Digital leaders are expected to outperform in life insurance

Knowledgeable consumers | Digital disruption is unavoidable | Digital tools significantly boost agents effectiveness | Next steps

For more than 250 years, insurers have used data and statistical tools to assess and manage risk. Today, insurers have access to unimaginably vast troves of new data and the computing power to explore it quickly. The new insights extend far beyond risk: insurance organizations now gain a deeper understanding of when customers are likely to make a purchase or decline to renew a policy, how they prefer to get information, and which marketing messages are most likely to resonate with them.

Demand for life insurance rose during the COVID-19 pandemic as many people reviewed their policies and considered greater and new types of coverages.  Applications rose 4 percent in 2020, the biggest jump since 2001, according to MIB Group; surprisingly, demand came mostly from people younger than 45.¹ Half of American adults believe life insurance is three times more expensive than it actually is, and more than 40 million say they need life coverage but don’t have it.²

Despite these strong tailwinds — the North American (US and Canada) life industry grew premiums by only 2.2 percent compound annual growth rate (CAGR) from 2010 to 2020, while nonlife premium CAGR was at 10.6 percent. Similarly, the global life premium CAGR was at 1 percent, while nonlife premiums grew by 6.7 percent, for the same period.³

Many life insurers continue to rely heavily on their physical sales agent/broker channel. The average life agent in the US is now about 59,⁴ recruiting new talent is increasingly difficult, and agents are less likely than ever to pursue middle-income customers — making efficiency increasingly important. Life insurers have been slow to harness new tools that could greatly improve efficiency, including advanced data analytics, artificial intelligence, and machine learning. Such life insurers are missing out on major industry trends and opportunities.

This brief overview will discuss the powerful trends unfolding, including continuously changing consumer expectations, the proliferation of data and digital tools, global innovation in products and distribution, and how industry leaders are building new capabilities in-house and through partnership and acquisition.

Consumers expect personalized seamless, complete online transactions, even for big-ticket products and services. They prefer speed and simplicity and, in many cases, want to make transactions with little to no human interaction. Personal line insurers recognized these profound shifts, and most now offer online quotes, transactions, policy management, and even claim submission and management. The potential benefits to the bottom line are dramatically reducing the costs of salespeople and claims adjusters, all while gathering mountains of real-time data.

Most life insurers cannot fully quote and bind policies online. While regulatory hurdles vary greatly by country and region, a handful of insurers are investing to develop and strengthen their online customer interactions to gain insights and competitive advantages for new products and services, within regulatory guidelines. AIA Vitality, for example, an Australian life and health insurer, monitors customers digitally, with their permission, and offers wellness programs and incentives to encourage healthier lifestyles. With social media and gamification, the company allows customers to share and compare fitness status with friends, promoting wellness and engagement.⁵

More insurance providers are expected to develop platform-driven, comprehensive digital health ecosystems like these to help improve customer engagement and experience. But some life insurers are also expected to invest large sums in online platforms and tools without seeing meaningful returns. In KPMG professionals’ experience, the most cost-effective technology solutions are not the latest shiny objects. Insurers see potential tangible business benefits when investments in solutions are targeted to specific customer and market needs and aligned closely with the current business priorities. It is recommended to empower sales efforts with a customer-centric view informed by data-driven insights and recent sales analytics. Insurance providers should build out the ecosystem of services to deliver on customers’ experiences to help drive customer persistency and penetrate new segments. This, over time, should deliver improved results and open new growth channels.

A global life insurer recently explored how to expand its customer base in emerging markets. As part of its customer strategy assessment, the insurer identified digital trends of hyper-personalization and social-media- driven engagement as the keys to empowering the ‘agent of the future’ in these regions. Based on analysis, the insurer built new tools and capabilities, including ‘next best action’ for the agent and product recommendation engines, across the marketing funnel to better customer and agent retention.

There are many US-based life insurance companies continuously investing for innovation through acquisitions and partnerships across digital capabilities, product development, and distribution channels, for growth and relevance.

Life insurers are adopting new digital tools and intelligent automation to help reduce manual work and cut costs. The most common tactic is to automate current processes for efficiencies; however, few life insurers are pursuing both product and process innovation — a complete redesign leveraging today’s enabling technologies. The COVID-19 pandemic has also forced innovation. More insurers now accept no-fluid, no-exam applications. The trend to use data for underwriting existed prior to COVID-19, but the pandemic accelerated its uses. More than a third of insurance companies offered accelerated underwriting for customers meeting certain criteria without uncomfortable medical/lifestyle questions or fluid samples.⁶

A leading life insurer in China reportedly shed more than 9 percent of its 1.3 million agents in 2019 — and used some of the savings to invest in bancassurance and internet channels. In 2020, written premiums in China through internet channels increased by more than 58 percent; analysts expect internet insurance premiums to reach US$5.5 trillion annually by 2030.⁷

Life products have traditionally been marketed to customers based on their age and affluence. Innovators, both new entrants and some market leaders, are developing more personalized solutions tailored to people’s needs at different life stages.

We see examples where life and health insurers are responding to the changing environment by investing in nontraditional growth products, such as pre-need and final expense insurance. Adding these new products to its suite of offerings allowed the insurer to appeal to medium-and lower-income customers who wish to preserve assets or avoid burdening their families with funeral and other final expenses.

There are many examples of product and service innovations undertaken by insurance organizations in their efforts to differentiate. Some life companies are testing flexible product offerings that allow policyholders to adjust coverage throughout the life of the policy. A leading Japanese insurer, for example, now offers medical, asset accumulation, and protection against disease and mortality in a single product that customers can adjust as their needs change. Insurers in Europe and Asia offer value-added services and nonmonetary benefits, such as administrative support for medical visits, health management, or telemedicine. Some offer to replace financial payouts with guaranteed placement in senior living communities; other have created shared-value products with ‘engaged wellness’ reward systems that give policyholders financial incentives to pursue healthier lifestyles, such as shopping vouchers or extra coverage at special events or renewal.

One-click underwriting is on the horizon, with dynamic adjustment based on customer behavior and prescriptive actions to help improve health outcomes.

Digital tools can help agents make better use of their time and make serving the small and middle market more efficient. Leading insurers are pioneering centralized digital agent support to streamline operations and improve customer and agent experiences. Using advanced analytics and data from a growing array of public and private sources, insurers can route agents to the most promising prospects at the right moments with the right messages and a clear view of offers. This is especially powerful for large multiline insurers who have a comprehensive view of their customers’ needs and transitions in life, from buying a new home and having children to approaching retirement.

Insurers have always found a way to provide agents with scenario planning, pricing, and benefit comparisons. Today, most digital platforms are just electronic versions of the brochureware and tables of the past. Leading practices from wealth management should prove that dynamic tools, personalized offerings, digitized applications, and processing can win in the market. Digital platforms can require significantly less data entry but make greater use of available third-party data, yielding real-time underwriting results and digital policy documents in less time and with less effort. Agents should also be able to use digital platforms to manage multichannel, personalized customer interactions to provide high-quality service and promote cross-selling across many different interactive channels.

Each customer should be able to choose preferred channels at every step, from getting information and quotes to applying and making a purchase, and insurance providers should be able to connect them with the agents most likely to meet their needs. As customers manage policies and continuously engage with dynamic underwriting, they will likely build long-term, more trusting relationships with agents and insurers.

Leading insurers are continuously rethinking their operations and business strategy to enable digital transformation and modernization. As part of this process, the sourcing options are almost without limit — many are building, buying, and forging new strategic partnerships to close gaps in areas where they lack capabilities.

The outperformers in the years ahead will likely be those that leverage digital tools effectively to enhance customer engagement; reach new customer segments, such as customers previously deemed as high risks; and target specific customer segments at lower prices or for longer or better terms if they share more health data. With new and innovative underwriting risk stratifications, forward-thinking insurers should be able to harness new technology to identify when policyholders are at risk and intervene to help reduce those risks.

In an industry where companies tend to change their approaches slowly, the insurers that will likely win are that ones that can innovate quickly and respond to consumers’ changing sentiments and capture the digital acceleration in the wake of the COVID-19 pandemic. The industry’s most forward-thinking leaders should also anticipate, manage, and potentially help guide the regulatory shifts across jurisdictions, especially in data accessibility, accuracy, completeness, sustainability, and privacy.