The life insurance industry must reinvent itself

life insurance 2021

The global life insurance industry has undergone significant changes in recent years. Insurers are facing problems of growth and profitability. In order to be well aligned for the future, life insurers should focus on three priorities, McKinsey says in a recent article .

The past decade has imposed itself with its share of opportunities and challenges. It’s hard to think of the past few years without having technological advances in mind. Digital progress has raised consumer expectations in terms of transparency and quality of service, a point that life insurers obviously cannot ignore.

On the challenge side, life insurers did not take advantage of the bull market. Premium growth in most developed markets is just under 2% per year, according to McKinsey, and struggles to match GDP. The global fall in interest rates, made even worse by the pandemic, has reduced returns on investment portfolios.

However, all is not negative. While COVID-19 has had a negative impact on interest rates, at the same time, it has underscored the need to protect mortality. Customer demand is therefore stronger than ever.

In order to recover, remain competitive and position themselves well for the future, life insurers should focus on three key areas, namely:

1) The personalization of the customer experience

2) Flexible product development

3) Rethinking skills and abilities

The personalization of the customer experience

With digitization, consumers have become accustomed to a more personalized customer experience in many industries and will expect the same from their insurer. McKinsey believes life insurers should adopt targeted health management.

For a long time the emphasis has been placed on protection against mortality. While COVID-19 has put some emphasis on this point, concern about the risk of death has diminished and this decline is expected to continue once the pandemic is behind us.

Insurers would therefore have better time to play a role in the health of their clients. Note that by 2030, the number of people aged 60 and over will increase by more than 50%, according to World Population Aging 2015: Highlights,  United Nations, Department of Economic and Social Affairs, Population Division, 2015. Not to mention the growth of diseases such as diabetes and heart disease, more linked to lifestyle, which account for 71% of annual deaths. Life insurers should therefore review their strategy.

Technology will help them in this transition. With the increase in the number of data and connected devices, life insurers will be able to play an active role in the health of their customers. Especially since the latter seem ready to share their data more. 60% said they were comfortable with this sharing if it lowers their premiums, according to the 2020 DXC insurance survey report: The voice of the US customer.

Insurers could reward clients who adopt healthy behaviors, such as getting regular medical exams and exercising, with lower premiums.

Underwriting could also evolve into a continuous process through technology. Currently, pricing is limited to the initial sale and does not take into account changes in the consumer’s lifestyle. An ongoing subscription would certainly be more appreciated by customers. It would personalize their experience and increase their engagement.

At the contact level, the pandemic has accelerated the adoption of remote technologies and subscriptions. However, frontline professionals will continue to play a vital role once the crisis is over. Life insurance companies should therefore adopt multi-channel and personalized interactions with the client.

Flexible product development

For a decade, interest rates have been generally low. The pressure on them has increased further with COVID-19 and there are no signs of mitigation on the horizon.

In addition, new capital regulations have accompanied the fall in interest rates worldwide, increasing pressure on profitability.

Consumers will continue to seek guaranteed returns, which means that many insurers will face the challenge of offering guarantees in a cost-effective and capital-efficient manner.

Some companies have started to orient their portfolios towards capital market products, including hybrid products and unit linked products, which are more capital efficient and perform well in a low interest rate environment.

McKinsey believes it would be important to adapt new solutions to different stages of life. New types of coverage are expected to appear in the coming years, as well as greater flexibility in coverage and product payment. Note that many consumers fear losing their job or that of a member of their household. The new products could help allay these fears.

The next products are also expected to expand to adjacent services to compete. Why not partner with ridesharing companies or hotels to provide transportation to medical visits or accommodations for loved ones when needed, suggests McKinsey.

Also Read: Important Steps Before Filing A Personal Injury Claim

Rethinking skills and capabilities

Within ten years, the insurance industry could be fully automated and some jobs that focus on repetitive manual processes could disappear. This does not mean that there will be fewer jobs in the life insurance industry, but rather that the nature of work will change.

Emotional, interpersonal and social skills will also become more important, especially for agents in contact with customers.

When looking for a digital workforce, life insurance companies are at a disadvantage, McKinsey notes. The final expense leads industry lags behind other sectors in terms of the volume of digital and tech talent. The majority (80%) of Millennials say they have relatively little knowledge of the insurance industry, according to the Millennial Generation Attitudes About Work and the Insurance Industry.

However, social unrest due to COVID-19 could help insurers recruit and retain these talents, in particular by reframing their societal objective. For more about these challenges you can have visit op insurance companies.

As for profitability challenges, insurers could optimize in force policies and block contracts as a source of value creation by relying on four pillars:

  1. financial efficiency gains, such as actuarial optimization and reinsurance
  2. operational efficiency gains, such as the reduction of administrative costs
  3. transactions, such as partial or total sales of business blocks

Otherwise, companies could merge or make acquisitions. The latter make it possible to strengthen the capacities of companies. Companies can also use this medium to penetrate new markets, new geographical areas, new products or to strengthen their technological capacities.

 

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