I value every chance I have to listen to and interact with our clients. Whether during office visits, conference calls, industry meetings or other events, these opportunities always give me new insight into the things that really matter to our industry.
One of the themes my colleagues and I heard many times this past year is the importance of customer focus. This theme resonates with us at SCOR because we too believe understanding customer’s needs is the competitive differentiator.
Understanding what you, our clients, need and aligning our business operations to deliver the solutions which bring value to your customers is what keeps us relevant. Several other themes surfaced in 2017 and, to a large extent, they reflect what we are focusing on at SCOR.
In life insurance, this means giving customers a positive experience during and after the application and issue process. Companies are simplifying and accelerating the underwriting process and finding ways to expand and sustain customer engagement. For example, to connect – and stay connected – some insurers are beginning to promote and reward healthy choices. It’s a win-win: Policyholders get healthier and life insurers get a better performing in-force population.
Insurers are staffing up innovation departments with a focus on predictive and “test and learn” analytics. Advances in computer technology and the proliferation of third party data sources are driving this movement, which is reinventing the way actuaries assess mortality risk. Companies are looking beyond mortality experience data to non-traditional, real-time data from a variety of third party sources to analyze and predict mortality risk.
Accelerated / Automated Underwriting
Even companies with highly successful traditional lines of business expect to increase revenue through accelerated underwriting (AUW) programs. Several large carriers say that around 30% of new growth may come from this business. AUW programs take many forms: some companies are integrating electronic data (e.g., risk scores) into existing processes to support non-fluid underwriting at higher age/amount limits – up to $1 million; others are investing in or expanding sophisticated underwriting algorithms for front-end triaging and point of sale decisions.
Innovation and simplification best describe the trends in life insurance product development. Products that reward policyholders for healthy choices (captured on cell phones and wearable devices) offer a value proposition with an emphasis on the benefits of living healthy. So called “combination products” continue to proliferate, addressing the health and income needs of seniors. Also, a number of carriers are reexamining the pros and cons of multiple underwriting classes and looking to simplify product designs and remove risk class labels that imply someone may not be “preferred”.
Technology and consumer preference continue to fuel changes in the way companies market and distribute life insurance. While producer distribution models are effective in higher wealth segments, companies increasingly see “direct to consumer” models as the path for growth in new markets (i.e., Millennials) and underserved segments of the market. They are investing in distribution channels that connect with consumers via multi-line channels, online stores and digital and social media such as Facebook, LinkedIn and other platforms.
Tech companies from outside the industry are moving into the insurance space. Life insurers are partnering with these start-ups for support in executing innovation strategies. For example, in 2017 companies – including SCOR – invested in blockchain technology (B3i) and technology accelerators (Plug and Play) to have more influence in the shape of things to come. Much of this R&D investment is directed at consumer engagement and internal process improvements.
The use of customized financial solutions continues as insurers partner with reinsurers to structure efficient ways to address multiple needs including risk protection, capital management issues and support for sales growth.
Building New Skills and Expertise
Life insurers are acquiring new skills and expertise to leverage the technology that is needed to build the ideal customer experience, break into new markets and create new products. In addition to traditional insurance technicians – actuaries, underwriters and medical directors – life insurers need data scientists, technology specialists and behavior experts. Recruitment of these experts is underway but getting the right mix is one of the biggest challenges facing the industry today.
With change in motion across multiple regimes and jurisdictions, it’s hard to say which regulatory issue poses the greatest challenge for life insurers. PBR remains a top contender. With its significant impact on product mix and pricing strategies, PBR is an extremely important regulatory change for the US life insurance industry. And adjusting to the new regimen is increasingly urgent as we enter year two of a three-year phase-in period. Other key regulatory concerns include tax changes, closer scrutiny over use of captives, cyber liability and the Department of Labor’s new fiduciary standards.
Strategic Adjustment to Low Interest Rates
Low interest rates have persisted longer than anyone expected. On a positive note, this environment has created incentives to make bold strategic bets about where to look for growth and earnings. As a result, we’ve seen innovations in product development, underwriting, distribution and risk and capital management. We’ve also seen investments in technology to drive cost efficiencies across functional areas. While the industry awaits more favorable interest rates, we can take pride in advances made in spite of these conditions.
While the themes listed here are in no particular order, each one is driving insurers to pick up the pace of change and invest in innovation. Our goal is to be your trusted reinsurance partner in these endeavors. We look forward to working with you in 2018, helping you achieve your growth and profitability objectives.