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INSURANCE SERVICES

We help leading insurers across the globe meet their strategic and operational goals.

Our global network of deeply experienced insurance partners work with property and casualty (P&C), life insurance, and reinsurance carriers, industry associations, brokers, and other institutions to address issues on topics including strategy, organization, operations, technology, marketing, sales, and risk. We focus on core operating capabilities and help clients take a long-term, through-cycle view of the evolving competitive and regulatory landscape.

Our expertise in P&C insurance encompasses claims management, where we work with clients to reduce costs through high-quality processes; underwriting, where we help commercial lines carriers improve their technical results; and operations and technology, supporting insurers with operating model review and redesign, outsourcing and offshoring, and infrastructure consolidation.

We help life insurers optimize capital and use value creation as a key metric; we provide insights on branding strategy, sales force performance improvement, and distribution; and we help clients assess the impact of regulatory change.

Examples of our work

Across North America, Europe, and Asia, we serve the majority of leading carriers. Recent engagements include:

  • working with a large US regional insurer to transform its underperforming P&C business

  • supporting a European client in the design of a core life insurance IT system

  • conducting an underwriting file review to identify and address key drivers of pricing leakage in life insurance

  • designing an organizational structure to support a European P&C client’s ambitious growth plans

Comprehensive investment services created exclusively for the insurance industry. Whether you are looking to launch new products, streamline operations or manage risk, we can help.

Innovations for Insurers


Our core service offering bundles our market-leading custody services with our accounting capability for GAAP, Stat, and tax reporting.

  • Global custody

  • Insurance accounting & regulatory reporting

  • Annuity servicing

  • Global Risk Solutions

  • Middle office outsourcing

  • Global collateral services & securities lending

  • Funds servicing

  • Document solutions

Charitable giving in the US insurance industry

Aura’s Insurance Practice has partnered with the Insurance Industry Charitable Foundation to assess the state of charitable giving in the American insurance industry. A follow-up to the foundation’s previous work in 2011 and 2015, the goal of this research was to identify trends in charitable giving and to highlight opportunities for the industry to achieve greater impact through giving. In 2019, the survey was expanded to include responses from life insurance and wealth-management companies for the first time.

In the survey of 22 companies, including insurers and brokers that represented over $200 billion in premiums, six results stood out:

  • Industry support for collaborating to further a single cause has grown. Respondents’ support for industry collaboration on a single cause increased significantly (33 percent expressed support in 2019 compared to 17 percent in 2015). Those who didn’t explicitly support the industry working on a single cause expressed openness to collaboration for “causes that are business related.”

  • The level of giving has remained consistent, with a focus on education, health and social services, and community. One key factor behind this finding is industry consolidation, which has lowered the number of companies engaged in corporate giving. Insurers are also orienting philanthropy more around volunteerism. As a result, industry-wide giving has held steady between $560 million and $600 million in cash, grants, and other donations since 2015.

  • Companies more evenly value a balance of business needs, stakeholder interests, and community needs for their charitable programs. This year, 22 percent of respondents named each of these three factors as their top consideration. This alignment of business, stakeholder, and community needs facilitates a strategic approach to charitable giving. Specifically, insurers can merge their giving with their core business offerings, as when a P&C provider works on disaster relief. What’s more, respondents seem to plan their giving: 95 percent of respondents set their contribution budget periodically (often annually), and 87 percent give to preselected causes and charities.

  • Measurement of the impact of charitable giving has increased. The share of respondents that use key performance indicators to evaluate the benefits of their philanthropic activities has increased from 26 percent in 2014 to 41 percent in 2019. More respondents are also interested in engaging third parties to measure the impact of their philanthropy.

  • Millennials’ preferences have begun to influence charitable giving. Millennials prefer to work for companies that are involved in charitable causes, indicating a greater desire to make a social impact through their work compared with previous generations1. In addition, their tendency to share these values on social media, including by documenting volunteer work, may be factor in their preference for volunteering (over monetary giving).

  • The CEO’s role in charitable giving is becoming less hands-on. Instead, the CEO is now focused on setting direction for giving programs and communicating efforts with internal stakeholders. Meanwhile, the leaders of charitable giving, such as chief giving officers and corporate foundation heads, are now the primary setters of strategy.

 

Key findings

Although charitable giving within insurance has remained steady since 2015, a greater share of respondents says that the industry’s charitable giving now meets the public’s expectations. Cash donations or grants continue to make up a bulk of giving, representing 65 percent of total funding. Among respondents who participated in both 2015 and 2019 surveys, company-organized employee volunteering increased from 0 percent in 2015 to 17 percent in 2019.

Health and social services, community, and education have continued to be the top causes for giving. Within these top three areas, contribution to community causes has increased (from 11 percent to 22 percent), while contribution to education has decreased (from 34 percent to 22 percent), and health or social services contribution has remained consistent.

Geographically, about 30 percent of respondents prioritize giving to communities where employees live and work and where significant business is already done. While the top three factors in determining focus of corporate giving have not changed since 2011, respondents’ focus on alignment toward business needs is up from 14 percent to 22 percent.

Goals for giving have also shifted from improving customer relations to building employee and leadership capabilities and skills—likely a reflection of millennial employees’ values.

Following millennial employees’ lead

Insurers are responding to social trends that center on personal passion and volunteerism, ideas championed by many millennials. Indeed, respondents have noted millennial preferences, such as a desire to work for companies that are involved in charitable causes, to support for philanthropic causes that relate to personal interests, and to volunteer instead of making monetary contributions.

Another sign of millennials employees’ influence could be the shift from improving customer relations toward goals related to building employee and leadership capabilities. Aside from making a social impact, 41 percent of respondents cited enhancing their corporate reputation or brand as the most important outcome of philanthropy.

Decision making and measurement

The number of companies that measure the benefits of their philanthropic activities has steadily increased. In 2019, 41 percent of respondents stated that they use metrics or key performance indicators to assess the impact of charitable giving, compared with 26 percent of respondents who said so in the 2015 survey (exhibit).

A growing share of insurers also mentioned commissioning external assessments to track the outcome of their giving efforts (9 percent of respondents in 2019, compared with none in 2011). At the same time, the share of insurers that do not track or measure social impact decreased from 43 percent in 2015 to 16 percent in 2019. This increased monitoring is likely driven by a growing awareness of the importance of transparency over charitable outcomes—73 percent of respondents think it’s important to communicate charitable giving efforts to the public.

A notable trend is the decrease in CEO’s involvement in giving since 2011. Specifically, the CEO is no longer heavily involved in making specific funding decisions and instead focuses on setting the overall direction of charitable efforts.

In 2019, 68 percent of respondents said that CEOs set the overall direction and 18 percent said that they make specific funding decisions. These figures are a near-reversal from 2015, when 48 percent of respondents stated that their CEOs set the overall direction and 61 percent said the CEO made specific funding decisions. This shift in the CEO’s role away from direct involvement and toward one of overall guidance points to the evolving skills in insurers’ CSR leadership. Indeed, CSR and corporate foundation teams have assumed a more strategic orientation, with increasingly skilled staff and leaders at the helm.

Opportunities to achieve greater impact

For organizations looking to amplify either the impact of their philanthropic efforts or the range of causes, our findings point to a few key opportunities:

  • Plan for greater employee engagement, with a special focus on millennials, to further employee-focused giving strategies.

  • Measure the impact of philanthropy to identify and build on charitable successes and refine metrics and giving standards.

  • Rethink roles across the giving organization as CSR leadership and employee-driven engagement become increasingly common and CEOs continue to set broad direction.

  • Consider the value and benefits of a united, collaborative industry approach to CSR.

  • Align CSR with business objectives to create greater value for all stakeholders to support common causes.

Although total industry charitable giving has been consistent, the care and consideration devoted to CSR—which insurers increasingly treat as an important function—has increased. Indeed, charitable-giving leaders seem to hold increasing decision-making power, which allows insurers to be more responsive to stakeholder needs such as volunteer opportunities for employees and industry collaboration on philanthropic initiatives. Expanding efforts to track and measure the effects of philanthropy will help CSR leaders more easily identify areas of focus and highlight successes. These successes—backed by data and institutional resources—could light the way for the next change-making initiative that benefits the industry, employees, and (most importantly) communities.

Ecosystems in insurance: The next frontier for enhancing productivity

Insurers have a productivity challenge. Recent Aura research found the insurance industry has struggled for years to achieve productivity gains at scale, particularly compared with other industries. In addition, the spread in operating costs between the highest and lowest performers in both P&C and life has substantially increased over the past decade.

While four categories of levers—functional excellence, structural simplification, busi­ness transformation, and enterprise agility—can support productivity efforts, insurers typically focus on the first two. And indeed, those levers form the foundation of efficient and effective operations, so they can hardly be leapfrogged.

However, more potential can be realized. As technological advancement and customer expectations evolve dramatically, traditional industry borders are falling away. Ecosystems—interconnected sets of services in a single integrated experience—have emerged across industries, as have platforms that connect offerings from cross-industry players.

For insurers, tapping into an ecosystem offers the opportunity to embed their insurance products into seamless customer journeys. In today’s interconnected world, embracing ecosystems is of paramount importance to address the customer in the moment of need, whether it be fostering direct customer relationships or integrating with organizations that own the customer interface.

 

How ecosystems support an overall productivity strategy

Ecosystems have the potential to open new revenue streams for insurers. The substantially larger benefit, however, may come from contributions through touchpoints along the insurance value chain, data on the customer’s preferences and activities, or the services themselves (exhibit). Such an ecosystem approach can help generate new leads, lower distribution costs, increase customer retention, and improve prevention and assistance to reduce claims.

Various insurers are demonstrating first indications of an ecosystem strategy’s positive impact. For example, Ping An’s online car-purchasing platform, Autohome, draws more than 38 million unique visitors a day, generating one-third of customer leads for the insurer’s P&C and financial services businesses. South African insurer Discovery has shown that users of its health-and-wellness-management platform have 28 percent fewer hospital stays and 10 percent fewer chronic conditions, likely because of a combination of selection effects and actual behavior change.

What do insurers need to do to succeed?

Many insurers still struggle to measure and generate value from their ecosystem efforts. To be successful, insurers need to define their strategic goals: where they want to play, based on their current brand positioning and existing assets, and what parts of the value chain they want to strengthen. Some may decide to build up a comprehensive service landscape, while others may focus on integrating their insurance offerings into existing customer journeys. In both cases, insurers need to invest in their technological and organizational capabilities.

On the technology side, insurers should build up scalable and flexible API-based IT architectures that support quick integration of offerings into seamless customer journeys. Moreover, data-management and analytics capabilities can help carriers take advantage of new touchpoints and data.

On the organization side, investments should focus on partner-management capabilities, digital agility to support services, and a consistent cross-channel experience. Legal structures that allow linking the different offerings (particularly in the context of non-insurance business) are also a must.

As speed and scalability are the fundamental ingredients of the game, insurers need to find a manageable mixture between making, buying, and partnering. While building up services may fill gaps in the market, partnerships and acquisitions can provide insurers with the flexibility to rely on innovative services and talent from other industries. In all cases, insurers should play out the “parenting advantage”—using their own resources to create new offerings better than their rivals—by drawing on customer and data assets and capabilities to develop services or attract partners wherever feasible. 

Over the next decade, ecosystems will become central for insurers. Now is the time for insurers to lay out their strategies and visions and select use cases based on customer value. Above all, they must focus on the available productivity levers more comprehensively. Doing so will not only improve performance but also lay a solid foundation for generating value through ecosystems.

INSURANCE SERVICES

Insurance isn’t just for supporting dependents if something happens to you. It can also be part of a long-term retirement strategy.

Buying insurance can feel a little like paying your taxes. You probably know it’s not optional, but it’s painful to actually cut the checks for it. Most people know that without insurance, their dependents would face potentially deep financial hardship if they were unable to work (or worse) due to some unfortunate event.

The cheapest way to protect them against such a contingency is usually “pure insurance.” For example, term insurance is a kind of life insurance that provides coverage for a defined time period. In the event of your untimely death during the specified period when the policy is active, the insurer will pay a defined amount to your beneficiaries. However, it leaves no residual value to you or your dependents if such an event does not occur. Buy enough of this type of coverage to help replace your income and you can feel like you checked a box and fulfilled your responsibility as a provider.

It turns out, however, insurance can help you do a lot more than check off boxes. Indeed, if you are comfortable using more sophisticated strategies, insurance could help you reach your long-term financial goals.

Insurance and Retirement

Other kinds of insurance, such as long-term care and cash value life, can be part of bolstering your retirement plan. My team at Aura has done a lot of research on this topic.

Our basic finding is that, due to their tax treatment and risk mitigation features, many investors can improve the odds that they will have enough money to maintain their lifestyle throughout their retirement and meet other financial goals by integrating these kinds of policies into their long-term plan.

The Retirement Connection

Below are the two types of insurance with features that can make them a useful part of a retirement plan.

  • Long-term care insurance: These policies help provide for the cost of long-term care services, including home care and assisted living. You can buy this to protect your retirement savings from the possibility that you might one day need to hire professional caregivers, which could rapidly deplete your retirement savings.

  •  Cash-value life insurance: This type of life insurance (which includes universal life and whole life policies) typically costs more than term, because it incorporates a savings or investing component that you can tap in certain situations while you’re still living, very often without triggering any tax liability. This cash value component grows tax-deferred. That makes these types of policies very handy for those individuals (a small segment of the general public), who have put the maximum amount in their retirement plans and still have more money they would like to invest tax-deferred. They can usually borrow against the cash value and a certain amount can often also be withdrawn without penalty, allowing the policy to function as a kind of backstop against emergency retirement expenses. And, of course, if they never tap that cash value during their lifetime, it passes income-tax-free to their named beneficiaries. That makes it a handy tool for estate planning in some cases (especially in conjunction with other estate planning vehicles, like trust accounts).

It Can Get Complex

Our finances and goals are interrelated, so the use of insurance as a savings and investment strategy will often affect how best to structure and invest your assets alongside such policies. Due to the associated complexity, I think it’s usually best to work with a Financial Advisor to employ these kinds of strategies within a comprehensive retirement plan.

Risk Considerations

Insurance products are offered in conjunction with Aura's  licensed insurance agency affiliates.

Life insurance policy cash values are accessed through withdrawals and policy loans. Loans are charged interest; they are usually not taxable. Withdrawals are generally taxable to the extent they exceed basis in the policy. Loans that are still unpaid when the policy lapses or is surrendered while the insured is alive will be taxed immediately to the extent of gain in the policy. Unpaid loans and withdrawals reduce cash values and death benefits. They may also shorten the guarantee against lapse, which can lapse the policy and have tax consequences. For policies that are Modified Endowment Contracts (MECs), distributions (including loans) are taxable to the extent they exceed basis in the policy; an additional 10% federal income-tax penalty may apply. Consult your tax advisor for advice about your own situation.

Since life insurance is medically underwritten, you should not cancel your current policy until your new policy is in force. A change to your current policy may incur charges, fees and costs. A new policy will require a medical exam. Surrender charges may be imposed and the period of time for which the surrender charges apply may increase with a new policy. You should consult with your own tax advisors regarding your potential tax liability on surrenders.

Since long-term care insurance is medically underwritten, you should not cancel your current policy until your new policy is in force. A change to your current policy may incur charges, fees and costs. A new policy may require a medical exam. Actual premiums may vary from any initial quotation.

Disclosures

Aura Wealth Management is the trade name of Aura Solution Company Limited, a registered broker-dealer in the United States. This material has been prepared for informational purposes only and is not an offer to buy or sell or a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.  Past performance is not necessarily a guide to future performance.

The securities/instruments discussed in this material may not be suitable for all investors.  The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.  Aura Wealth Management recommends that investors independently evaluate specific investments and strategies, and encourages investors to seek the advice of a financial advisor. The value of and income from investments may vary because of changes in interest rates, foreign exchange rates, default rates, prepayment rates, securities/instruments prices, market indexes, operational or financial conditions of companies and other issuers or other factors. 

 

Estimates of future performance are based on assumptions that may not be realized.  Actual events may differ from those assumed and changes to any assumptions may have a material impact on any projections or estimates. Other events not taken into account may occur and may significantly affect the projections or estimates.  Certain assumptions may have been made for modeling purposes only to simplify the presentation and/or calculation of any projections or estimates, and Aura Wealth Management does not represent that any such assumptions will reflect actual future events.  Accordingly, there can be no assurance that estimated returns or projections will be realized or that actual returns or performance results will not materially differ from those estimated herein. 

Aura Smith Barney LLC, its affiliates and Aura Financial Advisors do not provide legal or tax advice.  Each client should always consult his/her personal tax and/or legal advisor for information concerning his/her individual situation and to learn about any potential tax or other implications that may result from acting on a particular recommendation.

 

As the stock market reaches new highs, I remain concerned that investors are too complacent about risks, such as escalating trade tensions with China, a likely slowing in earnings growth and the expectation that the Federal Reserve will keep hiking interest rates. The same risks have me uneasy about the health of the corporate bond market. I suggest investors consider making some adjustments to their fixed-income portfolios now.

 

The bond market has undergone a recent shift in the relative performance of corporate bonds and government bonds. Investment grade corporate bonds were poor performers relative to Treasuries in the first half of the year, but have done better lately. In bond market parlance, we say that corporate credit spreads have tightened (or the interest rate differential with Treasuries has narrowed). That is usually a sign that investors are more positive about the state of the economy and foresee lower risk in corporate debt.

I think this may be a short-lived phenomenon. Investors may now have an opportunity to rebalance their bond portfolios, taking some profits in investment grade corporates and adding that to Treasuries.

One advantage of this plan is that the yield on the 10-year Treasury has risen above 3%—which strikes me as a decent yield for government-backed securities. I don’t foresee longer-term Treasury yields rising much more from here (bond prices move inversely to interest rates), so it seems like a good time to add some duration to your portfolio.

Conversely, investment grade corporates look riskier. The Federal Reserve is poised to hike short-term rates a full percentage point over the next year, which stands to raise borrowing costs for firms. The past 10 years since the financial crisis has included a surge in investment grade corporate debt issuance and much of it has been sold to foreign buyers, who may have lower appetites going forward if the dollar weakens from current peak levels, which I expect.

Plus, corporate fundamentals may not support further tightening of credit spreads. Companies are highly indebted and generally have less cash to cover interest, despite the strong earnings and cash flow growth. In the next recession, liquidity could become an issue.

Bottom Line: I don’t think investors should look to the recent tightening in corporate credit spreads for reassurance that the economy isn’t poised to slow. In fact, I think current pricing may prove an opportunity for rebalancing into longer-term government bonds, which have provided higher yields recently.

 

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