Disruption coming to life insurance post-COVID
The human and economic shock of the COVID-19 pandemic will play out for years. For the life and annuity markets, COVID’s already had a financial impact of greater magnitude than anything seen in previous crises. We are seeing downward pressure on investment returns from continued volatility in the financial markets, and the emerging regulatory environment also creates further pressure. These include the requirement to accommodate mandated grace periods, extended payment terms, guarantees of cover and other measures designed to support people adversely impacted during the pandemic. Claims arising from the pandemic will be also be high - Moody's analysts expect death benefit claims will reach in the region of $160bn in the U.S. alone.
While insurers are busy looking at their business models and balance sheets to bear the brunt of the financial impact of COVID-19, what is less clear cut is how the crisis will permanently change how people manage their health, wellness and finances. In the long term, a realignment of customer behavior will have a profound impact on life insurers.
Changing life expectations
As we look ahead, life insurers must prepare for a very different world. For new business, underwriting, administration and claims processing, they need to ensure that their systems can flexibly adapt and be there for their customers during a difficult time. That includes having the confidence to quickly implement and test all necessary configurations to respond to ever-changing scenarios.
But they must also tap into a new mindset. Customers have been through a health crisis the like of which most will have never experienced. With carriers having to serve customers virtually, it has been the digital experiment many customers weren’t expecting. Accenture’s COVID-19 Consumer Pulse research shows COVID-19 is accelerating digital adoption more broadly, with most consumers planning to stick with the digital habits that they’ve acquired during the pandemic. For instance, one in three consumers will continue using technology to access health care (like telemedicine) and half will continue to invest in their health and mental wellbeing. Delivering on these new expectations requires insurers to meet a wider set of human needs, and they can’t do it on their own. They’ll need to work with other industries and the digital economy in order to stand a chance.
Digital takes centre stage
Insurers that have been behind the pace in terms of digitalization must accelerate their progress. Capabilities such as electronic insurance applications, no-touch underwriting, and self-service portals are no longer aspirational but essential to address customers’ needs. Traditional face-to-face channels may not reopen in the same way. Customers are likely to be based at home far more often than before the pandemic. New ways to engage and support them through their application and administrative processes including, for example, techniques such as video onboarding, are quickly becoming non-negotiable as insurers seek to provide seamless customer experiences at scale.
Disruption in the life insurance and annuities (L&A) space has been a quiet, but burgeoning, movement. Our recent analysis of CB Insights data shows that funding for L&A insurtech ventures reached $136m this year. Despite uncertainty from the crisis, this is a 61% increase from the same point last year. And granted that early 2019 saw weaker investment value, the value of deals in early 2020 increased by 27% compared to the first half of 2018.
Flexing for the future
Life insurers have a clear opening to engage their customers in productive conversations that address the raised levels of health awareness that they now have owing to the pandemic – and building on the trust they have had with customers for years.
Creating the digital tools that can enable customers to take proactive steps to increase their own health and wellbeing will be one opportunity, as will developing more focused and tailored products. But making those offers personalized and relevant will require continued investment in the analytic tools and talent that can support rich and detailed insights.
Customers are expecting more during a difficult time. Existing life insurers can’t wait for a disrupter to step in their place.