The life industry globally ought to review its strategy after a confluence of factors in recent years affected its performance, consultant McKinsey & Company says in a new report.

The report says life insurers have responded to broader trends and industry shifts by re-evaluating their traditional business models but persistent challenges – some beyond their control – persist such as high cost base and sub-par capital returns.

“The global life insurance industry is facing an inflection point,” the report says. “A fundamental reimagination will usher in significant change.”

McKinsey says insurers will have to chart a course through the changes and choose their mode of value creation, which will be partly informed by their organisational goals and investor expectations.

“Nonetheless, there are pockets of optimism and opportunity for those who can identify, invest in, and capitalise on their distinctive capabilities to meet the expectations of their owners and stakeholders,” the report says.

“Ultimately, a changing industry landscape can allow insurers to overcome current performance challenges by transforming both where and how they generate value.”

In relation to cost base, the report says since 2003 structural costs as a share of revenues have increased by 23% compared to 5% for property and casualty insurers.

Without targeted actions, the combined pressure of inflation and the talent shortage will likely drive up labour costs, the report says.

“While some insurers have announced restructuring efforts over recent years to address cost, these programs have not yet reversed the global trend of rising cost ratios.”

McKinsey says technology will continue to play a greater role in shaping customer expectations from service delivery to product offerings.

“Customer expectations are increasing when it comes to level of service, including the desire to integrate digital technology with conventional products,” the report says.

“As such, many companies have shifted their business models to increase their adoption of disruptive technologies such as cloud computing and applied AI and have used more agile ways of working, as well as new talent attraction strategies.”