Major challenges for life insurance companies have been posed by an
unprecedented wave of mergers and acquisitions in the insurance industry
and the emergence of non-traditional competitors such as banks, mutual
fund companies and investment advisory firms. This is the first book to
analyze the determinants of firm performance in the life insurance
industry by identifying the `best practices' employed by leading
insurers to succeed in this dynamic business environment. The book draws
upon data from insurer financial statements as well as upon an extensive
survey of life insurer management practices and strategic choices in
distribution systems, information technology, mergers and acquisitions,
human resources and financial strategies. Generic strategies such as
cost leadership, customer focus, and product differentiation are
analyzed as well as strategic practices specific to the insurance
industry. Best practices are identified by measuring the economic
efficiency of insurers and by comparing firms across the industry. Both
cost and revenue efficiency are measured relative to best practice
efficient frontiers consisting of the industry's dominant life insurance
firms. Economies of scale and the effects of mergers and acquisitions on
efficiency are also analyzed. Financial strategies are examined with
specific reference to pricing policy, valuation of assets and
liabilities, and the current state of firm-level risk management
systems. The benchmarks established are the result of extensive
fieldwork that identifies key financial risks and methodologies to both
measure and manage them at the firm level.
The results discussed in the book indicate that firm performance is
significantly correlated with management practices and strategic
choices. Thus, life insurers can improve profitability by adopting
optimal combinations of strategies. The book contains important new
material on the effects of strategic choices in product distribution
systems, information technology, mergers and acquisitions, human
resources, and financial risk management policies. In the area of
efficiency, the methodology provides a new approach for identifying peer
groups of insurers and measuring the performance of individual insurers
relative to their peer group. On the topics of risk and pricing, new
insights are offered relative to current methodologies and in regard to
areas where improvement is clearly warranted. The book concludes with an
analysis of the future opportunities and challenges in the life
insurance industry facing managers, and the strategic options available
to them to cope with these changes.
