2010 Nolan Life & Annuity Industry Survey Results

Life & Annuity Industry
Survey Findings
Strategies for a Changing
Industry
Robert E. Nolan Company
Management Consultants

Life & Annuity Industry Survey Findings
Increased regulation. Aging systems.
Changing demographics. Product
commoditization. Intensified competition.
Compressed interest rates. Distribution
consolidations. Life and Annuity insurers are
facing increasingly complex and challenging
conditions as demands for returns and
profitability magnify the pressure on growth.
In this turbid realm of an industry in
transition, it is not a lack of strategic options
so much as the often conflicting diversity of
choices available that today’s senior
executives are faced with sifting through.
Where to best apply the limited available
resources of time, money and people is now
more than ever a decision process requiring
the greatest of care and focus.
The Robert E. Nolan Company's Life &
Annuity Industry Survey Findings suggest
that strategic priorities are starting to shift
from an internal, operational focus to an
external, market driven one. With this shift,
executives are challenged with the need to
balance the tradeoffs between service,
support, product features and returns. Within
this context, five strategic trends stand out as
differentiators in the years ahead:
Shifts in demographics paired with chang-
ing customer expectations demand intensi-
fied attention for growth-oriented compa-
nies, with 95% of respondents profiling
the aging of America and 88% the expan-
sion of ethnic markets as each demanding
attention.
Translating strategy into action specifi-
cally in the areas of expense management
Executive Summary
and the effective use of technology
remains a challenge, even with 85% of
respondents saying their companies have a
clear vision, goal, and strategy.
Leveraging sales and marketing invest-
ments for optimal returns stands out,
particularly with respect to (1) optimizing
the existing distribution channels, (2)
enhancing product features to provide
competitive advantage and meet market
demands, and (3) expanding the tools,
techniques, and training of the existing
field force.
Utilizing service as a competitive advan-
tage to offset the convergence of product
features and pricing stands out as one of
the key differentiators of forward-thinking
companies, with almost unanimous
respondent agreement that speed of
service will be a strategic imperative.
Timeliness was closely followed by the
need for access methods from phone, Web,
e-mail, and voice response to traditional
written requests.
Intensely focused technology strategies
encompassing key service platforms like:
(1) e-signatures, (2) document manage-
ment, (3) Web self-service, (4) multi-
product common front-ends, and (5)
consolidated commission systems. On the
other hand, while it remained a limited
strategy, only 16% of respondents felt they
were likely to outsource any key functions
within the next three years.
3.
4.
5.
1.
2.

Page
• Breakdown of Survey Respondents ................................................................. 1
• Company Self Assessment ................................................................................ 2
• Industry Trends .................................................................................................... 5
• Competitive Landscapes ................................................................................... 8
• Sales and Marketing ........................................................................................... 10
• Operations ........................................................................................................... 13
• Technology .......................................................................................................... 16
• Outsourcing ........................................................................................................ 20
• Next Steps: Strategies in Transition ............................................................... 22
• Background & Acknowledgements ................................................................ 23
Table of Contents
Robert E. Nolan Company, Inc.
90 Hopmeadow Street
Simsbury, CT 06070
(877) 736-6526 (877-RENOLAN)
www.renolan.com
info@renolan.com
17746 Preston Road
Dallas, TX 75252

1
Based on answers to our self-classification
questions, we see that respondents repre-
sented a healthy mix across levels, roles, and
business size.
Responses received represent a broad mix of
all key functional areas...
A broad diversity of business line blends, with a
solid majority Life and Annuity, followed by
Single Line companies and then Property
Casualty, is represented.
Allocation of Responses
by Department
by Officer Level
Operations
23%
C-Level
Execs24%5%
StaffFinance
U/W
IT
Sales &
Marketing
C-Level
29%
EVP/SVP
22%
VP
AVP/
Director
Other
7%
18%
16%
7% 7%
15%
27%
by Business Line
Life/Annuity
Blends
69%
PC Primary,
Multi-line
Life/AH
Blends
Single
Line Only
14%
12%
5%
Stock and mutual companies were equally repre-
sented. Based on annual premium revenue:
• A little over half (54%) of the respondents
were under $500 million a year,
• Just over a quarter (25%) were in excess of
$2.5 billion, and
• Leaving the remaining fifth (20%) between
$500 Million to $2.5 Billion.
Stock and Mutual Companies
Company
Type
No. of Home
Office Staff
Under $500
Million
$500 Million to
$2.5 Billion
Over $2.5
Billion
Grand
Total
Mutual
Stock
• 500 or fewer
• 501 to 1,000
• 1,001 to 2,000
• 2,001 or more
Subtotal
• 500 or fewer
• 501 to 1,000
• 1,001 to 2,000
• 2,001 or more
Subtotal
27%
2%
29%
17%
5%
3%
25%
54%
2%
2%
2%
2%
8%
3%
3%
6%
12%
20%
2%
12%
14%
12%
12%
26%
29%
4%
4%
14%
51%
20%
8%
3%
18%
49%
100%Grand Total
Breakdown of Survey Respondents
...with almost all respondents in senior leader-
ship positions (51% at EVP or higher and
almost 80% at the officer level).

2
1. Company Self-Assessment
When asked about the strategic direction of
their company, respondents gave a reassuring
response. Eighty-five percent (85%) of the
respondents said their companies have a clear
vision, goal, and strategy:
At least for the companies involved in the
survey, the importance of clarity in purpose
and direction is apparent. However, answers to
the follow-up questions showed that trans-
lating strategy to action in areas such as
expense management and the effective use of
technology remain a challenge:
Strongly Agree / Agree
Strongly Disagree / Disagree
Don't Know
N Has clear vision, goal and strategy for
where it wants to be in three years
85%
3%
12%
Don't Know
N Effectively uses process improvement
to generate measurable results
N Expense ratios will decrease
measurably over the next 3 years
54% 27% 19%
50% 31% 19%
would not decrease. The eye-opening statistic
is almost 20% of respondents are not aware if
their company has a strategy.
In the same vein, only slightly more than half
the respondents (54%) felt that process
improvements were being used effectively to
generate measurable results. Twenty-seven
percent (27%) said their companies were not
using process improvement effectively to
reduce expense, compared to the almost 20%
who had process improvement projects but
did not know if they were effective.
Insight: The competitiveness of the
marketplace, driven by both consumers
and investors, continues to demand
focused management of expenses. This
requires a clear understanding of the
current situation, desired results, and
actions to be taken. Absent a connection
between expense ratio, action plan, goal,
and strategy, companies are susceptible to
higher costs, noncompetitive prices, and,
ultimately, a gradual erosion of market
share and/or profitability.
Insight: The use of continuous
improvement, especially in operationally
intense environments like insurance
companies, plays a key role in improving
cost-effectiveness. With no continuous
revalidation and redesigning of processes,
the overhead associated with services
provided can grow significantly.
When asked the same question in 2001, 75%
of companies felt that expense ratios would
decline significantly for successful companies
over the next three to five years. In the current
survey, that percentage dropped to 50% while
more than 30% believed their expense ratios
Given the competitive environment, in three
years would you rather be leading a company
that has been consistently reducing expenses
and improving processes or one that hasn’t?
For the half of the companies without clear
expense and service strategies and goals, this
might be the time to reconsider your
priorities.

Life Annuity Industry Survey Findings
3
Responses to questions about technology
strategies profiled a similarly interesting
inconsistency:
while slightly fewer (57%) stated that IT
generates measurable results. However, 38%
either did not know or felt that their IT
departments were poorly aligned with the
business strategies. Equally troubling is that
43% either did not know or did not believe IT
generated real results. Even more dramatic is
the gap when it comes to technology as an
enabler of competitive advantage, with only
45% agreeing and 55% either not knowing or
not believing that IT is an effective enabler of
competitive advantage.
Don't Know
N IT Department is well aligned
with the business
N Plans on making significant tech
investments to remain competitive
N Uses technology effectively as an
enabler of competitive advantage
N Effectively uses IT to generate
measurable results
Insight: Aligning IT with the busi-
ness continues to remain fundamental to
effective realization of marketplace and
operational benefits. Strategic alignment
requires significant information sharing,
broad-based involvement, and, above all,
common goals and rewards.
65% 21% 14%
61% 12% 27%
57% 23% 20%
45% 24% 31%
Almost two-thirds (65%) of the respondents
plan to continue their investment in
technology, offset by a significant percentage
(35%) who are uncertain or do not plan to
continue their technology spending. This is a
surprising finding given the investment and
results of the past few years. When we asked a
similar question in 2001, more than 90%
predicted that successful life companies
would invest in new technologies to remain
competitive.
A good majority (61%) said that their IT
departments are aligned with the business
!!!
When asked What long standing
practices do you believe are likely to
require revision in the next 1 to 3
years?
..............
How we price, underwrite and service our
products…changes have caused us to re-
think the services we offer.
VP of Underwriting
..............
Growing shift to direct / retail for sales
and service, further impacting broker
compensation practices.
Head of Product Management
..............
Product-focus will begin to change to
solutions-focus...change may be very rapid
once it takes hold.
Sr. Manager, Sales/Marketing
!!!

4
The existence of a clearly communicated
vision, goals, and strategy helps a company
focus on a collaboratively adopted and cost-
effective transition to their future business
model. Translation of these concepts into
actionable plans with measurable results is at
the crux of growth and profitability. Given the
competitive nature of the industry and
tightening profit margins, managing expense
ratios must be a key goal of any strategy
implementation, which means a high-profile
linkage to actions and their impact across the
company. Failure to tie, in some way, the
impact of strategy execution to expense ratio
could easily constrain paybacks and limit
future opportunities. Along these same lines,
the use of technology and process improve-
ment to enhance service delivery and cost-
effectiveness must play a core role in any
ongoing strategy.
Conclusion:
Given the importance of information tech-
nology as an enabler of growth, profitability,
and competitiveness, this disparity of results
concerns us—it represents a potential
disconnect in a critical business component.
This is especially true considering the opinions
expressed in the Technology section of the
survey. Respondents expressed a strong need
for IT to act as the foundation upon which
competitive advantage is built going forward.
This need becomes extremely acute as
products become more commoditized and
profit margins narrow. Companies should
consider investing in the necessary structure
and communications to ensure that they are
clearly identifying, communicating, and
supporting the link between IT, results, and
competitive advantage.
Customers
Independent
Producers
Better Service through Process Innovation Technology
Expense Reduction through
Process Improvement Technology
Organization Structure Management
That is Accountable, Responsive, Agile
Niche
Focus
Integrated
Financial Services
Customer
Focus
Distribution
Strategies
Marketing
Strategies
Service
Strategies
Enterprise
Structure
Life Industry Strategy Map
Global
Alliances
Alternative
Channels
Relationship
Management
IntegratedSystems
Market
Segment
Market
Segment
Market
Segment
Market
Segment
Market
Segment

5
Overwhelmingly, respondents indicated that
demographic change was the one trend that
stands above all others. Each demographic
change shown was rated highly as a significant
opportunity for growth:
An almost equally significant trend is the
growth in diversity of ethnic markets, each
bringing language and presentation require-
ments that span distribution, call center,
correspondence, and all other major functions
involved in selling to and servicing insurance
buyers. Hispanics are the group that
respondents pointed out as the fastest growing
underserved population, followed closely by
Asians. With more than one foreign language
involved, the complexity of the situation is
compounded.
While lower- and middle-income segments
have been recognized in the past as
underserved markets, more companies are
viewing them as a viable source of new
customers. This recognition of opportunity,
though measurably behind that of the aging
and ethnic markets, is significant. For lower-
to middle-income customers, respondents
recognize distribution through work site sales
channels and sponsored groups each represent
a cost-effective opportunity for growth.
2. Industry Trends
Don't Know
N Work site and bank sales will be a
significant opportunity for growth
N Low- to middle-income markets
N Ethnic markets
N Aging U.S. population as an industry
impact driving change
2%
22%10%68%
19%18%63%
5%7%88%
4%95%
Insight: Changes in national demo-
graphics resulting from the aging U.S.
population are bringing significant oppor-
tunities and challenges to the industry. The
payout and maturity stages of products, as
well as features and benefits tailored for an
older population, should be key areas of
concern in product design. Furthermore,
with the diminished value of government-
sponsored programs like Social Security,
the need for privatized wealth creation,
protection, and management will provide
tremendous opportunity. Successful insurers
will need to have available a diverse suite
of products covering the full range of
retirement concerns, such as cash manage-
ment, lifestyle protection, wealth transfer,
and inflation protection.
Insight: The importance of the ethnic
diversity trend is clearly recognized, yet
the industry as a whole has made only
slight progress in improving its ability to
service the various segments. Solutions
range from significant internal IS
investment or outsourcing on the high end
to minor translation of marketing
materials without supporting multi-lingual
service capacity on the low end. The
most successful companies will be the
ones that offer the full spectrum of multi-
lingual materials and service capacity.
Insight: The margins available in
these markets, however, are so low as to
require extremely efficient distribution
and service, bringing additional chal-
lenges to the table. However, for the most
part, the same basic product structure and
features can be leveraged across these
markets.

6
The second most significant industry trend
identified involves compliance-related items:
Given the formality and structure of the
regulatory environment, it is easier to estimate
the impact of compliance with regulations
such as SOX, the Patriot Act, anti-money
laundering, and privacy laws. The result, it is
agreed, will be that compliance will cost more
in systems, staff, and processes. Less clear is
the impact of possible tax reform, where
respondents are spread across “agree,”
“disagree,” and “do not know.”
Even less known is the potential impact of
class-action lawsuits. Litigated contentions
have centered on a range of issues, from fee
disclosures to agent compensation
agreements. Historically, there has been a
sense of comfort in the industry’s ability to
self-regulate, but this has changed with the
frequency and size of penalties in recent
class-action lawsuits. In 2001, 70% said that
class-action suits would change the way
companies market and sell products. Today,
while a third of the companies are concerned
about the risks these lawsuits represent, the
largest percentage (45%) are unsure what the
outcome will be.
Don't Know
N Class action suits will significantly
change how companies market
N Tax reform (estate or flat) and lifetime
savings accounts major impact
N Privacy issues will require increasingly
larger investments
N Cost of compliance with regulations
will continue to increase
45%19%36%
Insight: The lack of consensus
regarding tax reform may be due to diver-
gent marketing strategies, with some
concentrating on wealth protection, others
on basic income re-placement products,
and so on. In general, tax reform remains
on the radar but appears too unpredictable
to motivate any significant near-term
product design or marketing strategies.
34%21%44%
12%4%84%
7%5%88%
!!!
When asked the most important trend(s)
facing the industry over the next three
years, there were some varying
responses.
..............
How to make life insurance more
affordable and reduce the cost of
processing insurance claims, new business
and service.
CIO
..............
Affordable and simple to understand Life
and Health Insurance Products that meet
the needs of an aging population.
Medical Director
..............
Will consumer driven healthcare resolve
inflationary healthcare expenses? will
employers get out of providing healthcare
to employees?
VP Sales/Marketing
!!!

7
changes in processes and associated increased
costs will be incurred as companies move to
satisfy the new requirements. Less clear are
potential changes in the estate and income tax
arenas, where potential changes are too
uncertain to drive product changes at this
time.
Conclusion:
The survey identified three significant
demographic opportunities that companies
should act on:
1. The graying of America,
2. Growth in ethnic populations, and
3. Lower- and middle-income markets.
While not new, the aging of America is a
trend that companies need to address quickly.
Product features as well as distribution and
service techniques need to match the needs of
the senior market.
Less clear is the impact of ethnicity, clearly a
large and growing market, but one fraught
with high sales and support costs and complex
challenges. A careful demographic evaluation
of this market should be part of every
company’s plan; the evaluation should look
for a match between capacity, distribution,
service, and segment.
Regarding compliance, careful cost manage-
ment is required to ensure that overhead does
not grow inappropriately as a key element in
fulfilling regulatory obligations. Growth in
regulatory based compliance will drive
!!!
Across all company respondents, there
was one very consistent message
regarding future marketing and product
considerations that had to be taken into
account – the words were written a
number of different ways, but all
pointed to the same situation:
..............
population aging...growth of life
settlements...aging of the population...
aging of U.S. population...retirement
income management as baby boomers
retire...aging U.S. population and the
market opportunities it creates...aging
population and wealth transfer...aging
population...boomers aging and
retiring...aging population with longer life
spans and better health...
!!!
Common Drivers of Value Improvement
Source: Nolan presentation to LIMRA Marketing Forum on Risks and Challenges in our Industry
Cutting or containing
the tail of the product
portfolio
Cutting or containing
the tail of the product
portfolio
Managing expenses
through automation
and process
redesign
Managing expenses
through automation
and process
redesign
Profitable growth in
premium
Profitable growth in
premium
Enhancing channel
profitability and
throughput
Enhancing channel
profitability and
throughput
Tapping the hidden
value in current
customer / channel
relationships
Tapping the hidden
value in current
customer / channel
relationships
Manage financial
performance on an
ongoing basis
Manage financial
performance on an
ongoing basis
Life and
Annuity Value
Improvement
Life and
Annuity Value
Improvement

8
3. Competitive Landscapes
On the competitive front, most respondents
see industrywide refocusing as likely:
The message here is that many companies will
be concentrating their efforts on their best
lines and eliminating marginally profitable
ancillary lines. For those companies, a back-
to-the-basics approach supersedes the goal to
be a financial supermarket. A majority also
state that niche companies will be more
successful than companies offering full
financial services. Two factors probably
underlie this response: the company’s current
position in the market (specialized vs. broad)
and its distribution system.
The impact of merger and global expansion
trends is less clear:
About half (49%) of respondents believe
mergers and acquisitions will improve
economies of scale and the other half are
either unsure or believe the opposite—that
bigger is not necessarily better.
Another interesting and unclear response is
the almost completely even split on the impact
of globalization, despite the continued
incursion of non-U.S. companies into the U.S.
industry. This response seems to be a result of
the surveyed company’s strategy, with about a
third of respondents working on global
expansion (possibly with a partner company),
a third content to remain domestic, and a third
still uncertain whether it’s necessary to expand
into international markets.
Niche companies will be more
successful than full financial services
Insight: Companies with career chan-
nels (and particularly those covering small
towns and rural areas) may need a broader
product portfolio than those marketing
mostly through brokers, whether they man-
ufacture all lines or private label a few
lower volume lines to enrich their product
sets.
59%24%
17%
Don't Know
Divestitures, discontinued products
will grow as companies focus on returns
Don't Know
Target mergers and acquisitions will
improve economies of scale
Don't Know
Global expansion of U.S. companies
will be a major source of growth
Don't Know
66%
5%
29%
49%
20%
31%
37%
30%
33%

9
Today, only 19% feel this is a threat and
almost half (47%) do not see these businesses
as major threats.
Conclusion:
From a marketing perspective, companies
need to make a strategic decision between
being either niche-focused or broad market
based, possibly even international.
Respondents are split between the impact of
globalization and merger and acquisitions.
That said, the majority of companies will be
most successful by focusing on their core
competencies with a clearly defined market
and strategy, eliminating marginally profitable
ancillary lines. A majority also state that
niche companies will be more successful than
companies offering full financial services.
Interestingly, there is less concern over the
impact of banks and Internet on distribution.
Two long-standing competitive threats now
seem more uncertain than they used to.
In 2001, 50% of respondent felt that the
Internet would not destabilize the profitability
of life companies’ traditional distribution
channel. Today, this has dropped to 22%
believing that the Internet will not have a
destabilizing effect.
A majority (63%) remain uncertain of whether
traditional channels are threatened by online
distribution, a concern that’s existed since
web-based sales first arrived on the scene.
The ultimate impact remains to be seen.
We see a similar shift in attitude regarding the
entry of banks and other non-insurance
companies; compared to the Internet,
however, respondents are less concerned with
this development. In 2001, about 50% of
executives believed banks and other non-
traditional competitors would be a major
strategic threat over the next three to five
years.
Banks and other non-insurance entities
will become major threats
Don't Know
19%
47%
34%
Internet sales will destabilize
traditional channel profitability
Don't Know
15%
22%63%

10
Very Likely / Likely
Not Somewhat Likely
Don't Know
4. Sales and Marketing Strategies
Answers to questions about product strategy
offer both consistency and an interesting
disparity between market trends and likely
strategies. In interpreting the results, keep in
mind the changes in market demographics
previously discussed.
Leveraging existing products takes advantage
of market presence, distributor expertise, and
operational infrastructure. Increasing the
emphasis on retirement and lifestyle products,
particularly products like annuities which
meet the payout needs of seniors, indicates
adaptation to changes in the marketplace. The
interesting disparity involves the caution
shown with respect to variable investment
products, a recent core element in the rapid
growth in annuity product portfolios.
Although over 40% indicate a likelihood of
increased marketing of variable products, the
“not likely” answers are over 50%.
N Expand into PC or AH lines either
directly or with private labels
9%68%24%
Not Somewhat Likely
Don't Know
N Increase marketing of variable
investment-related products
N Increase focus on retirement/lifestyle
products (annuities)
N Enhance existing products with unique
features and/or reduced charges
Insight: Significant barriers to entry
of variable products, including a higher
cost of entry, intensified regulatory
scrutiny with associated distribution risks,
and greater investment management and
servicing complexity, may keep carriers
out of the market.
Insight: While the virtual tie is a little
surprising, the overall result indicates that
some companies are pursuing product
manufacturing as a core strength and
others might follow another core strategy,
such as distribution.
As a strategy, manufacturing products for
other carriers to distribute had split results in
the survey. The 40% of companies who
reported being likely to do this was offset by
the 43% that said they were not likely.
For those carriers not already in the business,
expansion into Property and Casualty or
Accident and Health lines was not a supported
strategy, with 68% saying “not or somewhat
likely.” Most of the supporting votes (24%)
came from companies already in this business.
Insight: Consistent with the overall
theme of staying focused on core
competencies and leveraging existing
expertise and infrastructure, expansion
into an entirely new line falls low on the
list of preferred strategies.
N Build private label products for
distribution by other carriers
17%43%40%
9%51%41%
12%16%73%
83% 14%3%
Not Somewhat Likely
Don't Know

11
Not Somewhat Likely
Don't Know
Another strategy related to product perform-
ance, aggressive investment practices,
received only 24% “likely” votes, with the
majority (55%) saying “not or somewhat
likely.” Overall, investment strategy remains
conservative for the time being.
A look at distribution strategies further sup-
ports the leveraging of existing resources as
the main direction for companies to pursue.
The three primary distribution strategies
indicated by respondents were:
1. Providing online access to production
(84%),
2. Web conferencing and e-learning (81%),
and
3. Expanding the existing field force (74%).
These strategies build on current resources and
core competencies while leveraging current
technologies, infrastructure, and expertise to
drive growth.
When asked in 2001 about Internet sales, only
a quarter of respondents (25%) believed that,
as need-based products, Life, Annuity, and
Disability would sell well over the Internet.
Today, 46% of respondents plan to increase
Internet-based products and sales. That is
almost balanced by the 42% not likely to
follow that strategy. Companies are still almost
as likely to use direct marketing (phones and
mail) to reach new customers (52%).
Insight: It is likely that these changes
will be gradual, selective, and very closely
watched as their impact on product,
pricing, and profitability is measured over
time.
85%
12%
Not Somewhat Likely
Don't Know
N Expand existing field force
N Integrate use of web conferencing and
e-learning into field mgt. practices
N Provide distributors access to web-
based prod., commission client info.
N Increase Internet-based
products and sales
N Increase direct marketing efforts
(inbound and outbound phones, mail)
12%42%46%
Not Somewhat Likely
Don't Know
21%28%52%
17%8%74%
9%10%81%
9%7%84%
N Pursue aggressive investment
practices - shorter duration and hedging
55% 19%24%
Insight: Companies show a willing-
ness to continue to supplement their sales
efforts via these alternative distribution
sources, although responses indicate a
stronger preference to support their field
forces.
A look at distribution strategies further
supports the leveraging of existing resources
as the main direction for companies to pursue.

12
Not Somewhat Likely
Don't Know
More surprising is the response on the need to
incorporate full commission disclosure in sales
practices. Despite intensified pressure on sales
practices, suitability, and disclosure, only 41%
indicated this as a strategy likely to be pursued
over the next three years.
Conclusions:
The focus is on (1) optimizing the existing
distribution channels and (2) enhancing
product features to provide competitive
advantage and meet market demands while
(3) expanding the tools, techniques, and
training of the existing field force. Consistent
with the strategies depicted in the Operations
and Technology sections of this survey,
growing the investment in the Web combined
with better use of the Web’s portfolio of tools
that enhance distribution channel effectiveness
is clearly a top priority at the respondents’
companies. Inevitably, these strategies force a
choice between being ‘leading edge’ versus
‘fast follower’ in deploying these technologies,
because not providing equal or better
functionality will erode a company’s com-
petitiveness from a distributor’s perspective.
As a result of the graying of America, there is
also a recognized shift to retirement and
lifestyle protection product features, although
insurers are approaching growth in variable
products with greater caution. Other strategies,
like Internet and direct mail, continue to play a
role, although at a much lower priority than
existing methods. Lastly, while there is
increased attention to the use of more
aggressive investment management practices
and the need for full commission disclosure,
both strategies rank the lowest of all reviewed.
Insight: This might be an indication of
a general desire to be a reactive follower on
this topic as opposed to a change leader,
particularly given the potentially
controversial nature of disclosure and the
impact it could have on distributors if not
done consistently through the industry. !!!
In response to describing the
greatest challenge(s) facing Sales and
Marketing executives, the responses all
carried a consistent theme:
..............
Agent recruiting, retention…aging
distribution...cost of distribution...effective
distribution…figuring out the appropriate
blend of distribution...allocating
investment and resources over competing
channels…finding and keeping
distribution…dwindling sales force…
recruiting and retaining quality
producers…retaining good reps…sales
productivity...reducing agent turnover.
!!!
N Incorporate full commission disclosure
into sales practices
36%22%41%

13
Operationally, respondents are working across
the board on service delivery, technology, and
structure. Of all the operations strategies, two
emerged as clear winners. Almost unani-
mously, speed of service is seen as a strategic
imperative (97%). Speed is closely followed
by providing more service access methods
such as phone, Web, e-mail, VRU, and so
forth (93%).
The second most popular strategies looked
first at the cost-effectiveness of service
delivery by combining functions to gain
economies of scale (75%), tied with service
tiers based on profit (consumers) (75%) and
followed closely by contribution to profits
(producers) (70%).
5. Operations
Insight: A move towards self-service
is evident in this response and supported
by recent industry trends. The Web and
Internet act as enabling technologies, with
the expanded access provided driving the
industry toward faster delivery of service.
Insight: Like the credit card industry’s
much-touted tiers (e.g., silver, gold,
platinum), service tiers allow a company to
pursue two separate approaches according
to unique cost structures. One strategy
would be to reduce the services provided
to less profitable consumers or producers,
using the current level as the “top tier” and
creating a lower-tier service. This would
allow a company faced with expense
constraints to preserve its service-based
competitive advantage for the top tier
while generating savings in the broader,
less profitable groups. The second
approach, complicated by the cost factor,
would be to create a new, higher tier with
added services above the current level. For
example, a “concierge” service line for
personalized support, direct access,
expanded hours, and higher service levels
(such as faster answer time) might be
created. One drawback to this approach is
that, unlike the first approach where
service is reduced for all but the top
agents, creating a new, higher service tier
would add to costs.
95%
2%
86%
A B
7%
A. Accelerate service delivery (time
needed to complete a transaction
including NB)
B. Provide more service access methods
(phone, Web, e-mail, voice response)
Very Likely / Likely Add In Somewhat Likely
65%
10%
60%
A B C
15%
55%
15%
A. Consolidate similar functions across
channels and products for economy of
scale
B. Adjust consumer service standards to
reflect customer tiers based on profit
C. Adjust producer service standards to
reflect contribution to profits (tiered
service)

14
The other strategies rated by the survey
participants were spread rather evenly,
reflecting a diversity of planned approaches:
The relatively close ranking of two distinct
organizational strategies—by channel (54%)
and by market (65%)—indicates that these
solutions are custom to the company and
based on other existing product, channel, or
service strategies. The interesting finding is
that collectively, most companies are
reorganizing in some fashion to improve costs,
service, or both.
Over half (64%) of the companies surveyed
are moving towards expanded service hours.
This works in conjunction with expanding
access through Web, e-mail, and interactive
voice response previously mentioned (93%).
Some form of consolidating telephone service
operations will be undertaken by a majority of
respondents (58%). Still, companies remain
split on the tradeoffs in combining distributor
and consumer telephone service operations,
with the typical determinant being whether
most of the calls are sales support and new
business (keep them split) or service-related
(combine them). Organizational questions of
this nature remain unique to each company’s
distribution systems and contact center
(computer-telephony) integration capabilities.
One action to be taken is consolidating physi-
cal locations and relocating to a lower-cost
area. Fifty-one percent (51%) of respondents
either were not likely to pursue this strategy or
did not know. If you added “somewhat likely”
to the total, the total goes to 68%. Only 10%
indicated this as a very likely strategy.
Insight: : Giving broader hours a lower
priority than broader access is based on the
fact that easy self-service options reduce
the need for expanded direct service.
51%
14%
50%
A B C D
14%
41%
17%
40%
14%
A. Align operations with customer
markets (employer, individual,
wirehouse)
B. Increase hours and days of service
availability (move towards 24/7)
C. Consolidate distributor and consumer
telephone service operations
D. Align operations with channels of
distribution (e.g., career, bank, etc.)
!!!
Technology and effectiveness
remain a consistent source of
competitive advantage, as indicated
by the consistency of responses to the
question regarding the top priority for
gaining competitive advantage
through service.
.........
Straight through processing….
technology that meets targeted consumer
needs at cost effective price… use of
technology… technical automation and
process improvement… use of
technology... economies of scale and use
of technology.
Reduced cycle time… reduced costs…
better service… faster time service….
delivery efficiency… speed to market...
superior service.
!!!

15
The top priorities for gaining
competitive advantage through
service will be:
1. Training for consistent delivery
of service,
2. Having adequate technologies
to effect good service, and
3. Monitoring to make sure good
service is delivered.”
– Insurance Company President
Service / Cost Levers
portfolio
New Service Delivery
Models
New Service Delivery
Models
Supply-side
Improvements
Supply-side
Improvements
Demand-driven
Improvements
Demand-driven
Improvements
• Continuous efforts to lower
costs, improve quality, develop
people
– Capture scale
– Streamline processes
– Automation
– Best Practice Adoption
– Raise average productivity
– Eliminate layers / increase
spans of control
– Sourcing to improve unit cost
• End-to-end understanding of
cost and value
• Reinforce affordability mindset
• Work w/products to make
better, more informed choices
around design
• Increase advance planning of
new product rollouts
• Revisit services and service
levels delivered
• Charge for services
• Leverage new service
models, e.g., self-service
via web, STP
• Rethink underlying
business model
• IT innovations (e-signature)
• Creative sourcing and JVs
CONTINOUSLY TUNE
THE FACTORY
WORK ACROSS
THE BUSINESS
Cost / Service Cost Cost / Service
Primary Impact
FIND “New Ways”
OF DOING
BUSINESS
Source: Nolan presentation to IASA on May 2006, Session 106 Tackling the Ongoing Expense Challenge
Conclusion:
Service as a competitive advantage is coming
of age as product features and pricing dif-
ferences converge. Speed and simplicity are
two key measures of effective delivery on this
strategy. We know that some companies have
yet to venture into the self-service arena of the
Web, and many have not expanded their call
centers into contact centers that handle calls,
e–mail and even instant messaging. The lack
of strategies and actions in these venues are
risky and could cause these companies to fall
behind as they fail to meet producer and
consumer expectations, compromising growth
and market share potential. Similarly, the con-
solidation of functions that bring economies of
scale to the company and one-stop shopping to
the consumer remains a solid strategy. Finally,
service tiers which provide a sense of privilege
to top producers and high-value consumers is
becoming more prevalent, although secondary
to the price/service tradeoff.

16
95%
5%
88%
A B C
11%
85%
15%
A. e-Signatures and online applications
B. Document management, work flow and
imaging
C. Web self-service for distributors and/or
customers (portals)
Very Likely/Likely Don't Know/Somewhat Likely
A. Common consolidated front-ends
(simple multi-product entry)
B. Consolidated commission systems
with accelerated electronic payment
Continuing the direction of the past several
years, technology remained the most
consistently supported strategy surveyed. That
said, it is important to recognize that
companies often express desires to implement
new technologies prior to the reality of
discussing organizational priorities and
resource constraints. It is easy to see favorite
solutions without the constraints of a clear
timeline for implementation or resource costs
to add perspective. Adding these realities
more often than not significantly reduced the
number of solutions that were actually
implemented.
Respondents ranked three technology
strategies significantly above the rest:
Trailing close behind these three technologies
were two almost just as highly ranked that
attempt to simplify the core processes
involved in issuing insurance and paying
agents:
The next three technology strategies were still
highly ranked, with over 70% of respondents
indicating they were Likely to Very Likely to
implement, although the percentages are
starting to soften with a higher percentage of
“Do Not Know” responses:
Common consolidated front-ends to
address the problems of multiple legacy
systems associated with aging product
portfolios (83%), and
Consolidated commission systems tied to
accelerated electronic payments (80%).
1.
2.
Client Relationship Management (CRM)
single view of all systems (73%),
Data warehouse / data mining for customer
segmentation (72%), and
e-Delivery of customer materials (71%).
1.
2.
3.
6. Technology
E-signatures supporting the operations
strategy to provide fast service with
broader access to Web self-service for an
amazing 95% of respondents.
Document management building a
foundation for greater distributed service
(think contact center and simultaneous
processing) for 88% of respondents.
Web portals and online electronic transac-
tions enabling consumer and distributor
self service for 85% of respondents.
1.
2.
3.
A B
83%
16%
80%
17%

17
There remains mixed priorities with regards to
supporting electronic messaging technologies
as a service tool, specifically instant messaging
and e-mail, with only 50% of respondents
indicating Likely to Very Likely to implement,
matched by 42% in the Do Not Know and
Somewhat Likely category and 8% Not Likely.
The remaining technology investment
responses show a consistent desire for tech-
nology strategies that have been popular across
a number of surveys and years.
Insight: While e-signatures and
online applications are likely to represent
the largest investment, the electronic
delivery of customer materials in support
of the online purchase ranks somewhat
lower. This is probably a direct result of
the technology adoption curve, with the
first priority being online applications,
transitioning to electronic delivery of
materials as more consumers sign on as
“electronic customers,” bringing with
them expectations of electronic service.
Insight: : Expert systems have been a
target of investments for a number of
years with mixed but improving results. A
key contributor to the improved results
has been the focused application of
technology in lieu of the earlier broad-
brush efforts to design “artificial
intelligence.” With clarity of purpose has
come improved applicability.
Even for these strategies, the “Not Likely”
responses remain negligible (3–4%).
73%
23%
72%
A B C
25%
71%
26%
A. Client Relationship Management
(CRM) – single view all systems
B. Data warehouses/data mining for
customer segmentation and target
sales
C. e-Delivery of customer materials
(annual/ quarterly statements,
prospectus, etc.)
Instant Messaging and e-mail-based
consumer services
50%
42%
Insight: As the practical applications
of Web-enabled service and online
applications grow, it is likely that, like
e-delivery of consumer materials, the
adoption rate of instant messaging and
e-mail or their successors will increase.
Given the current state of Web service,
the lower ranking is more indicative of
the premature nature of these
technologies versus any actual statement
of their long-term viability.
65%
33%
65%
A B C D E F
31%
64%
23%
58%
32%
57%
33%
48%
33%
2% 4%
13% 10% 10%
19%
A. Expert (rules based) systems for UW
B. Contact Center automated work force
C. Consolidation of admin systems
D. Straight through Processng (STP)
E. Business Process Management
F. Replacement of legacy administration
Very Likely/Likely Not Likely
Don't Know/Somewhat Likely

18
Consolidation of administration systems is
now the more likely path chosen over a flat
replacement of legacy systems (65% vs. 48%).
The cost of replacing older systems combined
with a growing availability of front-end and
add-on products has given extended life to the
many generations of processing systems
currently in use.
Straight-through processing (STP) continues
to receive relatively strong favor as a systems
investment, with 58% of the respondents
likely or very likely to invest in it. As
mentioned, the focus on modular replacement
or improvement of core administrative
systems has moved to the forefront of
administrative strategies.
Business process management followed right
behind STP at 57% “likely to very likely.”
This reflects recognition that continuous
improvement and a focus on effectively
managing the core processes that drive a
company represent significant opportunities.
Insight: A phased plan of con-
solidating multiple platforms onto a single,
existing strategic platform, and then
gradually enhancing and/or modularly
replacing the older system, seems to be the
prevalent approach.
Insight: Enhancements like STP, which
can be done as an add-on to existing
systems or a complete front-end replace-
ment, move companies forward in terms of
service, cycle time, and consistency. Such
enhancements are also relatively cost-
effective. Insight: : With the inevitable blending
of transactions and calls to achieve service
and productivity goals, organizations will
need advanced tools to manage how, when,
and where the work is done. Work force
management tools are likely to continue to
increase in importance over the next
several years.
Contact (or call) center work force manage-
ment systems have become more important
over the last few years in parallel with the
recognition of potential efficiencies and
service improvements buried in most
call/service centers. This change also supports
the service strategy regarding increased
consolidation of telephone centers.
!!!
Companies have a wide variety of
demands for technology, and yet there
are common themes.
..............
• Imaging, document management and
workflow;
• Straight through processing;
• e-signatures and electronic commerce;
• Contact centers for calls, e-mail, faxes;
• BPM and process improvement; and
• Web tools for the field first and
customers second.
..............
As one Company President stated:
Nothing stands out above others - it is a
combination of back office efficiency and
better front-end efficiency with customers
(self-serve, contact center automated
management, etc).
!!!

19
An Operations Director summed
it up this way:
Use technology to provide
service that is low-cost but feels
customized to the policy-owner or
producer.
Quality of Current Business Processes
and Technology Support
Source: Nolan Insurance Industry Technology Study
New Business Underwriting C+ B- B- C
Policy/Member Service B- C+ C+ C
Claims Disbursements B C B C
Agent/Field Support Management C C C C
Premium Billing Collections B- C+ C C
Financial Reporting B B B- C+
Customer Serivce (Call Center) B- B- C+ C+
Business Process
IT
Respondents
Business
Process
Quality
Tech.
Support
Quality
Business
Process
Quality
Tech
Support
Quality
Business
Respondents
Conclusion:
Not surprisingly, technology remains an
important strategic enabler to business growth
and profitability. With an emphasis on
operationally-based strategies, companies are
looking more to their systems investments to
make their services a competitive
differentiator. Even clearer is the desire to
extend into the electronic world of Web-based
services, electronic data collection (online
apps), and electronic delivery (e-mailed
statements) as more companies incorporate
these features into their core capabilities.
More mature technologies like document
management, workflow, CRM, and common
front ends (the “graphical user interface” or
GUI concept) also remain top candidates for
consideration and investment dollars. Expert
systems seem to be finding its niche as
applicability becomes better defined and more
According to the respondents of Nolan's Technology Strategy and Implementation in
the Insurance Industry survey, the weighted score for the level of technology support
provided to a portfolio of key business processes reinforced the need for continued
improvement in applying technology as a competitive enabler.
focused, particularly in the key knowledge
management areas of claims and underwriting.
Bottom line: companies pondering where to
place their systems investment dollars should
look first at expanded service access and
streamlined transaction processing.

20
7. Outsourcing
Outsourcing remains an active topic, with
proponents and opponents presenting equally
valid perspectives based on their individual
situations.
In Nolan’s 2003 Technology Study, we
reported that less than a third of the
respondents felt their organizations had been
successful with information technology
outsourcing. This lack of success led to very
low comfort levels with business process
outsourcing (BPO). This experience seems
even more common for this survey. On
average, only 16% of respondents felt they
were likely to outsource any key functions
within the next three years—the rest (84%)
were not likely to do any outsourcing or did
not know one way or the other.
Looked at another way, by combining “very
likely,” “likely,” and “somewhat likely”
responses, we can see the most popular
candidates. The target function for most
outsourcing remains selective information
systems functions, although there has been a
strong shift towards a few non-core functions
like document management (mailroom,
imaging) and policy administration for
legacy/inactive blocks of business:
On the other hand, processes typically
considered core remain less likely targets:
Despite a number of highly publicized service
contracts and rapid growth in the overall
sourcing industry, respondents showed a
relatively strong disinclination towards the use
of external, non-U.S.-based resources for
business support. Information systems mainte-
nance and development remained the most
popular target area, with document manage-
ment (image processing) also showing up as a
candidate on the list for near-shore options:
A. Document/Management (Mailroom,
Imaging)
B. Systems Maintenance
C. Systems Development
D. Systems Infrastructure (Data Center,
Network)
E. Policy Administration (Legacy/Inactive
Blocks)
A
A. Agent Contracting (Licensing
Appointments)
B. New Business
C. Policy Administration (Active Blocks)
D. Call Centers (Consumer, Producer)
E. Claims
Somewhat Likely, Likely, Very Likely
A B C D E
56% 56% 49% 42% 42%
A B C D
B C D E
A. Document Management
B. Systems Maintenance
C. Systems Development
D. Systems Infrastructure
16% 17%
11%
24%
11%
9%
9%
49%
15%
64%
3%
58%
8%
49%
16%
66%
5%
Not Likely Including Don't Know
Off Near

21
A
A. Document Management
B. Corporate Functions
C. Policy Administration (inactive blocks)
D. Systems Maintenance
E. Systems Development
F. Systems Infrastructure
B C D E F
28%
21% 18% 19% 20% 22%
On
Slightly more popular with respondents was
the use of on-shore resources; respondents
continued to target systems-related functions
at an even higher percentage while adding to
the list corporate functions (accounting, HR,
payroll) and policy administration of inactive
blocks. On-shore document management
(mailroom, imaging) showed up as the most
likely candidate, although with less than one-
third of the respondents (28%):
Conclusion:
Insurers will continue to use outsourcing
selectively, and will look to it primarily as a
solution for IT functions and areas deemed
non-core to growth. Companies considering
the outsourcing of core functions that feed
growth or competitive advantage, like new
business or agent licensing, need to evaluate
this strategy with care. Even the outsourcing
of call centers seems to represent a less
popular strategy as companies begin to realize
the revenue opportunities represented by
customer-facing functions.
Although technology has advanced to the
stage where geographically distributed service
staff is feasible, we don’t see a significant
shift in that direction within the industry, at
least not within the next three years.
In Nolan's Property and Casualty Industry Survey Findings, respondents reinforced
the relatively low interest in functional outsourcing when they ranked it as the
lowest priority when compared to other major business strategies.
Underwriting Priorities
Organic Growth
HighLow
Expense Management
Customer Service
New Tools
Training
Growth Through Acquisition
Outsourcing
Source: Nolan PC Study 2005

22
Next Steps: Strategies in Transition
Industry Trends
The aging of America is a trend that
companies need to address quickly, including
modified product features as well as
customized distribution and service. Equally
important, companies need to determine
whether they will participate in the
opportunity represented by ethnic markets,
taking into consideration linguistic demands
operational capacity, distribution, service, and
segment.
Competitive Landscapes
Given the need for efficiency and
effectiveness, a core strategic decision to be
made is whether to be niche-focused or to
serve broad, possibly even international,
markets. Marginally profitable lines should
be eliminated as companies focus on core
competencies and strengths. Banks and
alternative distributions like the Internet
should continue to be monitored for potential
impact.
Sales and Marketing
The greatest market opportunities rest with the
changing demographics, specifically the
growth in aging and ethnic populations. Sales
efforts and product designs need to
incorporate the opportunities represented by
this shift, including expanded focus on
account retirement and lifestyle protection
products. Optimizing existing distribution
channels with tiered investment of resources
and services will be the key to improving
channel productivity, incorporating increased
use of web support services, modified
compensation structures, and enhanced
training and retention strategies.
Operations
Service as a competitive advantage should be
the focus, with speed and simplicity as the key
measures of effectiveness. One-stop shopping
concepts combined with service tiers that
match level of service to profitability should
be investigated. Other key strategies include
expanding self-service on the web and call
centers into contact centers that handle calls,
e-mail and even instant messaging. Similarly,
the consolidation of functions that bring
economies of scale to the company remains a
solid strategy.
Technology
Leading edge investments should be made in
areas that provide competitive differentiation,
shifting the focus to services and support:
• Expanded access,
• Streamlined transactions, simplified
usage, reduced cycle time, and
• Web services, and electronic delivery.
Sustaining investments should be made in
mature technologies, providing the base for
operational excellence:
• Document management and workflow,
• Common front ends (“graphical user
interface” or GUI’s), and
• Selectively applied expert systems in
areas like claims and underwriting.
Outsourcing
Selective IT functions including help desks,
network management, data center
management and telecommunications remain
primary candidates for outsourced support.
Contact Center outsourcing, beyond overflow
services, is reversing its trend as companies
start leveraging its inherent competitive
opportunities. Great care should continue to
be taken when it comes to core service
functions like new business or agent licensing.
Near- and on-shore services are becoming
more viable options preferred over off-shore.

23
BACKGROUND
Nolan is an operations and technology
consulting firm specializing in the insurance,
health care, and banking industries. Since
1973, we have helped companies redesign
processes and apply technology to improve
service, quality, productivity, and costs. Our
consultants are senior industry experts, each
with over 15 years of specialized experience.
We are trusted advisors to our clients and we
are committed to delivering measurable and
sustainable results.
This report is one of a series of insurance
industry research studies conducted by the
Robert E. Nolan Company. For the purposes
of this survey, insurance industry executives
were asked to weigh in on a variety of key
issues and challenges they expect to face over
the next three to five years. Their responses
were tabulated and are detailed in this report,
along with insights into the possible
implications of their consolidated responses.
ACKNOWLEDGEMENTS
The information, results and insights found in
this study are based on detailed surveys
completed with senior level executives across
a wide range of stock and mutual companies
within the life and annuity insurance industry.
To each of those executives who took the time
to respond, we extend our thanks and
appreciation.
Lead Author: Steve Callahan
Contributors: Steve Discher, Ron Zimmer
QUOTING THIS REPORT
Recipients may quote briefly from this study
(one or two sentences) without express
permission. However, all such quotes must be
accompanied by the phrase: “Source: Robert
E. Nolan Company - www.renolan.com.”
More extensive quoting or other reuse in any
form is not permitted without the express
written consent of the Robert E. Nolan
Company, Inc.
Publication date: December, 2006.
Please visit www.renolan.com to view original articles,
case studies, and industry surveys. For further
information, please contact us:
info@renolan.com
(877) 736-6526 (877-RENOLAN)

www.renolan.com
Simsbury, CT • Dallas, TX
Robert E. Nolan Company, Inc.

2010 Nolan Life & Annuity Industry Survey Results

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