Tackling unique Canadian challenges critical to achieve profitability
targets in 2013
TORONTO, March 14, 2013 /CNW/ - Canadian life insurers enjoy a
relatively good position compared to their US counterparts, says Ernst
& Young. But companies need to creatively adjust their products,
business strategies and services for growth in a competitive market
characterized by lower margins and changing demographics.
"The Canadian life insurance market is made up of a few large companies
and a number of small and medium-sized ones," says Doug McPhie, partner
and Canadian Insurance Leader at Ernst & Young. "They need to tackle
challenges differently depending on their size."
Ernst & Young's 2013 Canadian life insurance outlook outlines five key things Canada's life insurers will need to consider —
regardless of their size — to respond to challenging market forces in
Rethink strategy for sustainable advantage
Manage the persistent slow growth, low interest rate environment
Address changes in distribution and consumer demographics
Position the business for regulatory and accounting change
Turn operational excellence and technology into competitive advantage
"Larger insurers continue to enjoy robust assets and market share, but
have difficulty growing organically," says McPhie. "They're looking to
move into lines outside their core business or grow through foreign
In contrast, McPhie says, smaller insurers should consider focusing on
niche market opportunities. And — given the need for scale in the
current economic environment — the best strategies for some small
insurers may be joint ventures that allow them to offer complete
The report notes that smaller insurers are likely to find implementing
significant regulatory and accounting changes particularly onerous. But
understanding the details and impact these changes will have on
existing processes, controls, resources and IT is critical.
"Regulators are demanding the highest level of transparency, while
solvency, capital calculation, adequacy and risk are also in the
crosshairs," says McPhie. "Layer on top of that emerging accounting
standards, and insurers — large and small — really need to make sure
that their systems, people and data are prepared and capable of
implementing the new requirements. Their potential profitability
depends on it."
While they may maintain a better overall position compared to their US
counterparts, McPhie says Canadian insurers can learn about operational
excellence from their southern neighbours.
"US insurers were forced by the economic crisis to take significant
steps toward operational excellence," he explains. "Canadian insurers
need fundamental process changes — such as investments in technology,
predictive modelling and consumer analytics — to achieve similar
efficiency, compete more effectively and increase margins."
"Canada's life insurers have a lot to consider in the coming year," adds
McPhie. "But with thoughtful responses to changing market forces, they
can achieve their profitability targets and maintain a favourable
position relative to their US neighbours."
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SOURCE: Ernst & Young
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