'Social' Sciences

How Financial Services Is Wiring Up

Harnessing the technological winds of change in life and health insurance

by John Mullen

Mr. Mullen is a Corporate VP within Capgemini Financial Services Global Practice and the firm’s Global Insurance Business Unit Leader. He is responsible for driving Capgemini’s strategy to the evolving needs of life and health insurance sectors. Visit capgemini.com

Life and health sectors are slower to adopt technology compared to other insurance sectors, and due to the nature of the industry it has been acceptable to operate without much technological influence.

However, as more Gen Y consumers enter the marketplace, the choice to adopt technology may no longer rest with the insurer as it becomes an imperative dictated by customer preferences.

According to various data points, life insurance is lagging behind non-life insurance in terms of Customer Experience Index (CEI) scores and positive experience levels. In 2016, the overall CEI for life insurance was 72.8 compared to 75.4 for non-life insurance. The difference was more pronounced when it came to positive experience levels, with only 45.2 percent of customers reporting positive experience in life insurance compared to 51.8 percent of customers in non-life insurance.


This trend is also reflected in the experience levels of Gen Y which, as the World Insurance Report (WIR) 2016 customer survey found, like using technology and will continue using it for their insurance needs. For example, Gen Y uses social media for their insurance needs 2.5 times more than older customers and use mobile channels twice as much as previous generations.

Gen Y’s use of digital channels, including desktop, mobile and social media, for life insurance purchases or renewal is expected to increase by 6.3 percentage points in the year ahead. Though less than Gen Y, older customers are also indicating greater interest in using digital channels for life insurance purchases as desktop use is expected to increase by 9.6 percentage points among these customers. Thus, it is critical for life insurers to tap into the latest technologies and redesign their customer experience so that customers get what they expect and it matches the experience levels they are accustomed to in other sectors.

The Internet of Things

With the rise of connected technologies and the Internet of Things (IoT), innovation may no longer be a challenge for life and health insurers. Devices such as wearables are finding numerous applications in health insurance in the areas of customer health management and risk mitigation. These devices help insurers monitor their customer’s health and habits and thereby incentivize customers to maintain healthy habits. Mobile apps can also be leveraged to ensure patients are adhering to their medication and treatments for chronic illnesses such as diabetes.

For example, South African insurer Discovery collaborates with multiple fitness devices such as Fitbit, Jawbone, and Garmin for its Vitality program. These devices help users track data such as calories burned, activity level, distance traveled, sleep quality, heart rate, etc. to develop customized health goals and plans. Customers can then earn Vitality points for achieving specific goals.

Programs like these not only help insurers achieve a deeper engagement with customers on a more regular basis but also lead to reduced claims costs in the long run and thus, improve insurers’ profitability. In the claims area, insurers can use real-time information from wearables to react to claims incidents faster and minimize the injury caused to the customer.

While the usefulness of wearables is more apparent, other connected technologies such as smart homes and driverless cars also contribute significantly to life and health insurance as they become integral to consumers. Similar to wearables, smart homes can be used by life and health insurers in proactive risk mitigation by encouraging customers to enhance their regular safety measures. Driverless cars, on the other hand, are expected to create a safer environment which reduces the number of accidents and the number of claims filed. These technologies create a win-win situation for both insurers and their customers, making them very attractive for insurers to explore further.

Embracing new trends

as more Gen Y consumers enter the marketplace, the choice to adopt technology may no longer rest with the insurer as it becomes an imperative dictated by customer preferences

Customers are also showing a keen interest in adopting these technologies. Per the World Insurance Report 2016 customer survey, the likelihood for customers to adopt smart ecosystems is 34.2 percent, while 30.1 percent are likely to adopt wearables and 23.1 percent would be open to adopting driverless cars. These numbers are much higher for younger, affluent customers. More than 50 percent of affluent Gen Y customers and more than 45 percent of affluent Gen X customers are likely to adopt smart ecosystems and wearables.

Customers are also willing to share data with insurers through various channels in exchange for useful monetary benefits. Globally, 29 percent of customers are comfortable with sharing data through smart ecosystems, 23.9 percent through wearables and 20.8 percent through driverless cars.

It is important for incumbent life and health insurers to keep pace with these emerging technologies as they transform the industry. The health industry particularly is witnessing the entry of new players that are redefining health insurance models through innovative use of technology.

Oscar is effectively using technology to put customers at the core of their offering by simplifying their purchase process, providing easy access to care and using rewards to spur engagement. Clover is exploring the area of claims analytics to rebuild healthcare for senior citizens and drive more value. The firm uses insights gained from claims analytics to identify high-risk patients and fill any gaps in their care. Customers, who are used to fast and seamless service in other areas of their lives, may easily give preference to such firms replicating that experience in insurance.

The World Insurance Report 2016 customer survey found that 23.4 percent of Gen Y customers are likely to purchase insurance from technology firms if they enter the insurance industry. This proportion increases to 47.1 percent for affluent Gen Y customers. Insurers, thus, risk losing their most attractive customer base if they do not adapt to changing customer preferences and expectations.

Evolution of Underwriting

Another reason life and health insurers should be prepared for connected technologies is that these technologies are also poised to impact the industry at a more fundamental level. Through increased transparency, these technologies may bring about the evolution of underwriting towards more dynamic and near-real time risk modeling and risk pricing. They will enable the shift in insurance operating models towards mass personalization and drive changes in the way insurance coverage is designed to be, more around the customer than by discrete products.

Insurers must start preparing now for these inevitable changes. In the short-term, insurers can strengthen their business by streamlining it, building their data capabilities and monitoring their external environment for potential partnerships. In the medium-term, they must lay their foundation as strong customer brands by providing new and improved value propositions through engagement with strategic partners and by building their strategies on data and insights. These strategies will help ensure that the life and health insurance industries do not fall behind and are equipped to compete in a new landscape with potentially new business models and competitors. ◊