A new report from McKinsey & Company Inc. says life insurers have struggled to achieve sustained growth in recent years and shareholder returns have been uneven – trends that have been exacerbated by the COVID-19 pandemic.
The report, The future of life insurance: Reimagining the industry for the decade ahead, looks at the priorities insurers will have and should have going forward as many evolve from being providers of mortality and risk protection to orchestrators of healthier living and partners in financial wellness.
Personalizing customer experience
“To succeed in the decade ahead, insurers must fundamentally rethink and transform their value proposition,” say McKinsey researchers. “By focusing on three priorities – personalizing every aspect of the customer experience, developing innovative product solutions, and reinventing their organizations’ capabilities – insurers can reinvent themselves and reestablish their vital role in customers’ lives.”
The report examines the global life insurance industry, including brief discussions about staffing and merger activity. It looks at the availability of data and at insurer’s progress in using advanced analytics and artificial intelligence. It also discusses insurer challenges, including globally depressed interest rates which have curtailed investment portfolio returns. Finally, it examines the potential value that can be had from an in-force or closed block of business. “Given their cash flow potential, earnings, and embedded value, closed blocks deserve time, attention, and resources,” they write.
Population trends
Looking forward, the report then looks at population trends: by 2030, the number of people over age 60 will grow by more than 50 per cent. More, they say non-communicable diseases such as diabetes, heart disease and lung cancer will account for 71 per cent of all annual deaths globally. “We believe these factors will motivate life and annuities manufacturers to engage customers in the shared-value economics of healthy living to increase policyholder longevity,” they write. “The proliferation of data and connected devices, particularly wearables, will continue to make it easier for life insurance companies to play an active role in shaping customer health.” (The report says products like Vitality, now in 22 markets around the world, reduces in mortality among highly engaged members by 35 per cent, and also results in a 15 per cent lower policy-lapse rate.) In the future, McKinsey says it expects to see life insurance companies transition from the traditional “assess and service” model, to shift instead to a “prescribe and prevent” way of doing business.
Today, where individuals provide data that is used to assess risks and provide standard products, in the future, from 2020-2030, they say information will be collected from external sources and devices to provide service. The majority of financial planning, they say, will be done by algorithmic platforms with agents humanizing the service.
Pricing sophistication
Pricing sophistication is expected to increase, with more tailored pricing and smaller risk pools. Dynamic, usage-based insurance products, tailored to a consumer’s behavior, meanwhile, will likely grow rapidly in numbers.
McKinsey says manual underwriting will cease to exist for most products. Looking even further into the future, in 2030 and beyond, they say prescriptive algorithms will intervene to actively influence client health outcomes. Personalized medicine will be used to craft tailored health strategies and coverage packages, and robo and do-it-yourself channels will lead to a service cost reductions between 70 and 90 per cent. The report also examines the industry’s shifting workforce. “These workforce shifts will not eliminate jobs,” they write. “Our research indicates net new jobs will be created due to advances in automation.” They add that 75 per cent of global executives agree that retraining employees must account for at least half of their skills gap solution.
Continuous underwriting
To succeed going forward, the report suggests insurance companies pay attention to developments in continuous underwriting and in efforts to upgrade agent capabilities, allowing them to more effectively use digital tools. Flexible coverage and payment products will also emerge and product innovation will likely expand to adjacent services, they add. Companies in Asia and Europe, for example, already offer administrative support for medical visits, health management and telemedicine, while companies in Asia and the United Kingdom are replacing financial payouts with nonmonetary benefits like guaranteed placement in senior living communities.
“Through the rapid advances and changes, one constant remains: the customer’s need for help in navigating their life stages,” conclude McKinsey researchers. “For life insurance companies, the challenges may be great, but the opportunities are greater.”
