Factors in the economy, risk management, keeping costs low and retaining business in a competitive market are issues insurance companies face on a regular basis, according to Price Waterhouse Coopers. Uncertainty regarding the economy along with changes in how people do business keep this industry on its toes as it strives to meet the demands of consumers and ensure long-term success.
Maintaining Funds in Hard Economic Times
Price Waterhouse Coopers stated that instead of seeing collapsing assets, insurance companies have to deal with problems relating to collapses in hedge funds, structured securities and equities, according to the company's "Top Nine Insurance Industry Issues in 2009" publication. As a result, credit markets seized, sales in life insurance policies dropped, asset management fees lowered and bond and mortgage insurers lost significant amounts of capital. In an effort to hold on to whatever funds they have, insurance companies are doing what they can to deny claims, pay less in settlements and defend their claim decisions in court, a battle that can take several years, according to a 2007 CNN article.
Companies that offered whole and term life insurance began offering “market-sensitive” products in an effort to expand product portfolios, according to Price Waterhouse Coopers. This gave policyholders competitive returns and gave insurance companies an edge in the financial service market. Consequently, reserve calculations are subjective, more complex and the investment portfolios require more attention in order to manage them so returns and cash flow align with future liabilities. Market sensitive products that involve long- and short-term investments for companies that sell life insurance are seeing low returns. As a result, insurance companies need to look at other avenues to ensure solvency and increase retention efforts.
Cost cutting efforts can have devastating consequences to insurance companies, but is an issue they face in an effort gain capital. Insurance companies, as they determine which costs to cut, must look at forces behind costs. This helps them ensure a cut in one area does not increase the cost in another, which can make an insurance company less competitive. For example, cutting employee benefits reduces employee retention, or cuts in staff can lead to long turn-around times. Financial Web states that as insurance company costs increase, their capital decreases. Additionally, insurance companies face difficulties when it comes to creating improvement plans that reduce costs when the plans lack a basis in resources, priorities, dependencies and the integration of the human element, such as training, communication and performance management.
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