For release: 13 Nov 2006
Life Insurance Study Reveals Strategies for Global Expansion
Despite buzz surrounding emerging markets, EDS survey found life insurance companies will focus on mature markets first
PLANO, Texas – Global economic, regulatory and technological changes combined with increasing life expectancy rates for an aging population present a once in a life time opportunity for life insurers. How can life insurers take advantage of this unique opportunity?
EDS explored the market opportunities as well as the expansion drivers, barriers and enablers, such as technology, in a survey entitled “Fit to Travel: A study of competencies for global expansion” PDF, 1.3M. The survey, conducted by market analyst firm Datamonitor on behalf of EDS, of more than 100 life insurance executives from around the globe reveals mature life insurance markets remain the top priority for those considering expansion – with the United Kingdom and United States ranking at the top of the scale.
- Forty-five percent of North American life insurers are targeting a European country as their top priority
- Forty-eight percent of European insurers view North America as their top priority
- A keen interest in emerging markets such as Latin America (11 percent), China (6.5 percent) and India (5 percent) are second priority in expansion plans
“Despite the hype surrounding emerging market expansion for financial services firms, many life insurers will focus short-term expansion efforts on mature, well-established markets to show immediate return on investment,” said Tom Warsop, EDS vice president of Financial Services. “For many, uncertainty coupled with regulatory and cultural differences are barriers to expansion in emerging markets – but those who explore these markets sooner than later will have the competitive advantage and benefit greatly from brand recognition in the long-term.”
The reasons life insurers are looking to expand in mature markets versus for emerging markets differs greatly. The survey found 83 percent of respondents focusing on mature markets see higher margins and return on investment as the primary reason of expansion in mature markets. Conversely, only 53 percent of respondents cite this as a reason for expansion in emerging markets, where capturing market share is the main impetus for entering the market. Risk diversification is also important for international expansion in mature markets, due to the presence of stable capital markets, regulatory control and greater transparency.
Other expansion drivers are noted in the chart below:
| Other Expansion Drivers | ||
|---|---|---|
| What is driving expansion? | Mature Markets | Emerging Markets |
| Higher margin/returns | 83% | 53% |
| Diversify risk | 52% | 78% |
| Capture an unique/under penetrated market opportunity | 71% | 81% |
| Capture market share from competition | 51% | 87% |
| Satisfy investor expectations for growth | 74% | 76% |
| Offset competition in domestic/current markets | 46% | 59% |
| Follow strategy of parent company | 42% | 62% |
| Leverage acquired distribution channels | 51% | 47% |
With an increasing number of insurers currently surveying the global landscape for opportunities, nearly half of our survey respondents stated an understanding of local and cultural factors critical to their expansion success in established and emerging markets combined. The other most frequently cited responses include:
- Setting reasonable growth objectives – 38 percent
- Establishing a long-term vision – 29 percent
- Although more important for expansion in emerging markets, partner compatibility – 13 percent
“Life insurance companies remain focused on establishing share in the largest life insurance markets, so not surprisingly creating the best products and distribution channels remain the dominant concerns,” said Edward Blomquist, lead Datamonitor analyst. “However, as the global life insurance industry becomes more integrated and more competitive, operational efficiency, including IT processes will become more important.”
Technology in the insurance industry was highlighted as an important strategy in supporting revenue-generating applications, including policyholder and producer sales and support. As noted in the chart below, a majority of life insurers consider improving channel integration and strengthening Customer Relationship Management (CRM) capabilities a priority for securing a competitive advantage – in both mature and emerging markets.
Survey Question: What IT functionality is most important to your international operations on a scale of one to five (five being the highest)?
| Survey Responses | ||||
|---|---|---|---|---|
| Technology | Total | Mature Markets | Emerging Markets | % Difference |
| Single customer view for all products/channels | 3.82 | 3.83 | 3.79 | 1.04% |
| Implement new functionality on current policy administration platform | 3.75 | 3.95 | 2.85 | 27.85% |
| Centrally orchestrate processes across all channels | 3.72 | 3.92 | 2.91 | 25.77% |
| Integrate back-office with distributors | 3.51 | 3.70 | 3.10 | 16.22% |
| Offering customers direct capability over multiple channels | 3.46 | 3.52 | 3.30 | 6.25% |
About the survey
Datamonitor and EDS obtained input for the survey from more than 100 life insurers from 17 countries – 45% Americas, 39% Europe and 17% from the remainder of the world. The information was obtained via telephone surveys and from in-depth interviews with directors from some of the world's largest life insurance companies. A comprehensive view of the study can be found by visiting http://www.eds.com/industries/financial/.
EDS in the Financial Services Industry
As a pioneer of IT services for the financial services industry, EDS provides a wide range of outsourced services from payments and securities processing to applications development and network, customer relationship management and helpdesk services to all sectors of the industry. More than 20,000 EDS employees work on finance-related projects in 30 countries.
About EDS
EDS is a leading global technology services company delivering business solutions to its clients. EDS founded the information technology outsourcing industry more than 40 years ago. Today, EDS delivers a broad portfolio of information technology and business process outsourcing services to clients in the manufacturing, financial services, healthcare, communications, energy, transportation, and consumer and retail industries and to governments around the world. Learn more at eds.com.
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