Industry Insights

How digitalization of life insurance will transform a static industry

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Life insurers have a big problem: Younger adults are not buying life insurance.

Despite year-over-year population and GDP growth, the number of U.S. residents under 45 who applied for life insurance in 2018 fell 2.7 percent from the previous year, according to the nonprofit group MIB. Insurers have turned to emerging markets such as India and China to bring in revenue and drive global growth, but without a drastic change in strategy, the mature markets will continue to erode.

Cultural and economic shifts drive the demand for digital transformation

Life insurance products have not changed much since the 1960s. The world around them has—particularly so in the past decade.

In 1960, 70 percent of married households with children under 18 relied on the father as the sole earner, according to the Pew Research Center, and only 25 percent of households were dual-income. By 2012, 60 percent of households had two sources of income, and the father was the sole breadwinner in only 31 percent of households. These changes have rippled through the market, upending traditional sole earner income policies.

Consumers also have to contend with increased financial uncertainty. One IBM research group found that job security was the top fiscal concern among 18-to-35-year-olds, more than supporting a family or paying for a house. That is hardly surprising when more than 10 million freelance workers are navigating the uncertainties of the gig economy.

Student and consumer debt also drive economic anxiety. Faced with credit card bills and college loans that seemingly will never be paid down, consumers see little gain in spending even more money on insuring against possible risk. As a focus group member told an IBM researcher, “I’m not afraid of dying and leaving my family destitute. I’m more afraid of not being able to reach my (economic) potential.”

Turning old models upside down

Companies that were “born digital” have completely upended consumer expectations. Consumers can purchase almost anything online and have it delivered in two days or less, but life insurance is still sold almost exclusively through traditional agent-sales models, where layers of friction stand between customers and the product. Yearly open enrollment is closest to a digital experience, but an intricate web of third-party administrators, brokers and insurers makes enrollment a frustrating and disjointed journey.

IBM conducted research to uncover why customers do not purchase life insurance: 40 percent of the respondents said they would be more likely to buy a policy if they knew more about the product and if the process were faster and easier.1

The digital age has created data ecosystems that have the capability to completely supplant traditional life insurance underwriting models. In the past, the only way to underwrite an individual was to subject them to a tedious array of paperwork and health exams. By coupling electronic health records with social and public third-party data, insurers can provide real-time pricing based on even more accurate risk ratings.

“Born digital” companies share one thing: customers never have to talk to anyone to make a purchase, and they can do it from wherever they are, at any time of day or night. IBM’s focus group research uncovered that many younger customers do not understand life insurance and do not trust traditional advisors who have a financial stake in selling them a policy.

The agent model used to service these needs, but today’s conversational artificial-intelligence capabilities can easily support complicated self-service transactions where customers need to ask questions rather than solely pick from standard choices. Life insurance sales are a perfect use case for leveraging these capabilities and can provide the neutral advice customers prefer.

Lastly, digital consumers are not satisfied with reactionary customer service—they have been accustomed to businesses who know and predict their wants and needs. Similarly, they’re not satisfied with pure risk coverage; they also want risk prevention services. For example, insuring against the financial risk of identity theft is not compelling, but a product that can monitor the web for identity information, send alerts when this data may have been compromised and suggest proactive steps to mitigate the risk can make an insurer a trusted advisor.

Who will capture the market?

There are new entrants in the market that are leveraging some of these capabilities—but they do not have access to the same distribution network as incumbents. One of the biggest challenges in digital self-service conversion is finding the moment of decision: When do customers actually make the move from thinking about financial risks to purchasing a policy? Incumbents that can leverage their distribution power and act with agility to reinvent products and the customer journey have the power to capture the life market.

The digitalization of life insurance will enable insurers to shift their static processes to dynamic, real-time services that meet consumer expectations.

–>Learn more about IBM Digital Strategy and Transformation Consulting

–>Learn more about IBM Insurance Solutions

 

1 Research based upon surveys and focus groups held in 2018 with 130 consumers in the United States. For more information, contact Natalie Spano at nspano@us.ibm.com.

Associate Partner, Insurance, Digital Strategy, Analytics & AI, GBS North America

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