Industry Trends

The Future Of Life Insurance

Reimagining the industry for the decade ahead

A new report from McKinsey looks to the future, and the ever-increasing role of data analytics. Excerpts are presented below. Access the full report here.

Over the past decade, life insurers have struggled with growth and profitability. By focusing on three priorities, insurers can reinvent themselves and reestablish their vital role in customers’ lives.

The global life insurance industry has seen significant changes over the past decade. Developing economies—predominantly emerging markets in Asia that were formerly small contributors—have become global growth drivers and now account for more than half of global premium growth and 84 percent of individual annuities growth. The availability of data has skyrocketed, and insurers have made progress in advanced analytics and artificial intelligence. Digital and mobile advances have raised the bar on transparency and service quality: customers can now file claims and access agents, insurance quotes, and policy information with a few taps on a screen.

The past decade has also introduced new challenges. Life insurers have not benefitted from the bull market. Global penetration fell to 3 percent, and premium growth within most developed markets, hovering just below 2 percent per year, struggled to match GDP. Globally depressed interest rates curtailed investment portfolio returns. More recently, the COVID-19 pandemic has depressed global interest rates even lower than those seen in the 2007–08 global financial crisis, leading to disproportional impact on life insurance stock relative to the rest of the market.

Meeting The Moment Across Three Key Areas

Several trends show promise for the life insurance industry in the next decade. 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. By 2030, all baby boomers will be age 65 or older, and many are expected to outlive their retirement savings.

We believe the life insurance industry faces a pivotal, dual opportunity: the chance to fulfill growing customer needs while returning to profitability and growth. To achieve these goals, we expect winning life insurance companies to outperform in three areas in the decade ahead:

  • Personalize every aspect of the customer experience
  • Develop flexible product solutions suitable for a challenging regulatory and interest-rate environment
  • Reinvent skills and capabilities

 

Personalize Every Aspect Of The Customer Experience

The influence of digital leaders in other industries has raised the bar in insurance as well. Several areas offer opportunities for personalization that can strengthen customer relationships.

A shift to targeted health management. Life insurers have long maintained a focus on mortality protection, but concern over mortality risk has diminished in many markets, which has reduced demand for core products. Despite recent increases in online research for life insurance, spurred by COVID-19, the long-term decline of mortality risk is likely to continue. In the coming decade, insurers will play an increasingly prominent role in the health of their customers as life expectancy increases and health trends change.

By 2030, the number of people aged 60 and older will grow by more than 50 percent, from 900 million in 2015 to 1.4 billion. Further, noncommunicable diseases—those more closely linked to lifestyle and behavior, such as diabetes, heart disease, and lung cancer—will account for 71 percent of all annual deaths globally and represent an increasing proportion of mortality risk.4 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.

Read the full report here.