While most insurance technology startup activity in the US 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 Eight Startups Aiming to Revive Life Insurance, 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 Insurance Information Institute, reporting on the 2014 Insurance Barometer survey, 83 percent 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 from Life Happens 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 business model
New entrants can change the game ... and that will take time
A big beef with the traditional life insurance model is that it is not client-centric. Nonetheless, even the most change-resistant executives will at least nominally agree that a focus on the client is now essential.
From that consensus, though, all bets are off with regard to incumbents' ability to transform from a model where many of the industry's own employees believe that the agent is the client, to one where the client (i.e., the person purchasing the insurance product) and his or her needs drive the business strategy.
It is almost impossible for a time-tested, embedded culture to accomplish a 180-degree pivot, so I am more optimistic that successful models of client-centricity will more likely come from outside.
New entrants who succeed will:
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
- 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 impacted by sector dependencies and client dynamics that may take years to evolve
Start up companies will provide B2B carrier and distributor solutions, aiming at resolving automation, speed, productivity, technology, compliance and client experience pain points.
When I began to take a close-up look at the insurance industry four years ago, it was exciting to see the low-hanging fruit that could have positive impact with limited downside. Carriers lacked digital and multi-channel capabilities, big data analytics, and technologies that had been introduced in consumer financial services at least a decade prior.
There are signs of progress. Entrepreneurs are honing in on specific problems, and executives are more open to outsiders. Consider as a starting point three buckets that are filled with pain: Agent, Client, and broader Capabilities.
- 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),
- Demonstrating real knowledge and expertise in the vertical
Carriers are innovating to connect directly to the people who own their products, and also to motivate agents to sell
The goal of client-centricity is on top of the list for US life insurers. The challenge is translating what starts off as an intellectual abstraction into resource allocation, structure, governance, talent, prioritization, investment and daily tactical delivery... not to mention demonstrable financial impact that will satisfy boards and investors.
The pressure is on. Carriers are choosing a variety of areas for focus, and stepping beyond expense reduction to shore up results. Commonly on the short list:
Advisors - whether captives or third party - have the direct relationship with the client, and tend to maintain connectivity only with their top clients who represent additional sales or referral potential.
- 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 impact client loyalty and satisfaction.
- 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 proactive 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 business model and culture that enable results to happen, along with the distractions of running a business of such high complexity, will compete with carrier-led efforts. Without restating the obvious challenges, two worth noting are:
- The dependency on agents and advisors to drive sales, which makes any direct-to-client conversation controversial, as it may be perceived as competitive with the sales force
A 2015 World Economic Forum research study entitled The Future of Financial Services concluded that while, "the most imminent effects of disruption will be felt in the banking sector ... the greatest impact of disruption is likely to be felt in the insurance sector." For entrepreneurs and investors who see the upside and can tackle the complexity, life insurance is territory that appears, at least for now, to have considerable reinvention white space.
Amy Radin partners with growth seekers to build and transform businesses. She brings an unexpected combination of insight, reinvention and pragmatism to realize the opportunities arising from change. Amy serves on Advisory Boards, is an angel investor, keynote speaker, author and consultant. She works 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 appears in Daily Fintech and is syndicated in Amy's columns which also appear on Insurance Thought Leadership and Medium.