Posts tagged 'insurance'
As 2010 gets underway, broad trends toward outsourcing of a variety of services and functions continue. For the foreseeable future, we will be in an era where efficiency and tight execution predominates. Those firms that constantly examine their cost structure and optimize value per dollar spent have the best chance of being winners.
We have written before about the opportunity to outsource various marketing support functions to gain efficiency. There are variable cost solutions in the marketplace for marketing communications, RFP production, and data base management that offer low cost high quality services.
Another example of this trend applied more broadly is exhibited in the insurance asset management marketplace. Insurers are outsourcing asset management in ever greater numbers. It seems they have concluded that their core competency is in insuring risk rather than manages investments. A number of asset managers have noticed this trend, and alertly have started to explore their opportunities in this space. Of course, managing assets for insurers requires specialized capabilities so it behooves them to carefully analyze their potential positioning in the insurance segment before jumping in with both feet.
Overall, firms should continue to look for ways to streamline their operations and narrow their focus. Outsourced resources provide interesting solutions to certain functional areas. Look for this trend to gather momentum in the months to come.
January 18th, 2010
Since I posted comments earlier in the week about insurance companies trying their hands as asset managers, a few people have asked me to comment on a related business: managing money for insurers. This is something I know quite a bit about, having spent a good part of my career focused on it. Recently, it seems, a number of asset managers are looking at this segment, either for the first time, or to reexamine their current efforts. The pool of assets is large, so it is certainly worth considering as a target segment.
Insurance companies hold assets in two very different pools: their general account; and their accounts held on behalf of others, technically called the “separate account” of the insurer. Variable annuities and mutual funds are often part of the “separate account.” Unaffiliated asset managers often manage funds within the variable annuity or mutual fund family, or subadvise to these fund families. To the asset manager, this business is very similar to the mutual fund business in terms of asset classes, pricing, and manager selection.
The general account constitutes the insurer’s own funds. This is the pool of assets most managers think of when they consider the specialized segment of insurance companies. Largely a fixed income portfolio, this pool also often contains some equities and alternatives. The fixed income frequently includes specialized fixed income sectors.
The business of managing insurance companies’ general accounts is quite competitive, demanding very specialized knowledge and capabilities, and is often fee sensitive. However, for those that make the investment, asset growth can be substantial. In addition, the use of specialized asset classes allows for greater fees.
The key to being successful in this business is carefully thought through business and marketing plans that are consistent with the strengths of the manager and the market opportunities. Missteps are easy to take, resulting in either failed efforts or unprofitable business growth. Caution is wise, but with proper expert strategy, the business can be quite successful.
October 14th, 2009
Many large insurers over the years have tried their hand at asset management. With significant in-house investment capabilities and resources, on the surface it seems like a natural fit. However, the results of these efforts have been mixed at best. Having been directly involved in a couple of these situations, and having seen many more from the outside in serving them as clients, I know first hand what it takes to be successful and the pitfalls to avoid.
While many of these firms invest their own assets quite well, the business of managing money for outside clients requires additional skills and resources. Investment capabilities that were built for the insurer’s needs must align with the needs of other clients or be augmented. Other requirements include reporting, client servicing, and marketing.
In addition, outside clients need to feel that the organization values their investment needs as much as it values its own. Conflicts must be anticipated and addressed. Finally, many firms simply give up on the business too early. They underestimate how long it takes to build an asset management business. If they do not commit to the business for the long term, other priorities may crowd it out.
October 12th, 2009
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