Insurance Industry: Sustaining Profit Growth and Shareholder Returns - Essay Sample

Introduction

The key stakeholders in the insurance industry seek ways in the realization of profit returns in all economic conditions, regulatory and financial variations. Companies can no longer pursue top-level growth for the organizational sake without adverse consequences or reliance on the cost to boost their profit margins. Currently, organizations must design a strategic balance that can help in sustaining shareholders returns and profit growth over a long period ("Management strategies for sustainable businesses," n.d).

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Analysis of the Dynamics Facing the Business

Insurance company faces many challenges which storm the development process. Over an extended period, the company has faced slow change. Insurance company faces challenges such as new competitors, disruptive technology, low-interest rates, new regulations burden, rise in capital needs, and quick-shifting customer needs. Many companies rarely achieve their expected outcomes they set goals for, some documented strategies such as improving on information technology, enhancing the customer-service system, updating products, fine-tuning marketing programs remain unattended.

Theoretical Grounding

It may be challenging to achieve the industry set goals since the traditional operating pivots for implementing strategy were not designed to sustain challenges facing insurers today. The structural response is what strategic success requires to cope with the changing situations. For a company to adapt to the new world environment, there is a great need first to modernize its old system. One crucial thing a company needs to realize is that: strategy equals structure ("Merger of Equals," n.d.). The best way a company should keep this aspect of relating structure and strategy before choosing to compete. The company should intrinsically and naturally eliminate the main operational model dimensions, including, governance, organization, capital deployment, tax positioning, and legal entity. Eventually, when the company is done away with structure and strategy, they opt to recognize culture role in designing of new structured work, they should also emphasize on using their cultural strengths in promoting the changes in ensuring they remain in power.

Progression Model

Responding to the Pressures

Due to rapid changes within the organization, many organizational structures have been rendered obsolete. Before trying to implement new strategies, insurance industries should consider carrying out an evaluation of the operational dimensions of the current structure. The operational model may be in many forms. Most companies face small scale needed to formulate an effective interventions under the present capital needs. Some rigid, hierarchical companies lack the required abrupt flexibility to accommodate the changing market shift. Other factors such as poor technology development hinder old-line insurers from digital world operation. Government evaluation of tax reform and legal rights stand out to be the future threat on the insurance company.

In order to deal with insurer's issues, several responses concerning the pressure cases discussed above have been made. The various reactions approach the scenario by subdividing the insurance company into three major groups.

The group comprising of companies which have accepted the marketplace trend by making the expected adjustments on their operational model to give way to profit generation and growth. Examples include MetLife life insurer sold the registered broker distribution to MassMutual to avoid the costly regulation laws.

The next group consisting of companies which have realized the importance of changing its structure but have not yet executed such operations. With proper strategic plan these industries are waiting for the best market opportunity to strike the deal. The third company group consists of sectors which are still under the initial operational structure by making little modification with the future hope of success without making much modification. Some of the companies consider this as rationale choice due to limitation of being confined. The given approach shows that the first two presented company groups have a survival chance since a winning chance has been submitted. The third company group tends to smack self-delusion within the time when strategy similar structure.

Period for the Actual Transition

Most insurers tend to work continuously and diligently to improve their business boundaries. Insights are gathered into consumer behaviors, and needs nurturing uniqueness in terms of capabilities to isolate themselves from update distribution strategies, modernize products, competitors and embrace digitization in diverse forms. These approaches seem inadequate when it comes to addressing the business unknowns faced by insurers currently. The rationale behind such an approach is that specific stability on the primary market, and economic condition is assumed, which had not been realized earlier since the last financial collapse. Tectonic forces uncovered by such destruction and its related effects delimits the strongholds of the majority insurance business structure. From the modern growth rate statistics, property insurers increase at a rate of 3% while life insures record 1% only.

The extension of slow global expansion has exerted pressure on finance and forced insures to make stiff competition on the price tags. Low interest rates which have been dominating since the Great Recession are slowly pressurizing the profit levels, especially for life insurance companies. When it comes to legal authorities, strict accounting regulations are increasing the general costs while higher capital requirements squeeze out financial returns and downgrade the balance sheets.

The discussed challenges when compounded, and they constitute to the potentially destabilizing effect of tax obligations on growth and profits. There is a high probability of tax on some insurers being increased which, as a result, may lead to increased prices or other equivalent measures to safeguard stakeholder returns.

Conjoining Strategy and Structure - on the realization that technology architecture, project planning, and annual planning may be limiting real-time response to market changes and innovations, a company may decide to redesign their strategies to accommodate the damaging market changes. Some structural opinions which may be in achieving the same Strategy and Structure:

Exiting businesses - the most suitable approach is to quit harmful ways. Industries can make safe the profit margins by exiting the targeted business for higher capital needs or even new accounting standards. U.S retail life exiting, the insurance companies enables METLIFE to be significant on the fast-growing market that is not at risk to low-interest rates.

Partnerships and acquisitions - when scaling becomes an issue, and the result may fall outside the company or new structural approaches. Friendships among insurers are formed to magnify on bolster capabilities, diversify product portfolios, and distribution. Most companies make adjustments on capital structure and scale by merging, divestitures, and acquisitions.

Expanding into new lines and geographies - the presence of new product dimension offers another path to increase the profit margins and fasten their growth rate. Most insurers have transferred to the expanding market with limited capital needs as asset management. MassMutual, Sun Life, and Voya have gained or established third-party asset management functional units to capital investment expertise they develop the control of the internal portfolio.

Trimming costs - most companies have transformed into an aggressive improvement in the cost structure. Insurers are in search for greater financial flexibility have stripped the business assets which need high economic returns. Most insurers should consider offloading their defined benefit plan to another insure through pension-risk transfer, which the current pension financial needs to free up capital. Other cost-saving techniques involve focusing on workforce expenses. Some strategies towards rightsizing the staffs, workers relocation to low-cost jurisdictions or areas offer significant tax incentives.

Culture a transformation - once ambitions on structural initiatives have been launched, sometimes the role of culture in the development of new structures is not emphasized on. Culture refers to mindsets, norms, and behaviors that have set roots in the existing organization structure. Culture and architecture tend to be highly coupled, and one can't be altered without affecting the other. Religion is neither completely good nor bad for a given company, though some of the associated cultural traits tend to be of more relevance to organizational structure compared to others. Attributes related to the culture have a different effect on the industry to implement specific changes.

Capitalization on transitions - due to the current industry confusion, one main thing becomes is distinct: businesses are unable to give back a sustained profitable growth. Market forces reshape the markets losing the effectiveness of conventional tools for implementing the strategies (Gregoline, 2009). Most companies today are faced with structural challenges rather than operational. Most insurers lack efficiency, capabilities, or the scale to effectively compete concerning competition intensity, financial pressure increase, as well as the legal burden, intensifies.

Most successful companies address structural challenges through the fundamental approach. Different companies use diverse methods. Some lead to streamlined cost structure or exiting lagging businesses while others enhance capabilities and scale.

References

Management strategies for sustainable businesses. (n.d.). Business, Government and Sustainable Development, 89-104. doi:10.4324/9780203449394_chapter_5

Merger of Equals. (n.d.). Dictionary of Strategy: Strategic Management A-Z. doi:10.4135/9781452229805.n428

Gregoline, B. (2009). Capitalization. AMA Manual of Style. doi:10.1093/jama/9780195176339.003.0010