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Life insurers will have to reduce their costs of distribution, says McKinsey


Hubert Roy

December 5, 2018 09:30

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Life insurers will need to tackle their operating costs as other industries have done before it, warns the think-tank McKinsey & Company.

The consulting firm has identified an area where she believes that life insurers will be able to realize economies : distribution. “Few things have changed in recent years in the structure of costs for life insurers. The same holds for their operations “, one can read in the report Life Insurers and Annuities State of the Industry in 2018 : the growth imperative.

This status quo so that the cost of the insurers have varied little over the years, and this, regardless of where they are in the world, as shown in this table :

A letting-go that will continue ?

McKinsey & Company has surveyed executives of insurers to know their willingness to review their structures of costs in the medium term. The consulting firm has compiled the responses to arrive at an average. They have established that the surveyed leaders believe that the industry will have to reduce its costs by 35 %. Furthermore, analysts McKinsey argue that insurers who have undertaken this approach have reduced their costs by 10 % to 15 %, far short of their aspirations.

“To date, the life insurance industry provides a roadmap disappointing in the management of its costs. Some companies are better than others. We can take the example of insurers in Western Europe, which have higher expense ratios than established companies in the Americas or in Asia-Pacific “, one can read in the report.

A long return to normal

To qualify the willingness of life insurers to reduce their costs, the analysts of McKinsey recall that it took a lot of time for life insurers to recover their pre-crisis level. The consulting firm notes that the market capitalization of the 100 largest life insurers, was 2,100 billion dollars (G$) at the end of 2007. A year later, after the stock market crisis, this funding was 1 000 G$.

“The industry has needed seven years to reach the cap that it had in 2007. This funding represented 25 % of the market of financial services. This proportion is 21% today. “

To read by next Wednesday : China will generate more profits than the United States for life insurance companies

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