Deloitte's 14th Annual LIONS & ACES Survey Reveals Life and Annuities Remain Sources of Operations and Cost Inefficiencies

Better Cost and Operations Management Remains an Opportunity for Most of the Insurance Industry

Jun 07, 2010, 09:06 ET from Deloitte

NEW YORK, June 7 /PRNewswire/ -- Post-economic downturn, disciplined cost containment and operations management in all aspects of life and annuity businesses offers carriers a key competitive advantage, according to Deloitte's "Life Insurance Operations (LIONS) and Annuity Contract Expense (ACES) Benchmarking" studies, released today.

"Despite the relative maturity of insurance as an industry, the 14th Annual LIONS and ACES studies reveal that growth through cost containment and efficiency remains a real possibility for carriers that commit to identifying and executing on strategic opportunities," said Joe Guastella, Deloitte's global insurance practice leader.  "The economic downturn placed an even greater focus on the role of managing the costs associated with doing business in all industries, with particular importance to insurance."

"When you look at life insurance and annuities, the path for growth aligns closely with the impending baby boomer retirement trend.  In order to execute on this once in a century opportunity, carriers should review operations and expenses now and make the necessary adjustments," said Richard T. Roth, head of Deloitte's global benchmarking center. "When viewed in this context, the urgency to act becomes clear."

LIONS survey findings include:

  • Economies of scale in life insurance that are in use are more elusive than anticipated; other factors such as choice of service model, call center utilization and degree of automation are more important to expense levels.
  • Requirements costs continue to be a significant portion of life insurance new business expenses. Low-cost performers have a new business processing expense of just $1.07 per $1,000 of new business face amount, 10 percent lower than the median.  New business service-delivery times are also shorter among the low-cost performers across all face amounts.  
  • Opportunities remain for savings through outsourcing, even in mature areas. Low-cost performers have an 11 percent lower in-force administration processing expense per in-force administration transaction versus the median and are pioneering the use of interactive voice response (IVR) technologies.
  • Linking total information technology (IT) spend to strategic objectives encourages focus. Both median and low-cost performers are willing to spend more on technology to drive down other costs and improve quality and service.
  • Low-cost performers spend 29 percent less on finance than the median.

ACES survey findings include:

  • Marketing, product and distribution (MPD) expense continues to grow, representing the largest share of adjusted line of business expense at 38 percent. As a percentage of expense, low-cost performers spend five times more than the median on developing and maintaining products, but 11 percent less than the median on overall MPD processing.  
  • Over the last five years, total annuity new business unit costs have increased at an annual rate of 1.8 percent. Variable annuity low-cost performers spend 11 percent less than the median on new business, while fixed annuity low-cost performers spend 38 percent less.
  • With respect to call center staffing models and tools, variable low-cost performers spend 17 percent less than their median counterparts and are doing well in leveraging self-service opportunities and utilizing e-service at much higher levels than the median.
  • Fixed annuity growth for the median was more than 150 percent, and in some organizations, the growth exceeded 200 percent. The move to fixed annuities is not a result of new organic growth, but rather due to significant turnover of existing portfolios.
  • Corporate overhead represents the second largest share of adjusted line of business expense at 33 percent.  
  • Enhanced technology decision-making processes could enable better competitive value. IT cost as a percentage of adjusted line of business expense is twice as high for low-cost performers as it is for the median. However, low-cost performers invest much less on discretionary spend than the median, and considerably more than the median on infrastructure and maintenance.

Executive summaries of the study results are available at and

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