difficult for the whole industry, how can the board blame me, if my company does not do well?”
Thank goodness E&Y does not leave the insurance executives just hanging there with imponderable challenges. No, exposing the level of sophistication they assign to life insurance executives, E&Y outlines five easy steps to take in confronting this “difficult year.”
The action steps proposed by E&Y were:
Optimize capital in response to ongoing pressure.
Wow! Let’s see, so this means if there is pressure on the surplus and capital levels of the company, then the executives should hoard what capital they have and try to get more. Can’t you just see some insurance executives slapping their foreheads and saying, “God, why didn’t I think of this?”
Build more robust risk management capacity with stronger governance and transparency
Insurance companies stumbled into a deep pool of unmanageable risk due to lack of effective risk management, governance and transparency – at both the executive and board levels – so what they should do now is gain a better idea of the risks they are taking by increasing governance and transparency in their operations. Could anything be more insightful? This can’t be the type of information that E&Y actually believes they can charge companies for. It must just be a free teaser to get them into the really good stuff.
Focus on core business and readdress product and distribution strategies.
So that means if you did not do well doing things you don’t do well, then you should get back to what you do well. That’s fine, but is a little like saying, “In difficult times, get back to the basics.” Good advice – unless the basics have changed. Maybe the reason companies got into trouble was because they did not recognize that their core business has become outmoded.
Operate successfully in a continually changing regulatory environment.
Shazam! Give E&Y credit here for going so far out on the edge to discover this strategy for operating in difficult times. In this section of the E&Y report the life insurance executives are told, “…insurers need to evaluate the combined impact of a more intense regulatory environment … capital requirements and government structures.” I can’t figure out from reading this section whether E&Y likes to state the obvious to hear themselves talk or if this is another example of the level of understanding and intelligence they assign to insurance executives.
Improve the effectiveness of company infrastructure.
Thank God that E&Y saved the most insightful revelation for last. It may have been too overwhelming for insurance executives if E&Y had opened with this challenge. In this section of the report that E&Y reveals to all that in the insurance industry, “Expense levels, compared to business volumes are rising.” It may be a little harsh and difficult for some insurance executives to comprehend, but E&Y goes out on a limb by suggesting to insurance executives that in cases where expenses are rising faster than revenues, that there may be a need to reduce expenses, “as a matter of survival.” (In fairness to E&Y, this is one section where they offer a solution – difficult as it may be – by suggesting that a fundamental change in the operating structure of a company may be the only way they will be able to compete and survive.)
And the Moral of the story …
It is difficult to decide which is more irritating: that consultants offer and expect to get paid for such mundane and obvious observations or the insurance executives who hire these consultants to tell them what they should already know.
The suggested actions offered by E&Y are trite, insipid, and simplistic. They offer no more cerebral muscle than the herd-mentality thinking on how to deal with “difficult times.” Even worse, they are wrong. The general theme of the E&Y suggestions to insurance companies in the face of difficult times is that they should “hunker down” and play defense. History has proven that, in times of change, defending the past is never a winning strategy.
And that’s the problem with the life insurance industry: almost any change is viewed as a threat. It is this fear-of-change philosophy that makes insurance executives susceptible to approaches from consultants like E&Y, because they focus on strategies to resist or delay change, rather than capitalizing on it by aggressively developing a new approach to a new world.
So long as this attitude and approach holds sway, the insurance industry will continue to stumble along in the twilight of past successes, desperately paying consultants to reassure them by telling them what they already know. What a great waste of opportunity, but apparently not of talent, since there seems to be little to waste!