Grow Magazine

The future of life insurance

13 October 2017

Technology is shaking up the insurance industry with policies becoming more tailored, writes Virat Nehru.

Emerging technologies such as mobile apps, m-health devices, wearables and rapid genetic testing is having a big impact on life insurance.

Going forward, the way you take out a life insurance policy will be more closely tailored to your individual health profile.

Insurers can offer discounted premiums and other incentives based on customers’ health activities, encouraging engagement and loyalty and supporting customers’ health goals. For example, “Let us help you lower your blood pressure to lower your premium”.

These lifestyle-based, reward-for-fitness insurance programs are already increasing in popularity, powered by wearables such as smart watches. As the number of people who track their own health increases, so too will the demand for insurers to use that data in developing policies.

These changes are explored in ANZ Wealth’s white paper – Life insurance: the case for change – which maps out the future landscape of the life insurance industry.

A significant theme in the report is the need for life insurers to embrace innovation to help customers recover faster. This leads to numerous opportunities that could transform the insurer-client relationship for the better.

The Millennial opportunity

According to KPMG national head of insurance Martin Blake, the way we interact with and experience technology has influenced what we expect from insurers and the wider financial services sector.

“Changing customers’ expectations is driving much of the change,” he said. “Boomers, Gen Y and Gen X are entering new life stages, fuelling a different set of future needs. Many Millennials have a large student debt, home ownership seems out of reach, and compared to older generations they prefer to spend on experiences rather than things.”

ANZ’s white paper also identifies Millennials as a challenging demographic for insurers when it comes to engagement. But it’s one of the most important markets: in 2014, Millenials overtook Baby Boomers as the largest global demographic group and became the number one source of global income, spending and wealth creation.

Yet, despite undisputed potential, insurers have struggled to positively engage them. This is mostly because of a digital age gap – Millennials place a premium on high-quality digital experiences, something they feel they haven’t yet received from most insurers.

However, it’s not all bad news. If insurers are able to navigate the digital landscape effectively, Millennials are also the demographic most likely to buy new insurance offerings from hi-tech companies entering the industry.

Millennials have shown that they prioritise access over ownership. Insurance start-ups have embraced the digital age and cater to Millennials’ lifestyle choices, offering pay-per-mile insurance and automated mobile claims.

The success of such insurance start-ups is good news for insurers. It’s an opportunity for them to effectively respond to Millennials’ preference for digital interactions. Doing so will provide a cost-effective channel for greater engagement.

Using data to understand risk

Traditional underwriting methods are often seen as invasive and time-consuming for customers, requiring up to six weeks for a decision to be made on a claim. (Underwriting describes the process of assessing risk, ensuring that the cost of the cover is proportionate to the risks faced by the individual concerned. People with the same or similar risk pay the same or similar premium rates.)

In the near future, underwriting decisions will increasingly be made using data from multiple sources, ranging from mobile apps, wearables and implantable devices. 

According to PwC’s report, Life insurance 2020: Competing for a future, advances in processing capacity, customer profiling and risk analytics are now opening the way for a new generation of ‘smart’ policies.

While being as affordable and easy to understand/compare as today’s off-the-shelf products, these policies would be fully customised and able to adapt to the individual customer’s changing needs.

Using the many sources of customer data becoming available will revolutionise how insurance policies are underwritten, making premiums more manageable where appropriate and making policies more precise, reducing risk and drastically improving the speed and efficiency of the underwriting process.

It will also help address the significant issue of underinsurance in Australia. PwC research shows that, while Australians generally believe they have adequate cover, Australian life insurance premiums represent a significantly smaller proportion of gross domestic product than in comparable developed countries – Sweden is 50 per cent higher than Australia and Japan doubles our rate.

Similarly, Rice Warner has found, based on the most recent available data, that the median level of life cover meets only 61 per cent of a family’s basic needs and 37 per cent of the income replacement level required to maintain current living standards until 65.

In conclusion, more data and better understanding of policyholders means insurers can be much more customer-centric, at a personal level, with policies built around customers’ lifestyles.

Life insurers have already started on this journey with their increased focus on health and wellbeing. Using customers’ health data enables them to offer rewards for fitness, which increases customer engagement, manages risk and pricing of premiums, and enriches the data available to insurers to tailor their policies to the individual.

Access the white paper at ANZ APEX Insights.