THE 2000's

Bumps in the Road

The new millennium began with astonishing innovation but also brought unanticipated consequences.

The exhilarating growth and profits in the 1990s life insurance business came to a slamming stop at the arrival of the new century. The dot.com crash of 2000 dragged the stock market down with it. The sudden drop in interest rates and increased volatility in turn hurt insurance investments and lowered their asset values.

Fortunately, the long view, conservative approach to investments in the life insurance industry helped drive a fast recovery. By 2005, insurance assets had mostly sprung back, despite continuing lower interest rates. However, financial crises always bring reflection and re-evaluation with them, and the recession was a catalyst for a changing insurance model.

People were living longer. Thus, the shift from mortality risk to longevity risk took on renewed vigour. New products increasingly addressed retirement benefits.

A new generation of internet businesses had also sprung up to quickly replace the wave of dot.com crash insolvencies. Small start-ups became household brands seemingly overnight. They did this by harvesting massive amounts of data and using rapid scaling strategies only possible through the power of digitalisation. Young companies like Google, Facebook and Amazon would soon become some of the most valuable worldwide brands as they permeated all aspects of our lives.

This resulted in social upheaval. Consumer behaviour, habits and expectations – especially among younger digital natives – were changing in dramatic ways. Insurers would have to begin seeing the internet not just as a promotion tool, but as a way to conduct business. People would want to have more individualised policies, faster response times and a more pleasant experience, as they had become accustomed to when using other online consumer services.

All of these industry changes meant brisk business for both FJA and COR. More than ever insurance companies needed to update their old IT structures to be able to increase efficiency, speed up time to market and lower administrative costs. Outsourcing to experts made both operational and financial sense.

FJA and COR could implement the singular knowledge they had acquired through their years of working with diverse insurers to save development costs and time. Fundamental coding of insurance policy calculation and administration could be used for all clients, with more individualised components used for a company’s unique product development and country-specific regulations. This was eventually codified into the three modular programming layers of core, country and customer.

Another important aspect however was managing giant portfolios of policies that had accumulated over decades. Ideally these would also need to be migrated into the new system. Here too, the deep industry knowledge and actuarial prowess of both companies made them indispensable for many insurers overwhelmed with the task. Software was developed specifically for this purpose. FJA and COR thus continued to grow rapidly and became public companies.

Towards the end of the decade, two events happened that would once again upend the insurance industry. The first was the launch in 2007 of the iPhone. In the course of a few years, a whole new world of brands, products and platforms would appear, and consumer behaviour would once again be transformed.

The second event was not so euphoric. One effect of the 2001 recession was lower interest rates. The resulting lower mortgage rates and poor return on interest-based investments made real estate a popular alternative. This created a housing bubble in the US with investment from around the world. When interest rates started to go up again, along with some other factors, a cascade of foreclosures and cheap selling off created the financial collapse of 2008. This turned into the worst recession since the 1930s and interest rates plummeted.

FJA and COR were also not immune to this disaster. It also made sense from a strategic perspective for them to combine into a single entity capable of managing the biggest tasks at an international level.

The first decade of the new millennium began with a bang and ended with an even bigger one. The full effects of this would first be felt in the decade to come.

Next: The 2010s and a New Mobile Society

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A cascade of foreclosures and cheap selling off created the financial collapse of 2008.