US life insurers face increasing competition from other insurers as well as from commercial banks and career agents. Increasingly, these agents are leaving their companies in favor of independent brokerages, often with their clients in tow. To counter the resulting decline in profitability, many insurers are looking to improve their IT systems as a way to boost operational efficiency and to lower costs.

In cooperation with LIMRA International,¹ McKinsey conducted a survey of 40 leading US life insurers of all sizes about technology priorities (Exhibit 1) and the effectiveness with which they have been implemented. Although administrative systems and sales force systems are listed more often as prioritites, the results show that two technologies have had the most impact in helping life insurers manage their costs and increase the efficiency of their front- and back-office operations. The first, distribution- and compensation-management automation, provides insurers with a better understanding of all facets of the distribution cycle: product planning, channel selection, sales, and agent compensation. It also gives these companies tools for monitoring agents, retaining their top performers, and improving client service. The second, straight-through processing, links...