The life insurance industry has become, well, cutthroat. Blame it on 1999’s Financial Modernization Act, which repealed the mandated separation of commercial and investment banks and freed banks, brokerages and insurance firms to acquire each other. Point the finger at the decade-long consolidation trend in the industry as a whole, culminating in 1998 (the most current year for which data is available) with 565 transactions worth $165.4 billion. Fault insurers who are struggling to retain and attract new policyholders with low prices and still turn a profit, despite last year being the second-most expensive year in insurance history.
“Everyone is looking for ways to expand their market share, products and services wherever they can, and it’s difficult because so many companies are competing for business,” says Dan Zielinski of the American Insurance Association, which represents property and casualty insurers, an industry segment that faces the same obstacles as life insurers. “Larger companies have cost advantages over smaller ones. In the same way that neighborhood groceries and pharmacies face competition when Wal-Mart comes to the area, small insurance companies must invest in technology to improve productivity and provide higher-quality customer service.”
Which means, says Larkin Teasley, CEO of Los Angeles-based Golden State Mutual Life Insurance Co. (No. 3 on the be insurance companies list with $102.5 million in assets), “There really is no black insurance industry anymore. In fact, there’s no insurance industry anymore.”
“Now, the life insurance industry probably sells more financial products than insurance policies,” adds Zielinski.
This shift is exemplified by the fact that Atlanta Life Insurance Co. (No. 2 on the be insurance companies list with $193.3 million in assets) has pursued talks with African American-owned institutional money manager MDL Capital Management to sell several MDL funds to Atlanta Life customers. While nothing has been solidified, Atlanta Life CEO Charles Cornelius concedes that “we’re competing against companies that have a wider array of products and an emerging market strategy to go after the customer base we’ve traditionally had as a niche.”
To fight back, Atlanta Life is beating the technology drum to attract new customers and more efficiently serve existing ones. “People are doing [online] research before buying products, so we have to make sure we’re visible for comparison,” says Cornelius of his company’s expanded Web presence. “We have to be prepared to deal with a customer who knows what he wants-and be able to give it to him.”
KICK ASSETS TO COMPETE
Robert Hartwig, vice president and chief economist at the New York-based Insurance Information Institute, boils down the industry’s direction to two words: asset management. “It’s the wave of the future,” he says. According to Hartwig, a saturated market and falling prices are causing larger insurance companies to position themselves to sell products like variable annuities–basically mutual funds in a tax-deferred wrapper–that can also serve as insurance policies. These financial hybrids let insurers sweeten the pot for consumers by offering one-stop shopping.
Concurrently, access to the life insurers’ customer pool gives money management firms new distribution channels.
“The big boys are making investments