No one disputes that life insurance ownership in the US has been on the decline for decades.
The question up for debate is what to do about it.
The emergence of an insurtech sector is an indicator of entrepreneur and investor confidence in upside potential. The hundreds of millions of dollars being poured into technology by carriers is another.
But before piles of capital are poured into attempts to capture the opportunity, investors and legacy insurers should reflect upon the root causes of this seemingly unstoppable trend, and prioritize innovations that aim at solving the biggest issues:
- Carriers have evolved through their own cumulative behavior over decades away from serving the needs of the majority of Americans to meeting the needs of a shrinking high net worth population
How have carriers painted themselves into a corner?
Carriers face what Clayton Christensen termed, in his eponymous 1997 classic, an "innovator's dilemma." While continuing to do what they do brings carriers closer to mass-market irrelevance, today's practices, products processes, and policies don't change. They deliver near-term financials and maintain alignment with regulatory requirements.
It's worth acknowledging how the carriers have ended up in this spiral, particularly the top 20, who today collectively control over 65% market share, according to A.M Best via Nerdwallet.
- Demutualization shifted focus to a new shareholder profile. Over 200 mutual life insurance companies have demutualized since 1930. This trend includes major carriers who were either acquired or pursued direct public ownership, beginning around 2000, e.g., Prudential, MetLife, John Hancock, Mutual of New York, Manulife, Sun Life, Principal, and Phoenix Mutual.
- Product cost and complexity has raised the bar to close sales and has increased the focus on a smaller base of the wealthy and ultra-wealthy. With the exception of basic term life, life insurance products can be complex. They can be expensive. And, as a decent level of insurance at a fair premium requires a medical exam including blood and urine sampling, it takes hand holding to get potential policyholders through the purchase process. For the high and ultra-high net worth segments, the benefit of life insurance is often as a tax shelter, not simply to protect loved ones from the catastrophic consequences of unexpected earnings loss. More complexity equals more diversion from the mass market.
- Intense focus on distribution has come at the expense of connecting with the client. Insurance company executives have long insisted - and behaved as though -- the agent is the client - if not in word then effectively in deed. The model perpetuated by the industry delegates the client relationship to the agent. This has its plusses and minuses for the client, and certainly has come back to bite the carriers as they contemplate a digital approach to the marketplace where client data and a branded relationship matter. Carriers certainly do not win fans with clients - overall Net Promoter Score ratings for the insurance sector broadly are even lower than Congress' approval ratings, and for at least one major carrier are reportedly negative.
- The industry is legendarily slow and risk averse. Think about actuaries - the function that anchors the business model makes a living by looking backwards and surfacing what can go wrong - a valid role, but the antithesis of what it takes to build a culture where innovation can thrive.
What is the path to opportunity?
Here are innovation thought-starters to create value for an industry undergoing transformation:
- Clients must be at the center of strategy. Twentieth-century carrier strategy may have been grounded in creating distribution advantage and pushing product, but twenty-first century success will come to those who put the client at the center of all aspects of execution. "Client centricity" is a way of operating a business, not a slogan.
- In a world of big data, it's ironic that the insurance sector is one of the most sophisticated in its historical use of data. Winners will realize the potential of new data sources, unstructured data, artificial intelligence and the many other manifestations of big data to personalize underwriting, anticipate client needs and create positive experiences including multi-channel distribution and servicing. Amazon, Apple and Google have set the standard on what is possible in customer experience, and no one will be exempt from that standard.
Amy Radin connects customers to companies to create growth. She brings an unexpected combination of insight, reinvention and pragmatism to companies in transformation. Amy serves on Advisory Boards, is a Member of New York Angels, keynote speaker, and workshop facilitator. She consults with companies from startups to Fortune 500 applying her Framework for New Growth (c) to help companies attract new clients and expand client relationships.
This post was originally published in Daily Fintech and is syndicated in Amy's columns which also appear on LinkedIn, Insurance Thought Leadership, and Medium.
photo credit: Another Time via photopin (license)
