Cigna 2014 Annual Report Download - page 41

PART I
ITEM 1. Business
in regulation for permitted distribution channels also may impact our
Pricing and Reinsurance
business or results.
Premium rates for our global supplemental benefits products are based
on assumptions about mortality, morbidity, customer acquisition and
Competition
retention, customer demographics, expenses and target profit
margins, as well as interest rates. For variable universal life insurance We expect that the competitive environment for global supplemental
products, fees consist of mortality, administrative, asset management benefits will continue to intensify as U.S., Europe and other regional-
and surrender charges assessed against the contractholder’s fund based insurance and financial services providers more aggressively
balance. Mortality charges on variable universal life may be adjusted pursue expansion opportunities across geographies, especially in Asia.
prospectively to reflect expected mortality experience. Most contracts We believe competitive factors will include branding, product and
permit premium rate changes at least annually. distribution innovation and differentiation, efficient management of
marketing processes and costs, commission levels paid to distribution
A global approach to underwriting risk management allows for each partners, the quality of claims, local network coverage, customer
local business to underwrite and accept risk within specified limits. services and talent acquisition and retention. Additionally, in most
Retentions are centrally managed through cost effective use of external overseas markets, perception of financial strength also will likely
reinsurance to limit our liability on per life, per risk, and per event continue to be an important competitive factor.
(catastrophe) bases.
Our competitors are primarily locally-based insurance companies,
including insurance subsidiaries of banks primarily in Asia and
Markets and Distribution
Europe and multi-national companies. Insurance company
Our supplemental health, life and accident insurance products sold in competitors in this segment primarily focus on traditional product
foreign countries are generally marketed through distribution partners distribution through captive agents, with direct marketing being
with whom the individual insured has an affinity relationship. These secondary channels. We estimate that we have less than 2% market
products are sold primarily through direct marketing channels, such as share of the total insurance premiums in any given market in which
outbound telemarketing, and in-branch bancassurance (where we we operate.
partner with a bank and use the bank’s sales channels to sell our In the Medicare supplement business, the principal competitive
insurance products). Marketing campaigns are conducted through factors are underwriting and pricing, relative operating efficiency,
these channels under a variety of arrangements with affinity partners, broker relations, and the quality of claims and customer service. Our
including banks, credit card companies and other financial and primary competitors in this business include U.S.-based health
non-financial institutions. We also market directly to consumers via insurance companies.
direct response television and the Internet. In certain countries, we
market our products through captive and third party brokers. Our
Medicare supplement product line is distributed primarily through
Industry Developments
independent agents and telemarketing directly to the consumer. Pressure on social health care systems, a rapidly aging population and
South Korea represents our single largest geographic market for increased wealth and education in developing insurance markets are
Global Supplemental Benefits. For information on this concentration leading to higher demand for products providing health insurance and
of risk for the Global Supplemental Benefits segment’s business in financial security. In the supplemental health, life and accident
South Korea, see ‘‘Other Items Affecting Results of Global business, direct marketing channels continue to grow and attract new
Supplemental Benefits’’ in the Global Supplemental Benefits section competitors with industry consolidation among financial institutions
of the MD&A beginning on page 52 of this Form 10-K. and other affinity partners. Recent Asian affinity deals have involved
multinational insurers making large upfront payments to financial
For our supplemental health, life and accident insurance products sold institutions for long term (over 10 years) exclusive regional
in foreign markets we are increasingly exposed to geopolitical, distribution rights throughout their retail operations.
currency and other risks inherent in foreign operations. Also, given
that we bill and collect a significant portion of premiums through Data privacy regulation has tightened in all markets, in the wake of
credit cards, a substantial contraction in consumer credit could impact data privacy news scandals, impacting affinity partner and customer
our ability to retain existing policies and sell new policies. A decline in attitudes toward direct marketing of insurance and other financial
customer retention would result in both a reduction of revenue and an services.
acceleration of the amortization of acquisition-related costs. Changes
Group Disability and Life
Our Group Disability and Life segment provides group long-term and services in all 50 states, the District of Columbia, Puerto Rico, the
short-term disability insurance, group life insurance, accident and U.S. Virgin Islands and Canada. All products and services are offered
specialty insurance and related services. We market these products and by subsidiaries of Cigna Corporation.
CIGNA CORPORATION - 2014 Form 10-K 9