Life insurers look to outsource

Life insurance companies are about to embark on a major industry-wide outsourcing campaign, according to a recent research report.

Life insurance companies are about to embark on a major industry-wide outsourcing campaign, according to a recent research report.

The research, the <I>Gerling Market Evaluation of Individual Risk Products<I>, found that all life insurance companies are considering outsourcing key elements of their risk insurance operations in an effort to create efficiencies and build profitability.

Nearly 90 per cent of respondents to the survey say they believe claims manage-ment functions will be outsourced in the future, while two-thirds believe under-writing will be outsourced.

The indication of support for outsourcing comes at a time when a number of life insurance groups are suffering losses due to performance of their income protec-tion insurance operations. Market leader AC&L indicated it was feeling the pain when its parent company AXA reported its annual results to the market a few months ago. Tyndall publicly reported similar profitability concerns about 18 months ago, before it was taken over by Royal & SunAlliance.

The Gerling survey found that less than half of all life insurance groups are running profitable income insurance operations. The most mentioned reason for the struggling profitability is the claims management operations, which compa-nies reported were often not as experienced as the underwriting operations. Thirty per cent of the life insurers surveyed put some of the blame with claims management, while 22 per cent blamed aggressive pricing policies and 14 per cent put it down to faults in product design.

However, a number of companies have moved to stem the flow of losses from their income protection operations. The Gerling research found that one in four groups have launched indemnity style products over the past year, rather than staying with the agreed value products which dominate the market. Policies without life-time benefits are also becoming increasingly common, the research found.

While income protection products continue to be a thorn in the side of life in-surers, other products are profitable across the industry. Total and permanent disability (TPD) and trauma product ranges remain profitable across the vast ma-jority of operators. Despite the ongoing profitability, TPD ranges were less profitable this year than last year. The research reported 96 per cent profit-ability in 1999, compared to 80 per cent this year.