The Pulse

What Should Insurers Do Today To Prepare For Tomorrow?

Industry efforts to raise awareness regarding the value of life insurance (especially among millennials) have not effectively countered structural reductions in demand

Excerpts from the EY Americas 2019 Insurance Outlook, coverinig the major trends, disruptions and innovations that are reshaping the global insurance industry. Reprinted with permission. Visit here.

No or slow growth in revenues. Intense profit pressures. Constant flux from technology advancements and rising customer expectations. That’s what insurers have experienced in the recent past. Without bold action now, they risk seeing more of the same in 2019 and beyond. Non-life sectors have grown — albeit at low rates and mainly in health and automotive.

Meanwhile, the life business is shrinking. Industry efforts to raise awareness regarding the value of life insurance (especially among millennials) have not effectively countered structural reductions in demand. Beyond low growth, margins remain suboptimal for both life and non-life.

Macro-effects and growth outlook

In North America, interest rates remained at historic lows before improving in 2018. The combination of these low rates with the longest bull market in history pushed consumers toward equities and mutual funds and away from low-rate guarantees and traditional insurance products. Aging populations have shifted from accumulating wealth to actively decumulating it. In Latin America, weak economic growth — despite favorable demographics — has limited both savings and consumption, hurting both life and non-life businesses. Constant political headwinds have also contributed to economic uncertainty.

But not all the news is bad. Economic growth has rebounded with commodity prices having corrected since the lows of early 2016. Both trends bode well for insurers. Increased interest rates and record high employment favor life insurance sales, while enhanced economic activity drives demand for non-life products.

The easing of regulatory pressures in some key markets is expected to boost growth. Specific concerns that should not be overlooked include:

  • Rising protectionism
  • High crude oil prices
  • Rising inflation on household income
  • Ongoing political uncertainty in some Latin American markets.

Still, North America has outpaced other mature economies, though growth in Central and South America markets generally lags other maturing economies around the world.

Digital change and opportunity

Technology changes both enable and threaten insurers. Greater digitization, along with increased use of big data, IoT, RPA and AI mean better pricing and more effective processes for insurers — particularly in the US and Canada, but also in Brazil and Chile. New players adept in leveraging data and technology also present both risks and opportunities. Will firms like Metromile, Lemonade and other InsurTechs be competitors, collaborators or both?

The Americas life insurance market has remained weak for years, though recent developments look promising. Improved financial markets, an uptick in growth, rising interest rates and aging populations are expected to drive demand for life insurance products. Life insurers should not simply wait for these fundamentals to work in their favor as they have done in the past. To make the most of the growth opportunities, they must actively drive the agenda, develop the long-term resilience and “futurize” the organization.

The focus must be on:

  • Developing comprehensive new value propositions for holistic financial wellness that are aligned to evolving
    customer expectations and the needs of aging populations across the region.
  • Improving distribution through direct channels and empowered agents
  • Collaborating with InsurTechs, new entrants and other incumbents on ecosystems
  • Optimizing value chain “basics” to promote sustainability


To achieve these ambitious goals, successful insurers will need to undertake digital transformation. In these transformation journeys, life insurers should seek to optimize the policyholder life cycle by catering to specific needs for specific types of customers, such as overall wellness for aging populations and rewarding experiences for millennials. By meeting these customers’ needs, insurers will enhance their own bottom lines by reducing costs, improving conversion rates and retaining more customers.

But not all the news is bad. Economic growth has rebounded with commodity prices having corrected since the lows of early 2016. Both trends bode well for insurers. Increased interest rates and record high employment favor life insurance sales...

The conventional wisdom about life insurance being sold, not bought, is facing a paradigm shift. It’s clear now that today’s consumers are buying less life insurance and fewer annuities than in the past. That’s why the core value proposition must be refined to incorporate the holistic idea of financial wellness. Since everyone wants to be financially healthy and secure, products that deliver these attributes require little, if any, selling.

The long-term fall in overall premium points to larger sustainability issue for the sector. Competition from alternative financial products (including workplace products) and the perceived unsuitability of life insurance and annuities continue to
erode share of overall household wallet. Shifting customer preferences are the key determinants of these changes; millennials are less inclined to maximize wealth (through life insurance and annuity products, for example) — even though
many of them are very focused on saving for the future more than Gen X was.  Deeper analysis clarifies the markedly different spending preferences of millennials and baby boomers.

Countering this shift in generational views requires a multi-pronged strategy focused on holistic financial wellness:

  • Product design and development: Products must cater to all aspects of financial wellness including protection, retirement and health, and even provide the means to manage dayto-day finances. They must be both customizable and affordable. For instance, new long-term care and long-term disability products can generate a high level of interest within previously underserved customer segments.
  • Communication and distribution: Effective communication and education are necessary to build traction. Insurers should leverage digital, agents and other distributors to articulate and demonstrate the value proposition to customers. For years, many insurers have focused on high-value customers and wealth transfer strategies (reflecting the multi-decade low in number of policies sold). Now, they must decide if they want to focus on creating profitable propositions that can be effectively scaled to meet the needs of a much larger customer segment. Engaging more customers in conversations about financial wellness requires investment and time, but it will establish stronger relationship with benefits flowing to both customers and life insurers over a much longer term.

Distribution: Think Human AND Digital, Not Human OR Digital

The antiquated customer experience provided by most life insurers is inconvenient at best for customers and painful at worst. Poor service interactions reduce consumer trust. Insurers must digitize and enhance the most critical touchpoints — policy servicing, client onboarding and advice. Specifically, insurers must deliver seamless self-service experiences, which customers now expect, given their interactions with other sectors. Insurers must also embed self-service capabilities for purchasing policies, accessing policy information, management policy administration tasks and performing other transactions.

The returns for customer experience investments will come in the form of increased direct sales and more loyal customers. Research shows more consumers are ready to buy life insurance through online channels, though a much lower percentage actually buy insurance online, especially when compared to buying retail products online. This gap will only close if life insurers can deliver the kinds of seamless self-service options and personalized experiences customers have come to expect from their interactions with digital leaders in other industries.

Expanding digital channels doesn’t mean eliminating human interventions. Ultimately, most customers still value face-to-face interactions, which is hardly surprising given the complexity of the products. A truly differentiated customer experience will feature both strong digital capabilities and human agents who are skilled, empowered and capable of holding substantive conversations around financial wellness. Implementing the “human+ digital” strategy won’t be easy, but it is the key to maximizing the lifetime value of customers.

Despite relatively low levels of investment when compared to overall FinTech investments, innovation in life insurance is accelerating. As a consequence, we believe customer acquisition, process efficiency and distribution will soon be radically redefined. Life insurers can learn from other industries and start integrating InsurTechs in their operating models now while exploring how to create and operate ecosystems to deliver financial wellness solutions.

The advantage of ecosystems will be in their simple, transparent end-to-end experiences that cater to customer needs and help them navigate complex product sets. New market entrants will struggle to do this on their own. If platforms gain traction, it will be more difficult for tech giants  serve as “utilities” providing capital, regulatory knowledge and capabilities within a “white label” construct, while losing customer relationships. While some incumbent insurers might be tempted by these relationships, we believe life insurers that move now to strengthen their capabilities through InsurTech collaborations and by developing ecosystems will be able to expand their base and retain their relevance in the future.

Additionally, beyond embracing changes delivered by InsurTechs, the life sector must look to enhance collaboration within the industry. This will address common but significant problems at an industry level and not just in silos.