A recent article by The Wall Street Journal highlighted the move of two companies – Bestow, Inc. and Dayforward, Inc. – into the life insurance business, not just as sales platforms, but as carriers. They are endeavoring to start from scratch, completely rethinking what life insurance is and how it is sold and administered. This presents a conundrum — how are these new companies able to launch with such ingenuity, agility and speed, while established insurers who deeply understand every aspect and nuance of the business are either stuck in “contemplation” mode or handcuffed by their legacy systems and don’t know where to start.
In truth, the news is good for legacy insurers. McKinsey & Company points out that, “Customer demand is at an all-time high. Indeed, the COVID-19 pandemic has only reemphasized the need for mortality protection. Public pension replacement rates are declining, and healthcare expenditures are rising—trends also accelerated by the COVID-19 crisis. Economic and demographic trends will also offer tailwinds. The global middle class is rapidly expanding, bringing higher incomes, growing financial wealth, and heightened risks to manage.”
So why does it seem that the industry, as a whole, is lagging behind on using these opportunities that McKinsey identifies? As an established digital enabler for the life insurance industry, Sureify has worked with carriers large and small to develop digital capabilities that are needed to thrive in the world today, and we’ve got some specific answers, as well as some ideas that will help traditional model insurers rise to meet this new challenge.
First, though – a quick look at what we see holding the life insurance industry back from realizing digital potential:
- Legacy environments and underwriting processes, and outdated policy admin systems. Even digital solutions imported through forward thinking platforms don’t always integrate smoothly, and the patched-together processes still require people to manage and troubleshoot. As Novarica discovered, “From a technology standpoint, trying to leverage existing legacy environments to support new products, services, and markets is deemed to be ineffective.”
- Perceived distribution issues related to agents’ willingness to embrace technology. These concerns are largely unnecessary – LIMRA finds that “Two thirds of young advisors aged 40 and under are quick to adopt new technology when available.” Novarica echoes the value of technology to the agent distribution model: “If servicing can be made easy using technology, it allows more time for sales—so both the carrier and agent win.”
- Belief that becoming, or building, a digital company is an “all or nothing” proposition. Many life insurance leaders believe they must go full-throttle into the new world of digitally-enabled D2C offerings, instead of seeing the building process as a series of small steps like research, internal brainstorming and enlisting guidance from 3rd party problem solvers.
- An interest rate environment that has made it difficult for insurers to invest in “re-imagining” business practices
- A legacy mindset, especially at the senior level. As we watch digital capability transform industry after industry (retail, banking, real estate and communications to name a few), it should not be difficult to convince the C-suite at the most historically significant insurers that life insurance should be next in line. But to many senior level managers, digital advancement and a shift toward convenience to remove friction from the customer experience may feel like a denial of the value of legacy.
Clearly, the old ways of thinking and doing things will have to be addressed, especially as all insurers compete for the new generation of buyers, who are used to the convenience of digital capability in all things. However, convenience is just one of the four main drivers of a life insurance purchase. The other three – price, rating and brand confidence – cannot be matched by these start-ups.
It is time to re-evaluate the “weight” that holds back too many life insurers. Carriers in 2021 must realize the power of the cards they bring to the table, including:
- A 360-degree knowledge of the industry and best practices
- Relationships with state regulators
- An often decades-long proven history
- Broad advertising and public relations exposure
- Existing expertise in areas necessary to grow and transform
- An established reputation that often reaches beyond the marketplace for insurance coverage
- The financial wherewithal to be innovative
Sure, the newer life insurance carriers are brash, bold, creative thinkers who are turning a rather conservative industry on its head. But they cannot yet lay claim to these incredible advantages many of the old guard possess, including a solid A.M. Best history, ledgers full of loyal customers, or a brand name known globally for service and product excellence.
What this means is that the existing infrastructures supporting our longest-standing life insurance carriers don’t need to be completely leveled and rebuilt from scratch to meet the expectations of the modern consumer. In fact, eliminating the advantages of history would be a serious tactical error. Instead, legacy insurers need to adapt a start-up mindset to bring something new, fresh and groundbreaking to rival the convenience offered with the upstarts mentioned in the WSJ article. But there’s the rub – it will be necessary to bring in a new way of thinking to build a new product, underwriting, administration, and distribution systems. This new way of thinking may not merge well with existing company technology, human resources and ingrained hierarchies.
In truth, no good argument can be made for not forging ahead with thinking differently to capitalize on the immense value of history, legacy and reputation. After all, a customer will likely be more comfortable buying protection from a company with a strong 150-year history than from one that has existed for only five years with a significantly lower financial health rating!
Bestow and Dayforward have been able to address some issues by separating themselves from the historic precedents of the industry. However, these carriers, with their new frameworks, impressive digital capabilities and slick customer experiences, do not have the size, reputation and financial firepower they need to “move the needle” to provide the broader market with life insurance protection.
For traditional life insurers who want to stay ahead of the new digital-only players, here are six steps that must be taken:
1. Don’t “think outside the box” – create an entirely new box within the box.
Too many insurers see the way forward as modernizing legacy systems with technology that makes it possible to do business in an omnichannel manner. While the repair/reinvention of processes, systems and the customer experience is a positive step into the digital landscape, it may not leverage advantages like name recognition, brand familiarity, a legacy of good will, and a strong, knowledgeable distribution force. This version of re-imagining what already exists will likely not be enough to take on the new entrants to the life insurance space, who are unbound by traditional methods
Rather, it could be time to consider building a new box inside the legacy box.
As an example: selling current products in new ways isn’t enough to contend. Instead, it’s time to consider new products – ones that are less reliant on the interest rate environment and on the customer profile data from a time gone by. Thanks to tech and its greatly-enhanced ability to analyze data, new products will be able to meet much more specific demand. And the public relations gained as a “first in” leader in novel product development can go a long way toward building awareness.
This new way of thinking must receive support from the highest levels of the organization. The strategy cannot be driven by middle management. Creative, forward-thinking leaders within the organization and leveraging the positive aspects of the larger entity, this “box within the box” can truly drive innovation.
1a. …but keep what works.
A separate company with a familial lineage has built-in trust. It’s difficult to put a value on such an important asset. Leveraging the parent’s brand in new ways (“Insureco Direct,” for example) can infer newness while assuring target audiences that this new endeavor has big brand support.
2. Assess the true investment necessary to enter the new space.
The prospect of cost, time and effort required to rethink any long-established business model seems overwhelming. As technology gains ground exponentially, the cost of digital enablement decreases (thanks to low code/no code options and scale of interest), and a new generation of digital creators and thinkers becomes available to simplify the customer experience, the necessary investments may not be as prohibitive as one would think, and should not be a significant roadblock to moving ahead.
3. Build a culture of fearlessness.
The companies who will lead the industry through the next decade are those who embrace change. In an article entitled, “A Growing Urgency for Change in the Life Insurance Industry,” Boston Consulting Group notes the importance of this new way of thinking, saying, “A corporate culture that embraces change is a prerequisite if life insurers are to make their businesses meaningfully more customer-centric. That begins with having the right people across the organization—be they specialists in data, analytics, or digital technologies—who can thrive in a company built around responsiveness and flexibility.”
The team assembled to develop and create the new model should be comprised of people with fresh perspectives, and those who are open to possibilities. The ability to think differently, to question the way things are done and to look at what’s being created across other industries will be important characteristics in the leaders and builders of any new digital endeavor.
4. Turn traditional models and methods upside down.
One of biggest hesitations holding back the traditional life insurance industry is a reluctance to re-imagine how business can be conducted. As mentioned earlier, distribution is one important example. Digital as a direct channel for lead generation, and the new digital enhancements that are available to any sales force today should be embraced in the new model. These enhance the agent experience and make the process of offering life insurance easier and more productive. According to McKinsey, “Growth has been a long-standing challenge for U.S. life insurers, and changing customer behaviors is yet another obstacle to growth. However, these changing behaviors represent an opportunity to rethink distribution in ways that meet the needs of customers and address the economic challenges associated with traditional agent-based distribution. Carriers that succeed will be well positioned to capture tremendous growth, improve profitability and provide comprehensive solutions to consumers, many of whom are underserved today.”
Of course, distribution is just one area of opportunity. Data-driven underwriting, self-service capabilities, non-traditional claims payments … all of these are areas ripe for re-imagination.
5. Ask the important questions.
Introspection and exploration are the keys to seeing the potential value in a D2C offshoot. Some thoughts to investigate:
- What is life insurance? What role does it play in people’s lives? (Talk to people in different age groups about what they believe life insurance is, or more importantly, what they wish it was.)
- Understanding the low margins of traditional bond investing, what risk environment can be created so profitable business can be written?
- Can lower reserves be held by re-thinking what a death benefit is and how and when it is paid?
- Can technology allow for resources to be better invested in people and processes? For example, are money and resources being used in places that don’t ultimately lead to a customized experience?
- What new, and more affordable, tools are available for profiling applicants? How can they be used to minimize marketing and acquisition costs?
- How can products be priced creatively based on how and when the death benefit is paid?
- Where is our target customer? Can we meet them where they are?
- How can we best create breakthrough marketing messaging while leveraging the reputation of the larger entity?
6. Embrace new technology across the board — but don’t rely on it exclusively.
A big advantage that Bestow and Dayforward are bringing to battle is the technological advances that are inherent in these business models. In relying on technology, however, they may be missing the most important part of the life insurance experience – the actual human connection. It is the piece of the puzzle that can be approximated digitally, but will never be truly replaced.
LIMRA, in a report titled, The COVID-19 Effect: High Tech with Human Touch to Optimize Life Insurance Customer Experience, noted that, “…a big part of the value that insurers are gaining from technology has come from the “assist” it’s giving to financial professionals. If technology can help make life insurance easier to understand, less trouble to apply for, and quicker to get, it will be a dramatically better experience for customers.” In other words, technology cannot replace a real human interaction. The quest for answers, the emotion involved in considering why a policy is necessary, the relief of knowing coverage is provided – these are benefits that only a mature, established, trusted community of insurers can offer.
It seems clear that this new guard of life insurers about whom the WSJ writes isn’t going away anytime soon. If anything, even minimal success in the digital carrier channel will encourage others to venture into the market. That means that, to survive and to thrive, traditional insurers will have to face this competition head-on. It’s going to take a complete re-imagining of life insurance to stay agile and competitive – but the incumbents of our industry, with their built-in advantages of experience, financial firepower, branding and reputation, are up to the task.