With stagnant growth and lingering low interest rates, the life insurance industry faces a challenging future. Low engagement with current customers, limited penetration among currently underserved segments (including the middle market and millennials), outdated technology infrastructure and inefficient processes are among the many issues forcing life insurers to re-evaluate how, where and with whom they do business.
During the summer of 2016, EY's insurance practice conducted interviews with more than 20 CEOs and executives from leading U.S. life insurance and annuity companies, distributors, reinsurers and regulators. The results were published in EY's 2016 Life Insurance and Annuity Executive Survey. They confirm that a growing number of senior industry leaders recognize the need for accelerating change and, in some cases, a more radical transformation of the business model.
New thinking and new capabilities are needed across the entire enterprise, from underwriting and product development, to sales and service, claims and financial/risk management. Innovation is now broadly viewed as an imperative, with plans and priorities varying by individual company.
Survey respondents recognized that they are operating in a time of great disruption and spoke openly about the need to embrace innovation and change with a scale and urgency not previously seen in the industry. They also provided insights about the impacts of innovation and disruption.
New thinking and cultural shifts
Senior executives expressed intense interest in innovation and a strong commitment to change, openly acknowledging that the industry can no longer operate as before. This thinking will need to be backed up with concerted action.
While some in the industry have embraced innovation, insurers have considerable work to do to catch up to innovators in other industries and protect against disruptive new market entrants within their own sector. Some companies will need to take on new strategic directions, while others may be in course-correction mode.
Underwriting is where many important changes have been initiated. This is largely due to necessity, both from the operational excellence and competitive perspectives. Innovation must also happen in other areas, including claims management, a customer-facing process that is ripe for change. Consumers want speed, access, collaboration and personal service when filing a claim. They also need compassion and understanding during what are likely difficult and stressful times. New technologies will deliver convenience to customers and potentially improve claims processing time, efficiencies and costs.
Historically, the industry has been slow to embrace change and adopt more innovative practices, especially when it comes to customer-facing operations. For an industry that calculates risk down to the penny, there is an obvious struggle with the idea of doing things differently or blazing new trails. At this point, creative innovation, faster following and widespread emulation of leading customer experience practices from other sectors should be the goal for insurers.
Insurers must keep pace with other sectors that have elevated customer experience to an art form with easily accessible account information and user-friendly products and services. (Photo: iStock)
The customer experience front
Insurers know they need to improve at selling, underwriting and serving customers, largely because they are now judged by the standards defined in technology, retail, travel and hospitality, and other high-profile sectors. Even if it seems unfair, insurers are compared to leaders in the technology, distribution and hospitality industries that have elevated customer experience to an art form. Common practices among these companies, from easily accessible account information and user-friendly products and services, to quick processing and delivery, are not attributes of insurance carriers.
In rethinking their interactions with customers, insurers should be guided by value propositions that serve both policyholders and the company. For instance, cutting down the initial application and underwriting process to 30 to 60 minutes from 30 to 60 days offers great benefits to the insured and insurers alike. Several respondents commented that this is a worthy and attainable goal.
Among the commonly cited areas of the customer experience that needed improvement were:
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- Digital
- Transparency, disclosure and simplification
- Product innovation
- Selling approach
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Individually, these problem areas can seem small, but when addressed collectively, the solutions offer significant upsides for insurers because of the net effect on customers. More transparency, better data sharing and more intuitive transitional products will help drive improvements, but life insurers must move now because rising consumer expectations mean they could fall further behind, and unknown "disruptors" could meet those expectations. Fast and frictionless experiences, with high degrees of personalization and consistency across channels, are the current baseline of consumer expectations — and the industry has significant work to do to meet it.
Technology-driven innovation in the near and long term
Respondents identified the following near-term technology priorities:
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- New data sources
- Predictive analytics
- Wearables
- Robo-advisors
- Blockchain
- Machine learning and cognitive systems
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Further, they recognized that chronic underinvestment in technology means the industry must make significant investments in upgrades. There is considerably less consensus, however, on what to do first or where to turn for answers. Respondents described searching for solutions around the world, from the biggest technology players in Silicon Valley, to midsized disruptors in Des Moines, to innovation hubs in Bangalore. Many insurers have taken the initiative to learn everything they can about technology and new data sources, committing senior leaders to do the necessary in-depth research.
