(Image credit: AbsolutVision.)
The life insurance industry is facing a dramatic transformation, driven by a shift in the competitive landscape, rising customer expectations and the changing nature of risk itself. It’s critical for life insurers to respond by prioritizing innovation to drive efficiencies and customer experience. But more than half of organizations (56 percent) across several industries, including insurance, agree that their organization is not making optimal use of digital technologies, according to a recent global survey by The Economist Intelligence Unit (EIU), DXC Technology and Leading Edge Forum.
Below are three key challenges that life insurers should keep in mind as they create strategies for growth and innovation in 2019 and beyond.
- Larger Battlefield
Today’s insurers are fighting competition from all fronts: existing players, new entrants and tech giants outside the industry.
Brokers, insurers and reinsurers are all fighting for larger shares of the market and, in the process, re-shaping previous boundaries. Brokers, for example, are taking on greater underwriting responsibilities. Equipped with technology, they can perform risk management and fact-based underwriting quite well. Similarly, reinsurers are becoming far more active in the primary insurance space.
A number of small new companies have joined the fight, as well, by creating new distribution channels and engaging customer experiences (often without agents) that large insurers cannot ignore. Digital storefronts are tapping into InsurTechs and reinsurers to directly reach consumers and are generating loads of consumer insight to act upon.
Add to this, threats from other industries, particularly as technology becomes a potent competitive advantage. Technology leaders are increasingly turning their interests—and sources of capital—toward an industry overlooked for too long.
- Greater Expectations
As other industries have optimized customer experience, expectations have risen across the board. Customers expect the same levels of digital connection and personalization from their life insurer as they receive elsewhere.
This customer-centric approach upsets the traditional business model for most life insurers, which traditionally have limited touchpoints in their customer life cycles. Insurers need to focus on becoming more customer-driven and provide offerings based on customer wants.
What do customers want? New product offerings, convenience and simplicity. Consumers spanning ages 18-52 have steered away from purchasing policies because they perceive life insurance as too expensive, don’t understand the products or the application process seems complicated.
Instead of enduring surveys and physical exams, today’s consumers prefer a digital procurement experience. Consumers are self-generating wellness and lifestyle data on wearable devices, social media and other channels. They expect:
- Insurers to turn this information into a more-complete customer profile and real-time risk rating
- Policy decisions to be made within minutes, not days
- Online and offline interactions to be seamlessly connected
- Flexibility, including policies that are available on-demand and even by-the-hour
Some insurance companies are on this path. According to The EIU’s global survey, more than 67 percent of insurers believe that digital transformation is a requirement for competing and succeeding. But 72 percent are less than two years into the development or implementation of their organization’s digital strategy.
That may add up to lost opportunity. The largest consumer group in the U.S.—Millennials and Gen X—faces an estimated $20 billion protection gap (The Mortality Protection Gap in the U.S., Advisor Magazine, March 2, 2018).
Insurers that leverage technology to meet consumers’ rising expectations stand to gain ground among an underserved market with increasing spending power.
- Risk becoming more complicated
As wealth increases globally, the number and value of insured risk also rises, presenting an opportunity for greater life, protection and investment penetration. But risk factors are more complicated today and less predictable overall.
Despite the complexity, insurers must make their products simpler. New products need to roll out quickly and be served up to consumers following retail-like best practices. Product definitions, pricing, configuration options and rating engines should be designed for the external (consumer) audience.
Without changing their core administration systems, insurers can add a digital front-end that transforms the quote-to-buy experience. Soon, buyers will be configuring their own risk solutions (selected from a discrete set of products and riders), aggregated and priced as a single offer.
To further create value, insurers must accurately assess macro-level risks like economic and political turmoil alongside detailed, personal data. Emerging risks such as autonomous driving and cybercrime also have bearing on modern risk calculations.
And new risks will continue to emerge. Can insurers predict all of the impending risks and the services needed to manage them? Not easily today, even with massive amounts of customer data. Like scattered puzzle pieces, petabytes of customer information are spread across different systems, lines of business and geographies.
The way forward lies in the collection and analysis of data like never before. The current formulas are too complicated, and the factors are too compounding to calculate any other way. Two policyholders who look the same on paper today could have wildly different risk and needs assessments once all the available data points are pieced together and thoughtfully considered.
By investing in machine learning and artificial intelligence (AI), insurers can discover more accurate predictors of risk. More comprehensive risk assessments can lead to broader offerings, including risk counseling and risk mitigation services.
In the same category of risk, it’s worth mentioning that insurance companies carry deep responsibility to keep personal information private and protected. As technologies and devices become more prevalent in the industry, insurers must monitor the threats and protect their IT environments from traditional forms of fraud and cyberattack.
The Way Forward—Adapting to Change
None of these changes or challenges is insurmountable. With the right ecosystem of software, services and infrastructure, insurers can thrive through these changing times. AI and robotics can reduce costs and improve efficiencies throughout the policy life cycle. Those savings can be reinvested in the customer experience and other revenue-driving initiatives.
For example, many life insurers are saddled with outdated policy administration systems (sometimes dozens) that need to be maintained because products that are no longer sold need to be administered on a run-off basis. Moving people, processes and technologies to a business process service outside the company reduces costs, improves agility, and frees up embedded capital for digital initiatives.
Additionally, insurers will need to build, integrate and curate the right capabilities to compete in a digital world. InsurTechs and partner ecosystems will become more relevant, with some insurance companies reaching outside the sector to redesign their value chain. Platforms and partnerships will be increasingly common as insurers connect more broadly than ever before.
Moving forward, insurance software will be evaluated by how well it integrates, regardless of where it sits or who owns it. The growing digital insurance ecosystem, including APIs and micro-services, must enable data and transactions to flow smoothly across organizational boundaries.
Without traditional boundaries, insurers, InsurTechs and partners will advance innovation, resulting in a secure and scalable future for all.
Digital technology is mature and ready for insurers to deploy at scale. Now is the time to accelerate innovation and adapt to the changing risk landscape, improve operational efficiencies, evolve products and enhance the customer experience. Insurers who do so successfully will establish themselves as leaders and gain a competitive edge that will ensure continued success.