2. Rising operating costs and slow premium growth
Since 2003, costs as a share of revenue have increased by 23% for life insurers, compared to 5% for P&C insurers. In roughly the same period, nominal GDP grew at a compound annual growth rate (CAGR) of 4%, but premium growth came in at a comparatively sluggish CAGR of 2% in the US.
In other words, premiums haven’t kept pace with economic growth, and operating costs are outpacing revenue. But why?
The answer, in part, lies with the IT team. For more than a decade, technology spend as a share of operating costs has risen steadily among life insurers, and that trend is accelerating. To clean up complex legacy systems and keep up with customer expectations, shifting business models, and more agile ways of working, even life insurers in the top quartile of total costs to gross premiums written have increased their IT spend from 2% to 3% of gross premiums written in the last 4 years—a 50% jump.
Although investing more heavily in technology may seem the most logical way to stay relevant in a shifting industry, life insurance companies that add new tools to their tech stack without eliminating the use of legacy or homegrown systems are often creating more work for IT teams. In turn, operating costs go up and new technology fails to deliver the expected ROI.