Against a backdrop of stagnant industry growth and technological innovation, the US life insurance industry has begun to experience a shift in the balance of power, away from distributors and manufacturers and towards the end consumer.
Technological advances embraced by other financial service industries have created a consumer base that is armed with more information and that expects a certain level of service. As an industry that has also been challenged by external factors such as low interest rates and an uncertain regulatory environment, US life insurers will need to find ways to answer the needs of these end consumers to foster industry growth.
What does this change in bargaining power mean for the life insurance industry and the product landscape as we know it? At EY, we continuously monitor the product and solution landscape to help manufacturers and distributors keep abreast of the ever changing market.
We have identified the top five things to watch for in the life insurance product space, all influenced greatly by this shift in bargaining power.
(1) Simplification in product design and processes
In order to build scale in the retail market and address the demands of consumers, the industry needs to simplify processes and architecture. Complementing these streamlined processes are simplified products, which address consumer needs without all the confusing bells and whistles.
Despite the industry readily acknowledging this need for simplification, some of the most recent products are the most complex yet. The current product space has too many product features and the differentiators are not clear, confusing the end consumer and distribution.
Companies that focus on designing simplified products that are supported by streamlined distribution and maintenance processes will be able to better embrace the technological advances consumers are accustomed to, therefore allowing them to play in this new space while addressing consumer's needs and creating a value proposition for both the customer and the company.
(2) Increased prevalence of combination products with accelerated benefit riders
Accelerated benefit riders, including long-term care and critical illness, are not necessarily a new concept, but they have recently been on the rise and will continue to represent a growth area for the life insurance industry. While the premise of adding accelerated benefit riders to life products goes against the move towards simplicity, these combination products address a specific consumer need, especially regarding long-term care costs.
As lifespans lengthen and the costs associated with a critical illness or use of an assisted living facility continue to rise, combination life insurance products offer a more affordable option to consumers looking for insurance coverage for these events, while removing the "use it or lose it" value proposition associated with the standalone version of these products.
These products have a more acceptable risk profile for the manufacturer, while adding value for the consumer when priced right. There are a lot of reasons these combination products with accelerated benefits should be considered by consumers. And through the right education and awareness, this is an area where the industry could see sustained growth in the future.
(3) Underwriting advancements and streamlining
