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customers, limited penetration among currently underserved segments (including the middle market and millennials), outdated technology infrastructure and inefficient processes are among the many issues forcing life insurers to re-evaluate how, where and with whom they do business.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:
- Transparency, disclosure and simplification
- Product innovation
- Selling approach
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:
- New data sources
- Predictive analytics
- Machine learning and cognitive systems
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.
Senior leaders in the insurance industry recognize the importance of technology and the need to acquire technical capabilities. (Photo: iStock)
Insurers are also evaluating potential investments in companies with useful technology for core insurance operations and distribution processes. In addition, insurers are seeking trusted partners to help them identify emerging technologies and integrate existing tools and data assets. “FinTechs” and “InsureTechs” present opportunities for partnering or acquisition.
The survey results confirm that technology overhauls are prominent on the agendas of senior leaders. Their advocacy and support are necessary to overcome formidable barriers to innovation, which include inflexible legacy systems and a severe lack of talent in the new technologies. Insurers need software developers, programmers and user experience architects to create mobile apps and better digital experiences, as well as more data scientists and analytics professionals to conduct sophisticated data mining.
The industry’s perception problem
Survey respondents agreed that the industry has an opportunity to upgrade its image by articulating the value it offers to consumers and society. There is fear that the industry is viewed as outdated or behind the times, a “perception problem” that affects nearly every part of the organization. Addressing the problems starts by:
- Developing products that are easier to understand and connect with consumers on their terms and at various points in their lives.
- Deploying better technology and more information to engage a younger and more diverse customer base.
- Promoting financial literacy in schools and elsewhere throughout the United States.
- Communicating a more compelling value proposition.
Bottom line: innovation and experimentation are not optional
The survey results may seem troubling, but it’s clear that the industry recognizes the opportunity and need for change. Thus, industry executives have started to shape a strong and ambitious agenda around innovation, from enhancing the customer experience and product sets to embracing technology and transforming operations.
While some do not have a firm grasp on where to begin, industry leaders know that change must happen faster and more broadly. For a traditionally risk-averse sector, this is no small task. Change means updating fundamental operating models and recruiting new talent with different skills and different attitudes about technology.
It means quickly “testing and learning” from multiple experiments and eliminating the stigma of failure. And it means that experimentation must become more the rule than the exception if insurers are to develop the nimbleness they need.
In other words, innovation is now imperative for the insurance industry.
The views reflected in this article are the views of the authors and do not necessarily reflect the views of the global EY organization or its member firms. Also contributing to this article were Gerry Murtagh, Gary Shia, Katie van Ryn, Yuan Yuan and Logan Smith.
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