While most insurance technology start-up activity in the U.S. is concentrated in health and auto, there are signs of life (pun intended) in the life insurance sector. Given the business model challenges reported in my last post, optimists will see upside and big commercial white space throughout the ecosystem. People with the skills, smarts and guts to envision how life insurance could work can lead the sector in new directions.
Life insurers ignore the facts at their peril. According to the 2014 Insurance Barometer survey cited in AM Best – Buying Insurance: Evolving Distribution Channels, 83% of consumers would use the internet to research life insurance before purchasing a policy if they had the option. While face-to-face contact with an agent remains the preferred purchase channel, nearly one in four said that given the option they would prefer to research and purchase online. This year’s Insurance Barometer update reports an improving marketplace for life insurance, citing favorable millennial generation attitudes and people’s willingness to share data in exchange for better product pricing.
A check-in on what is happening suggests three groups of potential innovation generators emerging:
- New entrants developing client-centric offerings sitting between the carrier and the client, displacing traditional agents with a digital experience model
- Start-ups providing B2B solutions to carriers or distributors, addressing pain points in the traditional product and sales model
- Carriers themselves, a number of whom are experimenting either in the market themselves or via investments in start-ups or accelerators
- Establish presence and meaning for their brands among client segments whose unmet needs can be supported by the business model, creating differentiation and marketplace advantage.
- Extract insight from wide sources of data, many not used at all today within the industry, to drive product development, client segmentation, personalized offers and communications, a client journey built upon new models for distribution, servicing, payments and account management, or a pivot from protection to prevention - all with heavy focus on digital possibilities
- Avoid naivete about the inherent complexity of this industry, starting with:
- Managing the reality of 50 states’ worth of regulation plus federal oversight from multiple agencies
- Adhering to tight compliance requirements
- Assessing the financial and risk implications of claims that won’t occur for decades
- Recognizing that people are irrational to some degree when making financial decisions
- Having patience (and patient investors) as even new entrants will be affected by sector dependencies and client dynamics that may take years to evolve
- The traditional agent model is riddled with issues, e.g.:
- A continuous decline in the agent workforce,
- A mismatch between agent demographics and overall population trends,
- A prospecting model out-of-touch with the times, and
- A compensation model that encourages churn and does not align interests between the agent and either the carrier or the client
- automation solutions to ramp up agent engagement in digital channels (website and mobile app development, social media, compliance, content development, marketing campaign management),
- hand-held device-based data capture and submission for policy applications; and
- improved underwriting and application processing for faster approval, reducing error rates and minimizing or eliminating the need for applicants to provide blood and urine specimens.
- Demonstrating real knowledge and expertise in the vertical.
- Connecting the dots between their solution and drivers of financial success, especially the core metrics against which the industry and the analysts have historically measured performance.
- Having a constructive attitude – no one wants to hear that the sky is falling, especially executives and advisers within striking distance of their own retirement.
- Advisers – whether captives or third party – have the direct relationship with the client and tend to maintain connections only with top clients who represent additional sales or referral potential.
- Client relationship management - Carriers transact infrequently with clients or their beneficiaries – contacts focus on premium notifications, claims and questions about policies.
- Even when clients or beneficiaries reach out, most carriers are in the early days of figuring out responses beyond answering the immediate question.
- Across the industry, there are millions of clients referred to as “orphans” – people whose agent has died, retired or is no longer affiliated with the carrier. Even if “assigned” to another agent, these clients do not have strong relationships with whoever issued their policy.
- Carriers have not done a good job understanding their clients and how to improve the effectiveness of these relationships based on behavioral segmentation or other proven tactics. In the language of the carriers, “in-force management” is a relatively new area of focus, driven initially by risk and expense reduction strategies, with some signs of effort to improve client loyalty and satisfaction.
- Capabilities – Ranging from basic automation to big data to digital and multi-channel experience platforms, e.g.:
- data management platforms that unify disparate data sources, making them useful in one, dynamic dataset, speeding up execution, as well
- data analytics, e.g., to enable active and relevant product migration as well as additional sales. product development and exploration of new business models
- integrated experience for agents and clients across channels
- data security enhancements
- e-document management
- The dependency on agents and advisers to drive sales, which makes any direct-to-client conversation controversial, as it may be perceived as competitive with the sales force
- The diversion of attention in life insurance C-suites right now to address the recent U.S. Department of Labor decision on fiduciary standards. The impacts of this ruling are significant.
