Rory Yates, Global Strategic Lead, EIS looks at why the protection industry appears to be struggling, what the future should look like for the sector and who should be leading the charge for change.
Save for the Covid-fueled spurt of 2020, growth in the life insurance sector has been disappointing for some time. Profits have struggled to rise above the cost of capital, and the global protection gap has continued to widen.
While cost is clearly a concern for consumers during this difficult economic period, research suggests the complexity, confusion, and inconvenience surrounding policy purchase and ongoing servicing are also major issues.
From confused consumers, to stressed advisors, and unhappy employees, the protection industry is facing a host of headwinds. These are difficult issues, but they’re also within the insurer’s power to overcome. The question is, will carriers take the opportunity to do so?
A Great Shift is Coming…Maybe
When sitting down with analysts to discuss the future of protection, attention quickly turns to the cycle of technology buying and how we’re entering the next phase. This is always followed by, “this time it’s going to be different.”
While the desire for insurers to maintain business as usual is powerful, there’s good reason to believe that change is indeed afoot. Consider this: Protection’s previous technology refresh was 15 years ago. Since then, the world has changed significantly. A major turning point was 2008’s global financial crisis, which triggered a transformation in SaaS and Cloud provision.
These changes accelerated an evolution in the way financial services are offered to customers, initially in eCommerce and eventually across other industries too. Scale, digitisation, and channel proliferation democratised quickly. As banks realised they needed to do more for customers, fintech took a huge shift forward. The result is the world has become mobile, data fluid, and increasingly intelligent.
Fast forward to today, and we’re seeing a whole host of powerful market forces acting on the protection market that should trigger fintech-like changes.
From trends like embedded, risk-removing, and carbon-neutral, to macro-economic drivers such as Consumer Duty, demands for digital experiences, and younger people delaying key life decisions that require insurance, there’s a lot of pressure acting on the market all at once.
However, the collision of these pressures shouldn’t be viewed as a problem to overcome, but as an opportunity to be harnessed. When protection businesses are built around customers, not policies, and interoperate in widening ecosystems, the potential to play a more integrated, intelligent, and valuable role in people’s lives is endless.
Value Creation: Connecting Provision to the Life of the Insured
Most life insurance companies are also pension businesses. Today, the best use case for these businesses being connected is often pension payments that are paid out to the other life or lives in the event of the policy holder’s death. But the pension and life policy never meet. If they did, it’d open the pension provider to a whole host of new value beyond offering an insurance product on the side.
In this scenario, Life transforms from simply a payout at the end, (a very crude entry point if there ever was one), to the beating heart of what could be a huge amount of shared value. Let me explain.
When an insurer is truly connected to the life of the customer, the relationship extends far beyond the annual pricing examination and potential repurchase. Instead, it’s built around a host of trigger points that the insurer and broker can use to reengage with the market, be it an employer, employee, or consumer. That might be a change in circumstances, e.g. buying a new house or changing jobs, through to fluctuations in a person’s health.
With a policy-centric operational model, this is close to impossible. The data needed to identify ongoing risk, offer risk-mitigating measures, or identify ancillary services, isn’t available to the insurer or broker.
In parallel, there are very few broker portals, where the broker has the insight needed to be proactive. This sort of intelligence just doesn’t exist and it’s where the opportunity lies for protection to truly transform.
It’s about thinking beyond ‘the policy’ and focusing on the wider business it sits in. It’s about how they can be connected and the resulting insight made available and valuable to the insurer, broker, and consumer. When you’ve already got all of this data on the consumer, you can become the central hub for orchestrating their lives on multiple levels.
Insurers are some of the largest custodians of life data anywhere. If Elon Musk or Jeff Bezos had that kind of access, they’d sell customers everything they could. When considered in this context, it’s no surprise that Amazon is continuously experimenting with insurance. For that, you have to credit the tech giant for leveraging its most valuable assets.
I’ve created many business models for insurance over my career that demonstrate how this connected ecosystem and connected customer can be delivered. The problem is that it’s too difficult to do in legacy technology.
Building Back Better
As technological transformation becomes a focus for protection, my question to the industry is this. Why build back the same (albeit using more modern tech) with all of its incumbent challenges and headwinds, when you could build something that generates huge value to you, your brokers, and customers by putting the consumer rather than the policy first?
When your business is built around policy-centric silos, you treat a life customer as a single instance, and the cost and effort to manage each person is the same. Whereas, when you synchronise every renewal moment, aggregate pricing, and help make decisions according to the data, price is less important because there is so much more value to consider.
The technology is there to do all of this. What’s needed is a mindset shift in the way a carrier operates. We’re already seeing this happen within group benefits in the US. Companies like Wellfleet and Pacific Life have seen the commercial opportunities of customer-centric operational design and are building greenfield propositions that’ll disrupt the establishment.
In the UK, regulation is helping to lead the way and holding the insurance industry to account. We need to treat customers fairly, and to do this, we need to make sure what we offer is appropriate, clear, and relevant to the lives of the people we serve. It’s not an obligation. It’s a distinct opportunity.
What’s more, the timing couldn’t be better. With a change in the foundations of protection businesses moving to Cloud-enabled, SaaS-led, and customer-centric models, these possibilities become a reality. Change is becoming easier and creating new value along with it.
