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Worldwide, the life insurance landscape is undergoing rapid change in the wake of technological advancements. The impact of digital is transforming what customers expect and creating new opportunities to get closer to the customer. To keep abreast of changing demands and expectations, life insurers will need to rethink the way in which they serve their customers.
These are the highlights contained in a report released by Strategy& today entitled ‘Life insurance in the digital age: The omnichannel revolution’. The report looks at changing expectations of customers in the light of the digital era. To keep abreast of changing demands, life insurers need to rethink the way in which they serve their customers.
Jorge Camarate, Partner Strategy and a financial services partner at PwC, says: “This is particularly important given that during the next decade there will be a radical change in customer mix, with ‘traditional’ customer reducing sharply in favour of ‘digital natives’.”
According to the report, customer expectations are influenced by their experiences outside the insurance industry where content, interactions and features are richer. For instance, customers are turning to social media to seek guidance on products and services, as they are more likely to trust direct feedback there.
In addition, customers are more influenced about product options and prices, which is increasingly influencing their purchasing and channel preferences. A growing share of insurance customers are likely to search for those products online, although the conversion rate is still much lower than for short-term insurance.
The research suggests that in the next decade the percentage of life insurance policies sold online will have more than doubled in some developed economies and increased more than ten-fold in some developing economies. This makes it vital for players in these markets to prepare themselves for a shift in channels.
The research also discloses that customers have developed a propensity to manage their insurer relationship digitally. More than a quarter of customers are willing to transact and manage their needs on a completely digital basis, with little or no personal interaction.
In a market where the depth of customer-centricity is the key differentiator, digital also opens up a variety of ways to engage customers, understand their needs and provide customised solutions.
But the challenges of slow and outdated systems are making it difficult for established life businesses to keep pace with this rapidly evolving marketplace. Often, by the time necessary changes have been made to large and complicated IT infrastructures, the market may have already moved on.
Life insurance businesses need faster and most cost-efficient ways to meet changing market demands and reach out to existing and new customers.
To stay relevant and engage more interactively with consumers in the digital age, insurers need to develop their digital capabilities. The report suggests that this change can take place most efficiently in three waves:
The first wave looks at creating a digital sales channel by building the necessary digital capabilities. The second wave focuses on the digitisation of the end-to-end customer experience. Finally, the third wave sees life insurers exploring opportunities for new revenue streams outside their traditional value chain and improving their core business with new forms of analytics.
Wave one: Digital channel
A number of companies with simplified business models have shown significant revenue growth and cost efficiencies, according to PwC’s Strategy& research. A focused set of easy-to-understand products and choices is easier to communicate to both customers and intermediaries, allowing for a more purposeful, streamlined and efficient advice process.
Out-of-date systems have proven to be the biggest stumbling block to implementing a digital channel. Ideally, an off-the-shelf system can be used for new, simplified products. Such systems have a lower cost per policy and faster times to market to easier product configuration along standardised parameters.
Wave two: Digital experience
Harnessing the data received in wave one transactions provides life insurers with opportunities to improve services levels, client engagement and loyalty. In addition, insurer’s ability to interact directly with clients increases their breadth of distribution opportunities. This is core to wave two, which encompasses the implementation of end-to-end digital processes in which customers are able to engage through and across multiple channels seamlessly,
As in other industries, the rush to keep up with digital trends has led to a number of life insurers adding digital capabilities in piecemeal fashion. These providers end up with a multichannel rather than an omnichannel approach, often to the detriment of efficiency and customer experience.
Digital customer centricity requires an integrated approach that means addressing all customer touchpoints. A digital omnichannel approach can result in significant benefits for insurers. Our experience suggests that an effective omnichannel strategy is enabled by the digitisation of the end-to-end advice process, resulting in up to 30% improvement in advisor productivity.
Wave three: New and evolving business models
As wave three rolls out across other industries, companies are starting to leverage customer data to expand their product offerings, both up the value chain and into new verticals.
Technology companies have not only started selling insurance, but are also finding new ways to price risk, based on customer data. Similarly, insurers can make use of client data to expand their offering to related services and to improve their risk pricing and product design.
Artificial intelligence (AI) technologies are already making their way into the long-term insurance industry as more data accumulates, with wearable devices enabling improved underwriting.
Identifying client needs as they arise in response to important life events can also unlock cross-selling opportunities.
In addition to enhancements and add-ons to the current insurance business model, insurers should monitor new business models that are emerging around the insurance value-chain.
Life insurers need to evaluate where they are on the digital journey
The rapid changes taking place across the insurance industry present exciting opportunities to life insurers. Camarate says: “We believe that the life insurers that are most likely to succeed are those that develop and deliver new capabilities rapidly by adopting an agile approach, and focus on a minimum number of viable products.”
The three-wave approach enables this by creating the digital channel, integrating the end-to-end digital process, and ultimately establishing the necessary analytics capabilities.
"Life insurers need to evaluate where they are on this digital transformation journey and map out their route toward the third wave of digitisation. This will not be easy for many incumbent players, but they need to respond or risk being overtaken or disrupted by digital competitors."