Product innovations in German life insurance
Life insurance is certainly going through a rough patch at the moment. In Germany, for instance, tax relief on life insurance was abolished years ago, which was the first kick in the teeth for the life insurance business. To make matters worse, interest rates on capital markets have not generated adequate returns for almost ten years now. New business has taken a nosedive as a result: back in 2011, the analysts at Towers Watson, a firm of advisors, warned in a research paper that sales of fund-linked life insurance and pension policies were collapsing. So insurers are looking at their obligations under long-term contractual guarantees with concern.
At the same time, it can be worthwhile to pay close attention to the portfolio. Effective policy management can form the basis for getting a life insurance company on an even keel again and back to profitability. A study by Oliver Wyman, another advisory company, puts the potential cost savings from portfolio optimisation at €4.5 to 6.5 billion across the entire European life insurance industry.
To increase the value of the portfolio, the first thing that should be done is a thorough analysis of policy data. Which policies have greater potential? Which policies are out of date? Which policies are a problem? To do so means categorising the portfolio according to certain criteria, such as product groups or discount rate groups. A break-down by policy maturities, distribution channels or customer groups is also possible. Contract, customer and distribution data, together with economic indicators, should be merged in a separate data warehouse for the sole purpose of analysing the portfolio.
A portfolio analysis should not be a one-off occurrence, however, but must rather be embedded in the life insurer’s day-to-day operations. This is the only way to achieve sustainable improvements in earnings – also in terms of new business and a more focused product strategy.
If, based on the data analysis, a decision is taken not to sell the portfolio (run-off) but to retain and manage it actively, there are three ways of going about the optimisation:
With the msg.Insurance Suite, msg life offers insurance companies a complete solution from a single source, which provides optimised support with the implementation of effective in-force management. The core of the msg.Insurance Suite for the life insurance business is the policy administration system msg.Life Factory. It supplies the customer and contract data required for the analysis at a level of detail that is unparalleled on the market. It includes the component msg.Ilis (insurance liability information system), which provides the framework for central data storage where the data required for all kinds of forecast calculations is managed. In combination with the standard software package msg.Alamos (asset liability and model office system), this not only enables a detailed qualitative and quantitative analysis of existing portfolio data, but also of the effects of planned management decisions, possible market developments or other factors in advance. msg.Ilis is also compatible with all other market-standard ALM systems.
In addition, msg.Insurance Suite offers the end-to-end digital processing of all an insurance company’s core business processes. Then there is the service portal accessible by all devices, which enables clients to be integrated more deeply into the insurer’s process chain. The process efficiency and productivity gains this generates also lead to significant improvements in the cost structure. The system can be operated entirely or partly as a cloud solution, in order to profit quickly from lower operating costs and higher process efficiency.
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