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Midyear pulse: Life Insurance and Insurtech in North America

MIDYEAR PULSE: LIFE INSURANCE AND INSURTECH IN NORTH AMERICA

Another half of the year in the books, another $2+ billion invested in insurtech. The continued trend of 1) investment; 2) emphasis on using technology to enhance the efficiency of operations; and 3) continued improvements of the policyholder journey remain top of mind for the insurance industry.

One of the highlights of my role with RGAX are the conversations I have with carriers. RGA is a top reinsurer for life and health companies globally. As a reinsurer, we're often viewed as industry stewards because we have a pulse on detailed happenings throughout the market. 

As part of the RGA family, RGAX broadens RGA’s relationship with carriers, from ceding of risk and assistance with underwriting innovation to bringing solutions across the broader value chain.

During the first half of 2019, I met with roughly 30 carriers across the US and Canada. I found it fascinating to hear directly from the individuals responsible for innovations within a carrier on how they are identifying problems, prioritizing initiatives, and executing their strategies. 

In addition, I attended eight conferences. These are always good opportunities to learn more about what macro themes are of greatest urgency to the industry.

As one can imagine, carriers’ key priorities show some consistent trends as well as clear divisions.   

Last year, I shared my midyear insurtech reflections. These included a personal conference roundup, how to select a conference, and key themes emerging in conversations I was having or hearing.  

For this "midyear life insurance pulse,” I gathered themes from direct carrier conversations with key decision makers and influencers. 

Please note these themes are primarily from North America. Further, while most of the decision makers I meet with are from the Life and Health Insurance segment, many are also part of multi-line carriers. As such, some of the references to policy holder experiences are applicable for Property and Casualty as well as Life and Health. 

MIDYEAR PULSE: LIFE INSURANCE AND INSURTECH IN NORTH AMERICA

First, let’s talk investments and conferences

I highlight these areas first because I believe they tell an interesting story about how the industry views insurtech (startups).

1) According to the Willis Towers Watson/CB Insights Q2 Quarterly Insurtech Briefing, $1.41bn was invested in Q2, with 49% going to later stage investments (Series B or later). Q1 2019 had 60% going to later stage investments. Compare that to the 23% of total investments going into later stage from 2012 through Q2 2019, and one can see that there is a clear trend here.

Willis Towers Watson/CB Insights Q2 Quarterly Insurtech Briefing

Why is this important? The past number of years have seen an influx of startups and subsequently pilots and Proof of Concepts (POC’s) with carriers. These startups have had the opportunity to showcase their offerings through those pilots and POCS. Now the money is flowing to those that have proven themselves of providing a valuable solution for carriers and their clients.

2) As I mentioned in my previous midyear review, the ever-growing amount of insurtech conferences has created a slight sense of conference fatigue across the industry. There can be only so many sessions on how to improve innovation, build stronger partnerships, and define what blockchain is.

I see people skipping sessions to focus on continuing to forge relationships (i.e., networking time) and trying to identify startups that are actually doing something meaningful (see point 1). This is not necessarily a bad thing. 

I highlight these two areas to demonstrate that:

  1. interest in insurtech startups remains relevant, and
  2. the industry is making a pronounced shift from just "checking things out" to “partnering with firms that bring proven value.”

What are the consistent trends being discussed?

As I mentioned earlier, when I speak to decision makers at life and health carriers, key themes continue to crop up as areas of focus.

Underwriting 

One of the comments I continue to hear on this topic is that carriers want to "decrease the friction" that exists in the life insurance purchase process. Initially, many firms were focused on creating new, sleek, front-end UX that made the filling out of an application more pleasant than paper. However, making the application simpler is only part of the challenge and does not get to the heart of where the friction can happen; underwriting.

The biggest friction points that exist in life insurance underwriting include:

1) asking individuals detailed, personal questions about their health, and

2) making individuals undergo medical exams and/or get bloodwork/urine samples. 

RGAX_SG Blog_2-Accelerated Underwriting

These two factors can translate into low placement rates/early drop off during the application process and an overall poor customer experience. After all, who wants to provide all this medical information to someone other than their doctor or family?

To help with this, the concept of accelerated underwriting has come into play. According to this article by RGA’s Dianne Schuetz, accelerated underwriting

"is a fully underwritten process that makes use of new data, tools and modeling techniques to triage applicants and determine if an underwriting offer can be made, without gathering all of the traditional underwriting evidence, such as paramedical exams and laboratory testing." 

Accelerated underwriting is not new and many life companies have implemented accelerated underwriting programs over the past number of years. Now that they have had experience with it and have been able to understand the outcomes of these programs more, they are refining their processes, implementing new/better sources of data and revamping the overall policyholder journey. 

Linked to having a successful accelerated underwriting program is also having an easy application process. To help with this, many carriers are exploring the use of behavioral economics in underwriting questionnaires. Their hope is that wording questions differently will encourage consumers to answer more fully and truthfully. 

MIDYEAR PULSE: LIFE INSURANCE AND INSURTECH IN NORTH AMERICA

Transparency in underwriting decisions

Given the above, being able to explain the outcomes of data-driven underwriting is becoming increasingly important. Regulators are ensuring these new sources of data are transparent and non-discriminatory. Earlier this year the New York Department of Financial Services issued a circular on data use for life insurance underwriting. This circular has definitely put the industry on notice. 

Even before it was issued, carriers were keenly focused on how to position and explain the outcome of data-driven underwriting decisions. And if the trend towards acceleration continues, the ability to explain those models to regulators and policyholders becomes table stakes.  

Insurance literacy and the value of life insurance

Before a carrier can explain the outcome of an underwriting decision, they must convince an individual to purchase life insurance - something becoming increasingly difficult to do. One can contend that insurance such as home, renter’s, and auto is mandatory. However, life insurance, isn’t.

A natural need for life insurance arises though when people get married, have children, and/or buy a home. One segment for whom carriers are having difficulty demonstrating the value of life insurance is millennials. As they defer marriage and having children, and as they opt for renting versus buying a home, the natural need for life insurance lessens. 

Lastly, life insurance isn't like selling candy. It’s more like selling Brussels sprouts. Carriers that want to sell more life insurance need to understand this dichotomy: it’s not just making a more efficient/streamline process that will get people to buy more insurance; it’s demonstrating in an easy-to-understand manner the significant personal value of what they're buying. More and more carriers are trying to focus their marketing and education efforts on explaining the value of life insurance to new market consumers.

MIDYEAR PULSE: LIFE INSURANCE AND INSURTECH IN NORTH AMERICA

Helping individuals transition to retirement and legacy planning

As baby boomers age, life insurance carriers want to help them. There are two primary areas of focus for this aging demographic:

    • Transitioning from accumulation to decumulation. Saving is (can be) relatively straightforward. Save some of what you make and invest it in something that can provide a return. Once an individual retires, taking that sum of money that's been saved and making it last throughout retirement is no easy feat. Life insurers, with their knowledge of longevity and mortality, are well positioned to help people on this journey.
    • Passing a legacy on to the next generation. Parents/older generations who leave a monetary legacy to their next of kin want to ensure those funds are passed down with ease and put to good use. Moreover, insurance companies that can help this generation with these two objectives may have a better chance of retaining these funds when they are passed down, allowing them to help the next generation with their retirement planning and keep the business on the books too. 

I see more tools being tested and implemented on the legacy planning more so than the accumulation to decumulation side. RGAX portfolio company Everplans has been gaining a lot of traction in the legacy planning space, with carriers and agents both seeing this as a natural fit into their planning discussions. 

Focus on agents and intermediaries

I’m saving the best for last because it was the most welcome surprise for me. 

Many carriers have been mentioning to me their increasing focus on the captive agents and intermediary (MGA/IMO/IFA) partners they are doing business with. Prior to the last two years, it felt that everyone was laser-focused on expanding their operations into direct to consumer (D2C). While many are still interested in a D2C proposition, many are recognizing (remembering?) the value that their face-to-face distribution plays in the overall insurance sale and post-policy service. 

Perhaps they always did, but it does seem to be more pronounced nowadays. Having started in the industry as a financial advisor selling insurance, I have always seen the value in having someone to talk to when it comes to an individual’s insurance needs (I still use an agent today!). Seeing carriers focusing more on how to give tools to their agent sales force – including more easy ways of explaining the outcomes of accelerated underwriting decisions (see above) – makes me very pleased.

In my opinion, this prioritization is a big step in the right direction. 

A few of the not-so-consistent trends

Two items in this section are brought up in every meeting that I have. The key difference is that the feedback and focus of these vary wildly from carrier to carrier.

MIDYEAR PULSE: LIFE INSURANCE AND INSURTECH IN NORTH AMERICA

Wellness

This is one item that seems to be a natural fit in life insurance.

Akin to telematics for auto insurance and smart home devices for home insurance, wellness programs can help insurance companies be more in-sync with their policyholders by providing tips on how to live healthier lives. These programs can be gamified, providing both monetary and non-monetary rewards. Ultimately, helping people live longer benefits a life insurance company by delaying the payment of claims and potentially lengthening the collection of premiums.

While focus on initial pilots and POCs has been on engagement, only a few are using the data collected for pricing and underwriting.

While many carriers are piloting and commercializing wellness programs, some also say things like:

    • "Wellness is more of a fit in health insurance than in life insurance” or is “more of a fit in employer-led programs than in insurer-led ones."
    • “Why would customers trust an insurance company with all that data when they can go to a wellness provider directly for the same services?”
    • "I don’t see implementing a wellness program contributing to my bottom line."

I recently met with an insurance company who has operations in both Asia and the US. For their Asian business, they are well-embedded with a wellness program, where in the US, not as much. They described that the US and Asian markets are very different in the sense that the US has more underwriting classes (preferred, super preferred, etc), where some of the Asian markets do not. This makes it more challenging to have wellness-type products in the US because it is harder to incentivize individuals to get a lower rate, as they may have the lowest rate already.  

I don’t see the trend of wellness going away, and I too, can empathize with some of the concerns expressed above.

Regardless, I do agree that wellness is a natural fit, and I will continue to watch with a keen eye for programs that can provide the most proven value.

MIDYEAR PULSE: LIFE INSURANCE AND INSURTECH IN NORTH AMERICA

Distributed Ledger Technology (DLT) 

DLT is always an interesting one. A few years ago, people hardly knew what it was.

Now, they kind of know what it is. 

Some carriers are experimenting with it and others just tell me to move on to the next topic the moment “distributed ledger technology" is mentioned. We’ve been doing some testing with DLT at RGAX. It’s interesting to roll up the sleeves and really get to understand what it is and how it can be applied to insurance. It’s still early days and still could go either way (mass-adopted or not). 

In Summary

Meeting with decision makers from carriers this year continues to give me a ‘real look’ at what they are focusing on when it comes to their innovation and insurtech efforts. 

Most of the initial learnings about what insurtech is and how technology can help with their operations have been completed.

Now, the focus is on prioritizing and scaling-up those initiatives that bring the most benefit to their own operations, their policyholders and distributors.

I recently attended an insurtech event in LA where my good friend, Rob Galbraith of AF Group and author of The End of Insurance as We Know It said, "We are in a phase where we are moving from proof of concept to proof of value.”  

I felt this quote perfectly encapsulated the trends I’ve outlined above and the general sense I get from talking to decision makers at carriers.

Presently, carriers are focusing on partnering with companies that derive proven value, have an easily-implementable solution, and put easily explainable programs in place that are transparent to their policyholders.

For those startups/companies that fit that bill, take note that it’s budget season – and now is the time to get in front of those key decision makers to ensure that your solution is on the docket for 2020! 

*This midyear pulse is based on Stephen Goldstein's personal experience and observations.

Written by: Stephen Goldstein

Stephen Goldstein leads the Client Experience team for RGAX Americas, where he’s working directly with insurance carriers, reinsurers, MGAs and agencies in the US, Canada and Latin America to identify pain points across the insurance value chain. His team is responsible for providing insight, recommendations and solutions within RGAX’s suite of products & services to help solve for many of these challenges. Prior to joining RGAX, Stephen spent over 10 years in insurance and financial services across the U.S., European, and Asian markets in various roles including distribution, operations, audit, market entry, and corporate strategy.