Canadian life insurers must adjust their product offerings in order to adapt to changing demographics and consumer needs, as well as ongoing economic weakness, according to Ernst & Young Global Ltd. (EY).

In the 2014 EY Canadian life insurance outlook, EY highlights a plethora of challenges facing the industry in 2014, such as sustained low interest rates, a weak economy, new accounting rules and regulatory changes.

However, it says industry firms can take certain steps to position themselves for growth in the year ahead, such as adjusting product lineups to decrease risk exposure while focusing on features that appeal to consumers.

The report notes that many insurers have already taken steps to dial back risk in their product portfolios, such as implementing automatic rebalancing to protect against significant asset value movement, and increasing the fees on variable products to reflect the cost of hedging in the volatile economy.

“Most insurers in recent years have reviewed their existing product portfolios to reprice or eliminate their high-risk, capital-intensive and low-margin products, while also seeking profitable ways to maintain or gain scale,” the report says.

EY urges insurers to focus on marketing simple, flexible products with clear, comprehensible value propositions, as those tend to resonate with consumers. In addition, EY commends the industry for its renewed focus on asset management and wealth management products, which provide value without the costly and risky guarantees associated with many traditional life insurance products.

“Companies must continue such innovative pursuits to improve profitability in areas such as tax strategies, sales force management and asset liability management,” EY says.

Insurers must also keep a close eye on the changing demographic landscape as they adjust their product offerings. The report notes that industry has a significant opportunity to cater to the looming wave of retiring baby boomers.

Younger clients also represent a sizeable market for insurers, according to EY. It suggests that products such as term life insurance and whole life insurance will continue to generate interest among younger consumers, since those products are easier to understand.

Insurers must also embrace mobile technology and social networking in order to tap into the younger market. EY notes that insurers in Canada and around the world have been slow to implement strategies in these areas.

“With younger customers increasingly using mobile devices and social platforms to research and buy products,” the report says, “it is critical for insurers to invest in these areas.”

In fact, EY says the industry could significantly benefit from better use of technology overall. The report urges life insurers to better utilize data analytics, in particular, to help deliver the appropriate products to clients at the right time, through the right channels.

“By relinquishing legacy systems that hamper growth and investing in increasingly sophisticated technology and data analysis techniques,” EY says, “insurers can streamline operations and improve their value proposition.”