The shock from the global financial crisis put life insurance, as an industry, around the back foot. A time of de-risking and retrenchment inevitably followed as companies looked to consolidate their positions and weather the storm. Ten years on, and much of this necessary work has been done. The life insurance sector is on the much firmer financial footing, and growth is back around the agenda. Indeed, for many providers, growth is now vital. An aging population means mounting payouts, thanks to policies of old that were designed when data painted a different picture of risk than the one we see today. Securing new sources of revenue is crucial.
There is a huge problem, however: The “pie” of potential customers for traditional life insurance offerings simply isn't what it was once, and grows smaller each year. Whereas in the mid 20th century it was something that most households purchased as dependent on course, younger generations tend to view it as optional, at best, when they even consider it at all. The number of U.S. households that hold life insurance of some sort is now at a 50-year low, and according to trade association LIMRA some 38 million households do not have any form of life insurance at all. According to a recent study by exactly the same organization, under 20% of millennials indicated an interest in purchasing life insurance at any point.
So life insurers looking for new revenue have two options. They can try and increase market share from the existing, dwindling pie by wrenching already-engaged customers from rivals in an increasingly competitive environment. Or, they can look for new ways to engage new customers-to grow the pie, as they say. While the first option is the easy route, any truly ambitious provider needs to think about methods to achieve the 2nd, and the future from the sector in general will be based on re-engaging new generations of customers.
The challenge is engagement. The need for life insurance, and the protection it provides, hasn't changed. What has changed, dramatically so, is how people consume information and purchase products and services. Much of this change has been underpinned by advances in online and digital technologies. Unfortunately, the decade of retrenchment following the crisis also meant life insurers stopped innovating. The sector has always had a reputation for lagging slightly behind the times. More than anything else, growing the life insurance pie will mean embracing the brand new technologies.
The process of gaining and keeping new customers could be broken down into marketing (funneling people to the purpose of potential sale), policy creation and sale, and then customer retention and upselling. Digital technology holds the potential to transform each stage and how they relate.
On the marketing front, a part of the issue with the current set-up is overreliance on brokers and agents, who have incentives to target wealthier households of the sort that still routinely look to purchase the product (the dwindling pie). But newer forms of media, such as social networks-as well because the sheer ease of sending slick and professional communications within the digital era-can enable a more direct-to-market approach, allowing insurers to supplement their relationships with brokers by directly targeting the lower-income and younger households that the existing model systematically overlooks. Research suggests that younger generations commonly perceive life insurance to become far more costly of computer is in reality-what better method to bust this myth?
On the policy design and sales front, younger, online consumers expect flexibility, speed and convenience above all, and therefore are far warier of large or long-term financial commitments than their forebearers. Modern advanced, automated underwriting capabilities can allow for the creation of a far wider range of niche, temporary policies, as opposed to the one-size-fits-all blanket coverage the industry is used to trafficking in. For instance, those who engage in extreme sports at the weekend may not currently be thinking about buying a whole life insurance policy-but may well see the value in taking out time-limited policies for the periods when they know they will be engaging in these riskier activities. By getting new customers into the ecosystem in this piecemeal fashion, the job of then getting those individuals to add coverage, or convert to full-blown policies, becomes that much easier.
The Role of Data and Automation
Data and automation can play a key role in efficiently connecting these two steps together. A part of the reason the industry has avoided lots of smaller, niche policies is that most will not apply to any given customer at any given time. But targeted, direct, data-driven marketing on social networks and other channels can get around this limitation, to make sure that potential customers are offered what they specifically need, when they need it.
To take the previous example, a Facebook group for extreme sports enthusiasts could be an appropriate channel. Or the appeal might be taken further still, down to an individual level. Part of the problem the industry currently has with engagement is that it still relies heavily around the old-fashioned approach of an annual sit-down with a financial agent or some other intermediary. The capability to identify customers in specific situations and engage them inside a timely fashion-someone that has just gotten married, or is buying a house, for instance – could prove an enormous advantage, and the tools needed to attain this now exist.
The sales process itself also needs to be brought in line with modern consumer habits. In a world where individuals are accustomed to being able to buy the majority of things at the touch of the few buttons on a desktop or mobile device, this approach must apply to life insurance, too. Instead of use reams of paper forms filled with incomprehensible and irrelevant information, the process should be simple, user-friendly, and quick. Advanced, automated, real-time underwriting technology will again have a key role to play here, and this is one area where life insurers can learn from other insurance sectors that are further along this road. With modern technology, the entire process of policy creation and sign-up, from start to finish, needn't take more than seven minutes.
It is the third stage, however-customer retention and upselling-where digital technologies could arguably play the most transformative role in redefining the relationship between life insurers and their customers. There is much excitement about the potential of apps and wearables. A normal stream of real-time data from a person, associated with, for instance, heart rate or exercise levels, could be very useful for designing precisely the kind of tailored, niche policies mentioned above, as well as for the purpose of targeted marketing.
But why should the information only flow in one direction? The life insurance industry has always centered on the collection and analysis of information, and embracing a new digital approach will boost the volume-and individualized nature-of that data by orders of magnitude. The life insurer of the future may have more precise information regarding the health and habits of customers compared to individual themselves, their doctor or anyone else.
So why don't you give back? This really is where what we call reciprocal intelligence will are available in. As well as providing the core insurance service, insurers could provide regular updates to customers regarding their own data and information – for instance, a message could inform a customer that she’s reduced her average heart rate by X over Y period, or that her exercise levels have dipped by Z amount. This could be tied to incentives, function as a health warning or perhaps connect to policy design through, for example, targets to lessen premiums. It might allow insurers to engage with their customers on the regular and meaningful basis, inside a non-sales-oriented fashion, compared to the far more remote, irregular and formal relationship which has become traditional. This in turn would create far more opportunities for firms to educate and inform customers from the advantages of more comprehensive policies, as well as for more targeted upselling.
All of this possibility of change carries big implications for insurance firms themselves, when it comes to structure and culture. Utilizing these new approaches will mean accumulating and processing huge amounts of information, and then knowing how to use it to maximum effect. This means that life insurance companies will have to become tech-savvy to the core, on an institutional basis. As has often been said in the era of Google and Amazon – “We're all tech companies now.”
Firms looking to engage new customers will need to give serious consideration to the question of how to recruit, or collaborate with, those with the right skills and talent. This will require a top-down element: Firms wishing to lead the way in which will need to consider creating digital departments, including new board level positions encompassing responsibility for delivering digital strategies (head of reciprocal intelligence included). Firms will even have to work to find ways of integrating the right technology solutions into their businesses. You will find already numerous insurtechs that address a few of the most pressing problems along the insurance coverage value chain, so collaboration is key.
There is no real reason why life insurance shouldn't be as much of a standard a part of life as it was for individuals within the 20th century. This is not a case of VHS being surpassed by the web, or steam by electric. It's dependent on technological and cultural adaptation to new habits and ways of living. Those that fail to adapt will discover themselves scrabbling over an ever-dwindling pie of revenue. The ones that do adapt, that grow the pie, could find themselves at the forefront of a new golden age for life insurance.
You can find the article originally published here.