Over the last decade, there have been substantial developments in the global life insurance sector. Developing nations, primarily rising Asian markets, have emerged as international growth drivers, accounting for more than half of global premium growth and 84 percent of individual annuity growth. Data availability has increased dramatically, and insurers have made strides in advanced analytics and artificial intelligence. Customers may now file claims and access agents, insurance rates, and policy information with a few touches on a screen, thanks to digital and mobile technology developments.
The last decades have also brought with them new problems. The bull market has not benefited from life insurance. Global penetration declined to 3%, while premium growth in most developed nations, which averaged just under 2% per year, fought to maintain pace with GDP. Globally low-interest rates have reduced investment portfolio returns. More lately, the COVID-19 epidemic has pushed global borrowing costs even lower than they were during the 2007–08 international economic meltdown, causing life insurance stocks to suffer disproportionately compared to the rest of the marketplace.
Several signs point to a bright future for the life insurance sector over the next decade. Customer demand has never been higher. Indeed, the COVID-19 outbreak has only highlighted the importance of mortality protection. The COVID-19 crisis has hastened the decline in public sector pension replacement rates and healthcare expenditures. Economic and demographic factors will also be favorable. The middle-class population is quickly growing, bringing better wages, increasing financial wealth, and new dangers to manage. Those baby boomers will be 65 or older by 2030, and many will outlast their retirement resources.
We feel the life insurance business is at a crossroads, with the possibility to meet expanding client needs while resuming profitability and development. To achieve these objectives, we anticipate that winning life insurance businesses will excel in three areas during the next decade:
1. Make all aspects of the consumer experience unique.
2. create adaptable product solutions for a volatile legislative and interest-rate environment
3. reconfigure skills and capabilities
Make every part of the consumer experience unique.
The role of digital superstars in other sectors has pushed the bar higher in the insurance industry as well. Personalization options abound in various areas, which can help build client relationships—a transition to more focused health management. Life insurers have historically focused on death protection, but anxiety about mortality risk has waned in many economies, reducing demand for core policies. Despite current increases in online life insurance research inspired by COVID-19, the protracted drop in mortality risk is expected to continue. As life expectancy rises and health trends shift, insurance will play an essential role in their customers’ health over the next decade.
The number of persons aged 60 and up will double by 2030, namely $ 0.9 billion in 2015 to 1.4 billion. Furthermore, noncommunicable diseases—those more strongly linked to lifestyle habits, such as diabetes, heart problems, and lung cancer—will account for 71% of all annual deaths worldwide and represent an increasing share of mortality risk. We anticipate that these considerations will encourage life insurance and annuity companies to engage clients in the ability to share the economics of achieving health to boost policyholder lifespan.
Tech will play a significant role in this change. The data explosion and linked devices, especially wearables, will make it much easier for life insurers to take an essential role in molding consumer health, which will benefit everyone. For example, life insurance firms can use this information to provide timely, targeted reminders or notifications about food, illness treatment, doctor’s visits, local health services, and physical exercise. In addition, customers are increasingly eager to submit their information in exchange for personalization; today, six out of ten consumers worldwide are willing to share personal information with their insurers in exchange for lower charges.
During the epidemic, this trend has accelerated. Evidence suggests that many consumers are prepared to disclose heart rate data acquired on their watches. Life insurance firms have relied on more extensive inquiries and medical data in recent months rather than in-person physical examinations, which are not practical with physical distancing Vitality, a shared-value life insurance policy, is at the forefront. Vitality, created by Exploration Company in South Africa, pioneered the shared-value economics approach in product development and pricing, resulting in a dynamic wellness ecosystem. The program, now available in 22 markets, has resulted in a 35% reduction in mortality in engaged participants and a 15% decrease in policy lapse.
Furthermore, several Japanese life insurers are transitioning to a “pay as you live” charge plan with dynamic pricing. As a result, customers who regularly engage in healthy habits, such as exercising and going to the doctor, are awarded lower premiums. Therefore, in the future, we anticipate that life insurance will evolve away from the old “evaluate and service” paradigm and toward “prescribe and prevent.”
Underwriting is ongoing. The shift toward continuous underwriting, enabled by more information and device connectivity, will open up new avenues for personalization. Currently, mortality underwriting is plagued by two significant data deficiencies. It is limited to a single point in time, for starters—the first sale. At that moment, the only data accessible are previous morbidity and behavioral data about the consumer. Second, it failed to consider a customer’s changes in lifestyle, which are far more manageable.
We see underwriting developing in four stages, which will boost personalization and consumer interaction. Currently, insurers are focusing on automating the underwriting process to increase efficiency and decrease discrepancies. Some insurers have progressed to digitally submitted applications for faster underwriting. This significantly reduces the requirement for intrusive fluid and paramedical exams, resulting in near-auto-issuance for most plans. Insurers will subsequently progress to micro-segmentation and personalization, in which personalized offers are developed with increased precision by utilizing complete internal and external data sets.
Finally, winning firms will offer ongoing “one-touch” underwriting, with dynamic adjustments depending on consumer behavior and targeted interventions to dramatically boost healthy behavior. This four-phase progression, when combined, flips the underwriting method on its head, with surroundings, healthcare, and life becoming critical elements and medical data giving only a portion of the picture.
Omnichannel, personalized customer journeys Many of the technological and omnichannel features in their early phases have been accelerated through COVID-19. According to research, face-to-face encounters have historically produced more than 90% of new companies in China. Since the outbreak, health insurers have been obliged to implement digital-hybrid solutions, including intelligent virtual, teleconferencing, and web chats. Furthermore, according to a recent McKinsey study of European consumers, 54 percent now choose direct or digital methods, up from 38 percent before the crisis.
Frontline employees will serve a significant role in reaching out to clients. Therefore insurers must welcome the convergence of channels and devices once the crisis has passed. Life insurance firms can route prospects to the outlet or dealer that best meets the needs of each customer. Furthermore, agents would be equipped with extensive data on their client base and digital leads delivered centrally. Life insurance businesses will participate in multichannel, tailored customer contacts throughout the entire customer lifecycle to increase cross-selling (by determining the most likely “next product to buy”) and proactively attract new clients who are prone to lapse. Such interactions can cut customer acquisition expenses by up to 50%, create 5 to 10% additional premiums, and minimize client churn by 30%.
Improving agent capacity to use digital tools more efficiently will be critical to the upcoming distribution change. Indeed, according to a recent McKinsey poll, the two most difficult tasks for agents are “producing leads” and “creating initial client relationships remotely.” At the same time, these employees were spending far more time than before dealing with customers and administration. As a result, life insurers will need to invest in digital technology and put analytics at the heart of distribution.
