With technological disruption all around us, it’s a wonder more insurance companies aren’t readying themselves for an assault—or at least some stiff competition. The reality is that innovation is painful. I was part of the disruptive technology scene that occurred in wealth management over a decade ago and I can attest to the challenges and benefits of technology disrupting a highly regulated industry. However, as my business partner, Michael Babikian reminds me, life insurance is a bit different. It requires upending decades upon decades (centuries, in some cases) of processes and redefining a deep-rooted business model. It means overhauling complex infrastructure or investing in an external solution.To add to the reticence facing these changes, the threat of disruption is ever on the horizon. After all, the life insurance industry is among the most difficult to penetrate for a few reasons.
- Complexity of regulation: It’s challenging for even industry veterans to put products on the market.
- Reputation: Most carriers have an impressive book of business as a result.
- Loyalty: There’s a strong tendency among insurance customers to remain with the original carrier.
- Money: The reserves needed to enter this business is off-putting for newcomers.
For years, it’s been said the industry is on the brink of a digital invasion. But because the rate of change is much slower than in most other industries, there’s a bit of disbelief that it’s actually occurring. So, we have a natural resistance to change, a false sense of security and doubt.
Be that as it may, the change is, in fact, coming. Investors look upon life insurance as a market opportunity, the last vestige of ground digital hasn’t fully conquered. Investments in the Insurtech space have skyrocketed in the last few years. According to Deloitte via Business Insurance, $2.2 billion was raised in the first half of 2019, and, as of the September publication date, Insurtech was expected to break its own investment record of $3 billion in 2015.1 Money isn’t going to be a barrier for long.
If this sounds like nothing but doom and gloom, here’s the good news. The reward is great for those who embrace change within the next year. It’s easy to talk about change, but what does that actually mean? What does innovation look like in the life insurance sector?
Building a Relationship with Customers
This isn’t a common practice in the life insurance world. Far from it. It’s difficult to think of an industry that’s more layered, where the manufacturer is as far removed from the person using the product. The data that we can gather today make this as easy as it has ever been—for those who know how to interpret it. Hiring talent or partnering with a tech solution will accomplish this.
Making It Easier for Customer to Buy Products and Broadening Distribution
Offer products on a digital platform, where consumers are free to browse in full transparency with access to all options. When it comes to distribution within the insurance industry, it’s best not to restrict it to a singular approach. Instead, there’s the option of reaching new populations online and also by mobile via an app. Tech startups can offer this, but it’s important to make sure the company has some experience and knowledge of the industry.
Delivering Products Faster
It takes time to build a well-balanced product that’s viable and has features that address consumer need. Even once the product has been fully developed, it takes a long time to file in each state because insurance is such a highly regulated industry. The dilemma is being thoughtful and managing risk while also keeping up with the pace of change. Customer needs change rapidly, and, to stand out, it’s necessary to anticipate those needs. A number of carriers are experimenting with predictive modeling both to build products and to shorten underwriting, i.e., pre-screening.
Thinking about Product Offerings Differently
Up until now, the point of insurance has been to mitigate risk. But as we march toward an era of self-driving cars, talk of risk prevention is starting to surface. And customization is key, whether it’s auto insurance based on how many miles someone drives or reduced premiums for those who use a wearable device.
Life insurers need to figure out how to leverage technology and data to keep the lights on. Whichever direction a company pursues—build it or buy it—one thing is clear—the goal is to get a seat at the table of disruption and avoid being among the disrupted. Those that aren’t at the table of disruption may very well find themselves on the menu.
1 Lerner, Matthew. Investment in insurtech could reach new record: Deloitte. Business Insurance. 23 Sept. 2019. https://www.businessinsurance.com/article/20190923/NEWS06/912330797/Investment-in-insurtech-could-reach-new-record-Deloitte