As the life and pensions sector faces major social, technological, environmental, economic and political factors, it must take advantage of emerging opportunities, according to a new report from PwC US.
In the “Life Insurance 2020: Competing for a Future” report, PwC contends that over the next 10 years life and pension insurers must identify and adjust to a number of market trends, including an aging population, advances in big data and analytics, continued risk of government welfare cutbacks, shifting economies across the globe in developed and emerging countries, and increasing medical advances (e.g., wearable health monitoring devices, personal genomics) coupled with rising medical costs.
“Insurers will need to focus on simplifying the presentation of products and features to customers and advisors, while overcoming a complex set of processes at the back end," said Jamie Yoder, PwC’s US insurance advisory practice co-leader.”
In order to adjust to these trends while growing the business, the report states that insurers need to address the following four key themes and related risks:
1. Two-speed global growth. The overall market for life insurance is increasing in emerging markets and decreasing in the developed world, particularly in the United States and Europe. “Growth for insurers in the life and retirement market will come from expanding into new customer segments, such as middle markets, and alternative distribution channels, such as worksite and direct, by offering more comprehensive advice and developing innovative solutions. However, insurers have to compete with other financial service providers to capture this market and therefore must create capabilities to reach a broader part of the market,” added Yoder. “With these new markets, insurers will need to spend more time educating consumers on the value of life insurance and pensions.”
2. Distribution disruption and the customer revolution. Responsibility for retirement planning and ancillary benefits has the risk of being pushed from governments and employers to individual consumers. Since customers have become accustomed to the convenience of digital education, research and transactions when they want, where they want and through any channel they want, distribution of products is changing rapidly. “The role of advisors is evolving because their advice is only one source that customers use for planning,” said Yoder. “Since customers now have control, they demand more information and convenience from many channels when choosing life and pension products. In addition, customers are demanding advice about a range of financial products, as opposed to a narrow set of insurance products.”
3. Information advantage through big data. Leading insurers are turning to advanced analytics and external sources of data from purchases, social media and other digital means to understand customers better. The challenge for insurers is using that data when developing new ways for tailoring products for customers. “We will see financial service providers use big data analytics to design products that adapt to the changing needs of the household as they move through different life stages," said Anand Rao, principal overseeing innovation in analytics within PwC's US insurance advisory practice. "Advice will be tailored based on age, making it simpler for consumers and advisors, while automation and analytics hide the complexity of insurance products."
4. Big and fast—evolving business models. Advancements in technology are allowing new players to enter the market with new business models that have a lower cost structure. “To compete against these companies, traditional insurers need to reinvent their operating models to reduce cost structure, simplify their offerings and organize around customer interactions,” said Yoder. “Companies will also need to streamline their procedures and reorganize their talent to focus on high-growth markets and customized solutions.”
With technology set to have such a major impact on what customers expect and how products are underwritten and marketed, the unwieldy legacy systems employed by many life companies may put them at a competitive disadvantage, according to the report. The life and pension market has considerable growth potential. The big questions are: Who is best placed to take advantage of these changes and how?
