Slow growth in the U.S. Life Insurance industry is not a new problem, but it is a problem that now has a new solution. Except for the COVID-related boost in 2020-21, the industry growth remained anemic over the past decade to a large extent due to the customer experiences that lag behind other financial products.
Insurtech companies are starting to address the need for new-era life insurance experiences and capitalize on growth opportunities among new customers. However, true industry transformation — and reversing decades-long declining sales — I believe will require carriers to embrace new business methods.
Carriers want to grow by modernizing their products and offering streamlined customer experiences to serve the next generation of life insurance buyers. They also have the capital to fund innovation. A key challenge is that life insurers’ technology stack is limiting growth. Legacy systems can prevent carriers from digitizing, which in turn prevents insurers from resonating with a new generation of customers. Additionally, outdated technology and labor-intensive processes substantially drag carriers’ profitability.
A recent McKinsey report states, “Life insurance is one of the very few industries—within and outside financial services—that have seen cost ratios increase over the past 20 years.”
Since I have been in conversations with several leading carriers looking for tech solutions, I hear that industry leaders know it’s time to innovate, rapidly. Here’s how life insurers can make the shift.
Catering to Customer Expectations
So what are the experiences that a modern-day consumer expects from a financial product? From my conversations, I’ve seen two categories of customer expectations becoming increasingly prominent.
Freedom to Buy Through the Channel the Consumer Prefers
While many customers will continue to need an experienced professional to guide them through the life insurance purchasing process, the segment of self-guided customers is growing. These customers bank through mobile apps, get their loans and credit cards online, invest digitally, and generally are very comfortable completing financial transactions online. A way to cater to these two very different customer personas is to offer both agent-led and digital enrollment - preferably, connected through an omnichannel experience.
Ease of Purchase
The proliferation of fintech and efficiency-oriented sales models reset the bar on what a delightful purchase experience looks like in financial services. Irrespective of a sales channel, customers now expect that getting a financial product should take minutes, not weeks. If one can buy a car or refinance a large loan in 10-15 minutes, why should the purchase experience be different for insurance products? If the experience isn’t fast and easy, the customer is more likely to procrastinate and not purchase the protection they need.
The barriers to redefining customer experience that we see across channels are lengthy application forms, medical exams and multi-week wait times for UW decisions. These barriers not only discourage consumers — they can make agents not want to sell life insurance and focus on retirement or investment products instead, reduce the digital funnel conversion rates and create an inflated cost load for carriers.
Getting Life Insurance in Minutes, Not Weeks
Providing life insurance in minutes requires a net-new life insurance product, streamlined enrollment and primarily fluidless underwriting. Every aspect of the end-to-end experience must be designed to speak to each other and yield the desired risk, pricing and bind rates your business wants.
Design Transactional Products
If you want to offer a product that customers can buy self-directed online or through an agent-assisted sale in 10 minutes, it helps to remove non-essential choices. Transactional products generally have a simpler design, with fewer riders and complex features and shorter application forms. Most importantly, it requires stepping away from the required medical exam for every customer. With a streamlined enrollment experience, consumers are only asked essential application questions, while the majority of the information required for underwriting is coming from data sources. This helps reduce burdening the customer and the agent with endless questions.
Most importantly, the ability to collect the necessary health information without requiring a medical exam for the majority of customers (70%+) removes the biggest friction point in the life insurance sales funnel, boosting growth and reducing UW and case management costs.
Fluidless underwriting for the majority of customers doesn’t mean a transition to simplified underwriting. Carriers need to support multiple UW methods, balancing eligibility, mortality, customer experience and carrier’s operational costs. Instant (automated) underwriting is the gold standard for its convenience and efficiency for all parties - powered by the use of industry-leading data sources and algorithmic decision-making, it results in strong mortality results for the majority of customers. For the remaining customers, ability to support refer-to-underwriter allows to balance mortality and eligibility outcomes.
Embrace a Platform Mindset
Typically, carriers are working with dozens of vendors to bring their products to market.This leads to a patchwork of integrations that have to be executed by the carrier. These integrations are costly and take a long time to implement, which delays technology transformation and results in millions of dollars in expenses and often dismal results. Duct-taping systems from multiple vendors together also limits the ability to implement future product or distribution innovations.
To successfully implement new systems or data sets, carrier technology must have a platform that supports real-time, event-driven APIs. Due to historical systems and mainframe technology, many insurers are unable to do this successfully. This approach can make it difficult to build a seamless customer experience since each vendor will have their own unique experience. And this is new territory for insurers, who haven’t traditionally had to invest in user experience design.
With a platform mindset, however, businesses build technology solutions that support end-to-end data exchanges where you can add, turn on, or turn off systems seamlessly. A platform is not siloed and enables constant testing and iteration. It is also extendable and scalable so it can service various areas of a carrier’s business — leveraging whichever platform features or data vendors are needed for success.
While a platform mindset is newer to life insurance, this is a trend across most tech-forward industries. Platform approaches win as companies look to consolidate vendors and strive to minimize the number of integrations and disjointed experiences.
Engage the Right Partners
While embracing a platform mindset is key to digital transformation, there is an inherent challenge for life carriers: it’s incredibly difficult to execute successfully. Countless carriers we have spoken with have spent years and millions of dollars investing in efforts that haven’t achieved the desired business objectives.
And they’re not alone. Boston Consulting Group research found that 70% of internal digital transformation efforts fail or fall short of expectations. And according to McKinsey, “For most insurers, building these capabilities on their own will be difficult and require significant bandwidth—taking focus away from their core business. This will create an impetus for the next generation of technology service providers to offer a more modern, customer-centric, integrated, end-to-end solution to serve both open and closed blocks.”
Leaning on existing market-tested, end-to-end tech solutions can dramatically reduce the risks that come with internal efforts to build from the ground up. With the right digital partner, life insurers can double down on their strengths, which are product innovation, distribution engagement, and balance sheet optimization.
+++Lena Chukhno is Bestow’s Chief Revenue Officer, overseeing the growth of the company’s Enterprise SaaS and Advisor businesses.