Why Hannover Re advises life carriers to go all-in on real-time

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Hannover Life Reassurance Company of America suggests life carriers need to go beyond “modernizing” to become driven by “reciprocal intelligence.” Partnership solutions VP Tony Laudato discusses what this means and why it’s critical to growing the industry’s market share.

Although there’s been a great deal of emphasis on modernizing legacy systems to stay competitive, Hannover Re believes it’s not enough. Can you explain why?

Over the past 100 years, life insurers have relied on selling large, comprehensive policies to relatively few individuals with higher net worth, using an agent-based distribution system. While there will always be a place for this approach, continuing to pursue it exclusively puts insurers in an unsustainable competition for increasingly smaller slices of a shrinking pie.

Instead, life insurers need to grow the overall market by designing smaller, simpler, targeted policies to extract value from the vastly larger pool of middle and lower income individuals. This is possible due to an array of technologies, such as web services, microservices and APIs, that are dramatically lowering the cost of acquisition and retention.

Can you give a concrete example of how it could work?

Just one example is a start-up partner of ours called Life by Spot. It offers event-based life policies that are underwritten by Fidelity Life Association. For instance, let’s say that you’re a snow boarder or fat-tire bicyclist. The only time that you perceive that you engage in risky behavior is when you’re pursuing these activities on the weekends. Life by Spot offers various levels of life coverage for your defined activity on specific dates. In this model, the carrier doesn’t need to calculate risk over 20 years and conduct extensive underwriting processes. Rather, it only needs to assess the risk of a specific activity over a specific date range and then apply a defined set of underwriting rules.

Web-based technologies on the front end engage customers and prospects while streamlining their user experiences. On the back end, various automation options reduce the quote-bind-issuance process to a matter of seconds.

Where do emerging technologies, like apps and sensors, combined with capabilities for policyholders to control their own health data, such as Apple’s HealthKit, fit in?

Apps, sensors and individual ownership of electronic health records are all are poised to completely transform the life insurance industry.

We already know the longevity benefits of simple activities, like the number of steps people take in a day. More sophisticated metrics can be drawn by continuously monitoring other systems. For instance, tracking heart rates offers the ability to detect undesirable activities such as smoking, which causes heart rate spikes.

On the flip side, tracking heart rates enables insurers to support and reinforce the positive efforts of former smokers. Beyond smokers, insurers can applaud policyholders for pursuing lifestyles that keep heart rates within certain thresholds. Monitoring heart rates could also alert insurers to a possible problem that is going undetected by the insured. All of these enable insurers to market themselves as a source for helping individuals reduce their mortality and protect their families.

This approach can even be extended to policies like Life by Spot, where heart rate data collected during an individual’s policy period could help with refining risk assessments and result in adjusting rates or upselling preferred customers to other products.

Apart from premium incentives, how will insurers convince policyholders to supply this type of detailed personal information? Is this where reciprocal intelligence comes into play?

Data that life insurers could collect, as well as what’s already housed in legacy systems, has value to the customer. The trick is extracting and marketing insights to create a continuous engagement process.

For example, a series of events could trigger a policyholder outreach that says: ‘We see you’ve reduced your resting hear rate by one beat over the past four months and five beats over the past year. Great job! By comparing your accomplishment to data we’ve gathered over 100 years of protecting the assets of customers like you, your efforts could increase your life span by X years. Congratulations!’

As this is a drastic change from the current practice of generating a fairly generic form letter, along with a bill, once annually, it’s going to require talents, skill sets and a job function that no life insurer has today.

We call the new job function reciprocal intelligence. We believe innovative insurers will soon begin creating Chief Reciprocal Intelligence Officers (CRIOs) to lead teams that combine data science, research and marketing expertise. These teams will determine what data is needed; how to gather, store and analyze it; and the ways it can be marketed back to policyholders to reduce risk and mortality rates.

To help insurers prepare for the coming of reciprocal intelligence, we’re encouraging them to think beyond “becoming digital” by tackling the more sophisticated question “what’s my data strategy and how do I execute it.”

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