Next Generation Life Insurance for Next-Gen Customers

Next Generation Life Insurance for Next-Gen Customers

The Current State

The U.S. life insurance industry's average annual growth over the past 10 years has been less than 2% in nominal terms and negative in real terms. Meanwhile, the average face value amount of individual life insurance policies purchased in the US has steadily increased from $110,000 to over $170,000, (McKinsey Research) indicating that life insurers are failing to reach the middle market.

According to McKinsey’s mass affluent research in 2015, only 65% percent of Americans who are married with dependents have a life or an annuity policy, while 97% own an investment account.  Different research, made by LIMRA, shows that only two-thirds of Gen Y consumers have any kind of life insurance compared with three quarters of Gen X and Boomers.  In addition, fewer Gen Y consumers own individual life insurance (34 percent) than Gen X consumers (45 percent).  More than half of Baby Boomers report owning individual life insurance (52 percent).

Why is the Life Insurance Industry struggling with getting those Next Gen’s onboard?

Failure to adopt new technologies is a prominent factor in this struggle. In 2019, some 68% of insurance agents under 40 said that the insurance industry is too slow to adapt to change. On the other hand, there are 310 Insurtech startups in the US alone, so why is it so slow? The answer is complex and has to do with business culture, slow financial process, and low-level digitization but is also connected to low consumer engagement.

Jeff Bezos used to say that the biggest impact on e-commerce would be to reduce the friction between an intent to buy and the time it takes for your computer to reboot and connect to the Internet. Bezos said it in the `90s when it was still a decent 5 minutes process. Purchasing a life insurance policy takes 55 days on average.

55 days.

Customers today expect their service providers to provide service. From the get-go and all along the journey, for life. Amazon offers you products that people-like-you buy, Spotify learns your music preference. Similarly, life insurance companies have the opportunity to be a long-term partner. Unfortunately, the existing client base, the in-force policies, representing over 80% of the business, captures less than 20% of the managerial attention.

However, we have seen that by utilizing Amazon/Netflix/Spotify like Engines for providing service, targeted Agent Communications, and recommendations, carriers can more than double the premium received over the term of the policy.

This is where new and advanced technologies play a role in bridging the gap between the ‘Old’ and the ‘New’ to increase traction with next-generation customers.

Clearly, with the outbreak of the COVID19 pandemic, things are ripe for a change. Digitalization turned from an interesting trend to a necessity as companies, and more importantly, brokers and agents transitioned to working on a remote basis. Digital adoption with the insurance industry globally grew by 20% in 2020 and is expected to accelerate even further in 2021. Companies jump on this train in order to reduce costs through automation but they should embrace the opportunity to turn to big Data’, enabling technologies such as AI and Machine Learning, and bring significant value across the value chain.

From the top 200 insurers that were surveyed in a Deloitte research, it was stated that 23% of their premium volume was a result of new initiatives and that they expect it to grow by 33% in the next 5 years. The number one trend is data innovation.

Next-Generation Technologies

Data has become the currency of the future. The insurance companies that will successfully utilize AI and Machine Learning as their underlying technologies to power their strategy and provide a customer-centric experience shall prevail.

The barrier to applying new technologies to Life Insurance is not only a lack of digital data but also the low quality of the available data. The ability to produce intelligent insights via AI algorithms is totally dependent upon these two factors. Therefore, enriching insurance data with external resources that are qualitative is of great importance.

Traditional Life Insurers need to become much more proactive in preparing themselves for the fierce competition they will soon be facing from fully digital, agile Insurtech companies offering friendly, personalized, easy to understand life policies. NextGen customers expect no less - 88% of insurance consumers demand more personalization from insurers, but until now most carriers haven't implemented a reliable means of providing that personalized service.

By adopting advanced technologies, insurers now have the means to fully understand their customers and offer them the right policy and the right time at the right price, tailored to the exact profile and risk factors. They have the means to know not only which of their brokers or agents are currently excelling, but by utilizing Predictive Analytics are also able to predict which will lose traction in the next quarter or year.

AI, Machine Learning, and Predictive Analytics are the underlying engines that power the new product and distribution strategies that carriers form to enable them to better understand their customers and distribution channels.

New technologies can transform data into actionable insights, thus enabling providers to empower their agents to address the unmet challenges and to optimize their books of business.

This new approach is slowly revolutionizing Life Insurer’s business conduct, and together with other advanced front-facing systems, next-generation customers can learn to expect and receive better products and services from Life Insurance providers.

Even the ancient Greeks knew, if you stand still the Amazons will kill you. Go data.